Author Topic: The lifetime allowance - an unexpected mustachian people problem?  (Read 3563 times)

AnswerIs42

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I've never really worried about the pensions lifetime allowance until now. £1M in pensions? Haha, that would be a nice problem to have, right?

But - when I did my net worth spreadsheet update the other day, I did a calculation based on my current pension value. If the stock market continues to return 7% above inflation (like it historically has), and the lifetime allowance goes up with inflation, then I'll already be at 93% or so of the LTA by the time I'm able to start drawing it down - and that's without making any more contributions!

It's pretty mind-blowing what compounding can do.

So, I'm thinking that perhaps I don't want to be quite so aggressive with my pension contributions as I have been up to now, and divert a bit more money to ISAs instead. This also helps with making money available for the period between FIRE and pension accessibility (this being too low is the only reason I don't consider myself properly FI yet). I hate to miss out on that sweet 40% tax relief, though :(

Of course, a lot can change in 20 years or so. Some people think the lifetime allowance will be scrapped eventually. We might not get 7% returns in the future, especially as the market is quite expensive now. And if I end up breaching the limit, I can always de-risk a bit by putting some pension money into bonds. But I still think this is a calculation that is worth running...

dreams_and_discoveries

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #1 on: January 11, 2018, 11:59:43 AM »
I think this is one of the things that caused me to really think how much money I need to live on, as if I kept working and contribution it wouldn't be too hard to hit the reduced £1m limit. I can see lots of middle class earners hitting it, especially those who work to state retirement age and contribute well to their pensions. And I wonder how the government will cope, there's probably a lot of middle-high ranking civil servants whose DB pensions will edge over the allowance. 

Now with my plans I'll stop filling my pension in a year or so, and to manage the gap before I can access my pension....as it would really suck to run out of money at 56...so that's the plan at the moment. If I keep working again I may sock more cash in them, especially as I come up to pension access age.

The last few years have shown I've got no way of predicting what'll happen politically - although none of the parties seem particularly into expanding pension limits so I'm not holding out much hope of this going away.

It's strange. As a child I thought £1,000,000 was a vast amount of money. As I've got older it seems less and less.  Perspective, increasing affluence or inflation?

londonstache

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #2 on: January 12, 2018, 03:52:30 AM »
The Lifetime Allowance is probably the single biggest thing that incenses me at the moment.

£1M at a 4% SWR is £40,000 per year. The government is selling the story that this makes people fabulously wealthy, which is why we need the Lifetime Allowance, but this doesn't seem like an overly generous amount to me. I'm not sure I could see it being scrapped in the future, if only because the narrative of "tax cuts for wealthy people" is never a good headline, particularly in the UK. The only silver lining is that it's a personal allowance and if we can both hit cap then that's a massive tax-free stream, but I always like to err on the side of caution when predicting the long-term future.

I'm keeping an eye on it with a similar view to you - if and when I start to run close to it I'll pull back my pension investments and start to push into other sources. Given we currently max ISAs this would probably end up being taxable investment accounts.

PhilB

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #3 on: January 12, 2018, 03:46:20 PM »
I've reached the LTA in the last couple of weeks, so seeing as I have over 3 years before I hit 55 I'm expecting to be well over even if I pulled the plug now.  I agree about it being a crazy way to manage how much tax relief people get, and sadly I also agree about the low likelihood of it being scrapped.
The bit that I find really nasty is the assessment of drawdown funds at age 75 against the nominal value of how much you put into drawdown originally - if you are over LTA you have to withdraw ALL your investment gains, not just those above inflation, to avoid getting hit with an LTA charge twice.

frugledoc

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #4 on: January 12, 2018, 04:07:27 PM »
I think they might have to scrap it.

One example of an unintended consequence is senior doctors retiring earlier than planned because of it.

I believe they have already backtracked for judges.


RetirementInvestingToday

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #5 on: January 13, 2018, 06:59:55 AM »
Don't forget that from here on it starts to get uprated with inflation.  For the 2018/19 year it will become £1,030,000.  Helps a small amount.

Forward testing my long term historic investment return, including uprating the LTA with long term inflation, and I'm right on it assuming I can get at my private pension at age 55.  Given the hand government has shown (State Pension Age - 10 years) I'm actually planning on private pension age being 60 and if that comes to fruition I'm well over.
45 years of age, UK based (for now) and FI.  Will FIRE in mid-2018.  A lot more detail on my blog http://www.retirementinvestingtoday.com/

UKMustache

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #6 on: January 13, 2018, 07:06:45 AM »
If you are danger of hitting the limit based on projections and are still relatively young, it might be worth investigating the lifetime ISA too.

I believe you can use that £4k each year (getting 25% tax relief from the gov) and then still use the remainder of your ISA allowance in a normal S&S ISA.

cerat0n1a

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #7 on: January 13, 2018, 07:28:32 AM »
there's probably a lot of middle-high ranking civil servants whose DB pensions will edge over the allowance. 

Well, they do load things in favour of them somewhat by counting the DB at 20x the annual amount (effectively a 5% WR) So MPs and civil servants can have a pension of  up to £50k per year without hitting the lifetime allowance.

As frugledoc says, one of the unintended side effects of the lifetime allowance has been providing a strong financial incentive for GPs to take early retirement or go part-time. I know several GPs who have done the sums and gone early as a result.

AnswerIs42

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #8 on: January 14, 2018, 06:36:02 PM »
If you are danger of hitting the limit based on projections and are still relatively young, it might be worth investigating the lifetime ISA too.
Yeah, I'm seriously considering that, I'm still young enough to start one. Maybe I'll do LISA first, ISA next, and pension with any remaining money. And add a LTA projection to my spreadsheet going forward, so I know where I am with that.

elementz_m

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #9 on: January 15, 2018, 06:17:32 AM »
If you are danger of hitting the limit based on projections and are still relatively young, it might be worth investigating the lifetime ISA too.
Yeah, I'm seriously considering that, I'm still young enough to start one. Maybe I'll do LISA first, ISA next, and pension with any remaining money. And add a LTA projection to my spreadsheet going forward, so I know where I am with that.

Don't ignore the tax relief on pensions. With an ISA, only the interest is untaxed - you have paid tax on money you put in. So £1000 in an ISA would be £1,250 in your pension, if you're a basic rate taxpayer (more if you pay higher rate tax).

If you're a basic rate taxpayer, the government bonus on LISA  deposits comes out as equal to the pension tax relief.

Linda_Norway

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #10 on: January 15, 2018, 06:45:08 AM »
I am not an american and don't have access to very good personal pension funds (no employer matching, strict rules for paying out, etc).

We save all our money that is not in the house into index fonds. We have the standard pension that we built up by working, but we are not adding another private sum to it. The Norwegian rules are just not very beneficial for this. Our first priority is to finance the years before we start receiving our standard pension. We also expect to receive a windfall from both our parents by the time we retire of old age. So I think we will make it from there anyway, as we should also have money left at the end of early FIRE to still live in a house without a mortgage.

From what I have understood from some of the retirees at this site, is that many people spend less than their original FIRE budget and earn more during FIRE than expected. So their FIRE money lasts longer.

SwordGuy

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #11 on: January 15, 2018, 07:52:55 AM »
It's strange. As a child I thought £1,000,000 was a vast amount of money. As I've got older it seems less and less.  Perspective, increasing affluence or inflation?

Perspective and inflation.   As a child you didn't have to pay bills. :)

londonstache

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #12 on: January 15, 2018, 09:01:08 AM »
Don't forget that from here on it starts to get uprated with inflation.  For the 2018/19 year it will become £1,030,000.  Helps a small amount.

Forward testing my long term historic investment return, including uprating the LTA with long term inflation, and I'm right on it assuming I can get at my private pension at age 55.  Given the hand government has shown (State Pension Age - 10 years) I'm actually planning on private pension age being 60 and if that comes to fruition I'm well over.

I'd agree on the private pension age, RIT. I can't see it remaining at 55 - perhaps may be as high as 62 when I eventually reach retirement age (as opposed to FIRE age). Just complicates the picture as I'll probably need to bridge the gap with ISAs.

londonstache

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #13 on: January 15, 2018, 09:03:38 AM »
If you are danger of hitting the limit based on projections and are still relatively young, it might be worth investigating the lifetime ISA too.
Yeah, I'm seriously considering that, I'm still young enough to start one. Maybe I'll do LISA first, ISA next, and pension with any remaining money. And add a LTA projection to my spreadsheet going forward, so I know where I am with that.

This is fairly close to my strategy. At the moment I'm contributing a good slug to normal pension, with LISA ahead of ISA. I'm watching the LTA and if I start to come up close (within £250k or so) will probably reluctantly ease back on pension contributions.

sea_saw

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #14 on: January 15, 2018, 09:43:15 AM »
Perspective and inflation.   As a child you didn't have to pay bills. :)

Speaking as someone who pays her own bills but has orders of magnitude less than £1million... it still sounds like a ton of money to me! I wonder what % of people ever hit that.

Can someone who's looked into it more successfully than I've managed to explain why it stops being worth contributing to a pension if you're likely to hit the LTA - since it only affects the excess? Does it basically work out the same as having the excess in a taxable account, or is it worse than that? 

cerat0n1a

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #15 on: January 15, 2018, 10:08:38 AM »
Can someone who's looked into it more successfully than I've managed to explain why it stops being worth contributing to a pension if you're likely to hit the LTA - since it only affects the excess? Does it basically work out the same as having the excess in a taxable account, or is it worse than that?

If you take money over the LTA ("the excess") as a lump sum, you pay 55% tax on it. If you take it as income, over a number of years, you pay 25% + your normal rate of income tax. (If you are a 40% tax payer, then paying 40% + then 25% surcharge of what's left equals 55%.)

In some respects, the odd way that the rules are framed favours people who retire early. The lifetime allowance only gets checked at specific points and if you take your pension as soon as you can, you're less likely to breach the allowance - and you're also more likely to avoid reaching age 75 with lots of money still in there.

never give up

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #16 on: January 15, 2018, 10:13:05 AM »
I thought I saw it was a 55% tax rate above the LTA but that may be lump sum withdrawals only I think. I'm not sure of the exact rules here as I'm in no danger of hitting it so have never bothered to read about them!

If I was young (first time I've ever typed that, felt weird!) I would definitely prioritise ISA's and LISA's over the pension. The ability to get to ISA holdings if you need to (house perhaps) and the fact that pensions seem to be subject to so much more tinkering would be the reasons for this.

Currently I'm prioritising the pension over my ISA but from the new tax year I'm looking to contribute the same to each. I'm unlikely to get anywhere near the LTA unless there is a cock up in payroll at my work and I get a significant rise by mistake!

For anyone earning a significant amount (£80k plus), and are maxing the £40k annual pension limit in their 30's or younger, the £1M limit really isn't much at all. Unfortunately I've never had that problem.

cerat0n1a

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #17 on: January 15, 2018, 10:17:11 AM »
I would think that if you're young, it's probably not worth worrying anyway - it's so painfully stupid that it seems unlikely that it will last for several decades. There are much more sensible ways for the government to cap the cost of pension tax relief - a lifetime contribution limit, allowing only basic rate tax to be reclaimed on pension contributions etc etc.

Of course, it may well be that the government actually wanted lots of senior civil servants and NHS staff to retire early and this was a clever nudge, but I doubt it.

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #18 on: January 15, 2018, 10:33:35 AM »
I agree but for the young its being able to access the funds for a very early retirement (younger than 45 or whatever age you deem young) that's the important bit and you can't do that with a pension. That would concern me more than the LTA.

AnswerIs42

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #19 on: January 15, 2018, 01:00:07 PM »
I'm thinking that the LISA can be considered a form of insurance against unexpected events. I'm going to plan on not using the LISA before its maturity, but it'll be nice to have a backstop for emergencies.

Stock market does really well? Using LISA rather than pension has saved you from a nasty LTA penalty.
Stock market does average? At least the LISA has given you more LTA breathing room, which might be useful later.
Stock market does really badly? LISA can be used to stop you running out of money at age 55 or something before pension is available.
Government moves the pension goalposts, yet again? Use the LISA money if need be to cover the gap.

Effectively you're making a bet of 6.25% of the value that you won't need the money before 60, and if you win the bet you get a 25% bonus. Sounds like good odds to me.

I'm convinced, so I've just started a LISA. Just £500 for now, but will max it by the end of the tax year. Will continue to contribute to pensions as well, though.
« Last Edit: January 15, 2018, 01:02:11 PM by AnswerIs42 »

dreams_and_discoveries

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #20 on: January 15, 2018, 02:24:19 PM »
I'm thinking that the LISA can be considered a form of insurance against unexpected events. I'm going to plan on not using the LISA before its maturity, but it'll be nice to have a backstop for emergencies.

Stock market does really well? Using LISA rather than pension has saved you from a nasty LTA penalty.
Stock market does average? At least the LISA has given you more LTA breathing room, which might be useful later.
Stock market does really badly? LISA can be used to stop you running out of money at age 55 or something before pension is available.
Government moves the pension goalposts, yet again? Use the LISA money if need be to cover the gap.

Effectively you're making a bet of 6.25% of the value that you won't need the money before 60, and if you win the bet you get a 25% bonus. Sounds like good odds to me.

I'm convinced, so I've just started a LISA. Just £500 for now, but will max it by the end of the tax year. Will continue to contribute to pensions as well, though.

I'm not convinced on any of these - the LISA limit is only £4k, and the access age without penalty is greater than pensions at the moment.

Pensions have been around for years and the government is pushing them via auto-enrolment; they may tinker with the rules, but not substantially.

LISA's are new and have had a really bad takeup, only a handful or providers are offering them and most 'experts' are advising people avoid them.

TartanTallulah

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #21 on: January 16, 2018, 01:40:52 PM »
It's strange. As a child I thought £1,000,000 was a vast amount of money. As I've got older it seems less and less.  Perspective, increasing affluence or inflation?

Perspective and inflation.   As a child you didn't have to pay bills. :)

As a child, and as a young adult, I thought £20,000 a year was a vast salary.



AnswerIs42

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #22 on: January 16, 2018, 03:35:37 PM »
I'm not convinced on any of these - the LISA limit is only £4k, and the access age without penalty is greater than pensions at the moment.

Pensions have been around for years and the government is pushing them via auto-enrolment; they may tinker with the rules, but not substantially.

LISA's are new and have had a really bad takeup, only a handful or providers are offering them and most 'experts' are advising people avoid them.
4k/year isn't too bad - add in the bonus, multiply by 10+ years, and add in investment returns and you could be just about up to a six figure sum. Not enough on its own, but fine as another piece in the retirement planning jigsaw. It does suck that the access age is 60 (would have been great if it was 55 or at least something less than pension age), but being greater than the pension age (as opposed to the same as the pension age) doesn't really matter as you can live on your pension money in the meantime.

I'm with HL and they're offering one, so I'm not too bothered about other providers. Even if the product is a bit of a flop it will probably limp along and do what it says on the tin OK, a bit like stakeholder pensions have. I do understand the reluctance to invest in a wrapper this new, though.

poppydog

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #23 on: January 17, 2018, 06:59:59 AM »
I've been watching the lifetime allowance carefully since it was reduced to £1m.  I estimate just over £925,000 when I retire in April so just keeping the right side of the line, praise the Lord!

Monkeytennis

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #24 on: January 17, 2018, 09:16:15 AM »
I've been watching the lifetime allowance carefully since it was reduced to £1m.  I estimate just over £925,000 when I retire in April so just keeping the right side of the line, praise the Lord!

I believe the lifetime allowance is also evaluated post retirement, 5 years after too to see if itís grown beyond it, does anyone know the details on this?

poppydog

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #25 on: January 17, 2018, 09:25:02 AM »
I've been watching the lifetime allowance carefully since it was reduced to £1m.  I estimate just over £925,000 when I retire in April so just keeping the right side of the line, praise the Lord!

I believe the lifetime allowance is also evaluated post retirement, 5 years after too to see if itís grown beyond it, does anyone know the details on this?

The lifetime allowance is recalculated at the age of 75.  The £1m allowance is to increase with inflation from now on though so inflation protection should minimise any liability.

londonstache

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #26 on: January 17, 2018, 09:26:50 AM »

I'm not convinced on any of these - the LISA limit is only £4k, and the access age without penalty is greater than pensions at the moment.

Pensions have been around for years and the government is pushing them via auto-enrolment; they may tinker with the rules, but not substantially.

LISA's are new and have had a really bad takeup, only a handful or providers are offering them and most 'experts' are advising people avoid them.

I think the LISA take-up *should* increase, if only people using it instead of a help to buy ISA due to the government bonus. The big concern from financial experts has been fear of mis-selling as well as telling people, "You are better putting money in a pension", with the thinking being that if people are only contributing up to the auto-enrollment match then putting more into the pension  is a more astute move.

I don't think this applies to Mustachians, who are likely to be contributing a good amount to their workplace pension and looking for a home for more cash. Certainly our strategy (as homeowners already) is LISA first before normal S&S ISA. I see the fact I cannot withdraw earlier to be an advantage as I'm only tying up 20% of my annual ISA allowance for a guaranteed 25% year 1 return.

cerat0n1a

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #27 on: January 17, 2018, 09:51:03 AM »
I've been watching the lifetime allowance carefully since it was reduced to £1m.  I estimate just over £925,000 when I retire in April so just keeping the right side of the line, praise the Lord!

I believe the lifetime allowance is also evaluated post retirement, 5 years after too to see if it’s grown beyond it, does anyone know the details on this?

The lifetime allowance is recalculated at the age of 75.  The £1m allowance is to increase with inflation from now on though so inflation protection should minimise any liability.

Strictly speaking, it's tested any time there is a "benefits crystallization event" - of which there about a dozen different kinds - and if you've more than one pension scheme and near the limits, rather than just a simple DC pot of money, it's worth checking out the rules properly. Other events include things like moving the money into an overseas pension and other possible ways of escaping it.

In addition as well as the age of 75, it's also checked when you die (this latter is relevant because otherwise pensions could be used as an inheritance tax dodge.) If you exceed the limit in between these events, but are then back below on the relevant date, then you're OK.
« Last Edit: January 17, 2018, 03:18:48 PM by cerat0n1a »

RetirementInvestingToday

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #28 on: January 17, 2018, 01:56:47 PM »
As a child, and as a young adult, I thought £20,000 a year was a vast salary.
In many countries of the world it still is a vast salary.
45 years of age, UK based (for now) and FI.  Will FIRE in mid-2018.  A lot more detail on my blog http://www.retirementinvestingtoday.com/

poppydog

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #29 on: January 17, 2018, 02:39:07 PM »
Cerat, thatís great information, thanks.

Could they have dreamt up a more complicated system?  The mind boggles sometimes....

PhilB

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #30 on: January 17, 2018, 03:31:11 PM »
I've been watching the lifetime allowance carefully since it was reduced to £1m.  I estimate just over £925,000 when I retire in April so just keeping the right side of the line, praise the Lord!

I believe the lifetime allowance is also evaluated post retirement, 5 years after too to see if itís grown beyond it, does anyone know the details on this?

The lifetime allowance is recalculated at the age of 75.  The £1m allowance is to increase with inflation from now on though so inflation protection should minimise any liability.
The allowance increases with inflation, but that only applies to unused allowance.  Once funds have been crystallised up to the amount of the LTA there is then no further inflation allowance - so if you crystallise £1M this year at age 55 taking £250 as TFLS and putting £750k into drawdown then anything over £750k in the drawdown pot at 75 gets hit for another 25%.

poppydog

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #31 on: January 17, 2018, 09:48:36 PM »
Thanks Philb, Iím going to have to look into this carefully.  When I retire in April Iíll be under the LTA at that point but it wonít take much growth in my SIPP/DC funds over the years to get to a £1m total later on...  Mmmm, food for thought.

I can see from your earlier posts that you are caught up in this and so have become quite an expert. I naively thought that as I will be narrowly under the £1m limit at retirement, it wouldnít impact me.  I can see that I may have been mistaken.  Thanks again Philb.
« Last Edit: January 17, 2018, 10:05:24 PM by poppydog »

former player

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #32 on: January 18, 2018, 03:06:25 AM »
The three tax-advantaged places left to put your money in the UK are pensions up to £1m, ISAs up to £20k a year and your main home (still free of capital gains tax).   Tax-advantages also used to apply to rental houses as well, with tax-deductible mortgage payments, but no longer.

A pension of £40k per annum is plenty for a mustachian if you have a paid-off house and have been putting the max you can into stocks and shares ISAs over the years.  This approach also makes doing your taxes a doddle.  Add in a couple of previously tax-advantaged, paid-off rentals, and life is more than comfortable.
Be frugal and industrious, and you will be free (Ben Franklin)

PhilB

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #33 on: January 18, 2018, 03:38:04 PM »
I can see from your earlier posts that you are caught up in this...
And then some.  I won't be much over the LTA, but I'm in a horribly complicated position as I'm lucky enough to have an £11k pa DB scheme that can be leveraged with DC funds in the same scheme to take 25% of the combined value from the DC funds as TFLS.  When I transfer out most of the DC funds to a SIPP at 55, I have to somehow guestimate how much to leave behind with the DB until scheme retirement age so that it hopefully grows to the correct amount to a) pay the LTA charge and b) make sure I get to take the full 25% of LTA TFLS.  If I have too little I leave TFLS on the table.  Too much and I'm paying LTA charge needlessly on investment growth.  That's a calculation I'd definitely describe as non-trivial.

poppydog

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #34 on: January 19, 2018, 12:42:01 AM »
Thanks Philb. With my current employer I also have a DB to start collecting, and considerable DC funds via AVCs and bonus sacrifice etc.  The scheme also allows for leveraging the tax free lump sum element of the DB from the DC funds - and Iíve been happily planning for this.

Turns out though when I applied to put this in practice that this facility only works if I use the DC to buy an annuity or take it all as a (tax burdensome) lump sum, neither of which I want to do of course.  My employerís scheme has no drawdown option which means I have to transfer it out.  Theyíre perfectly happy for me to do so, but for some technical pension reason, this loses the option to leverage the DC funds as part of the DB TFLS.

Iíve had this checked by our head of pensions and the employee trustee reps, and thatís how it is unfortunately.

You may wish to check with your own scheme.......

PD
« Last Edit: January 19, 2018, 03:35:52 AM by poppydog »

PhilB

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #35 on: January 19, 2018, 06:25:29 AM »
Thanks Philb. With my current employer I also have a DB to start collecting, and considerable DC funds via AVCs and bonus sacrifice etc.  The scheme also allows for leveraging the tax free lump sum element of the DB from the DC funds - and Iíve been happily planning for this.

Turns out though when I applied to put this in practice that this facility only works if I use the DC to buy an annuity or take it all as a (tax burdensome) lump sum, neither of which I want to do of course.  My employerís scheme has no drawdown option which means I have to transfer it out.  Theyíre perfectly happy for me to do so, but for some technical pension reason, this loses the option to leverage the DC funds as part of the DB TFLS.

Iíve had this checked by our head of pensions and the employee trustee reps, and thatís how it is unfortunately.

You may wish to check with your own scheme.......

PD
Hmm.  I was assured back in 2016 that we could choose to transfer as much or little of the DC funds as we wished.  I checked with the scheme today and they are saying no, you have to transfer a whole section at a time as per the statutory rights only.  That's a bit of a bugger and is going to cost me something in the £5k to £15k range I think as well as a lot of juggling and re-hashing of cashflows.  Time to contact the trustees directly.

londonstache

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #36 on: January 19, 2018, 06:26:09 AM »
The three tax-advantaged places left to put your money in the UK are pensions up to £1m, ISAs up to £20k a year and your main home (still free of capital gains tax).   Tax-advantages also used to apply to rental houses as well, with tax-deductible mortgage payments, but no longer.

A pension of £40k per annum is plenty for a mustachian if you have a paid-off house and have been putting the max you can into stocks and shares ISAs over the years.  This approach also makes doing your taxes a doddle.  Add in a couple of previously tax-advantaged, paid-off rentals, and life is more than comfortable.

This is entirely my plan @former player - to get to an inflation-adjusted £40k per annum pension + S&S ISAs, which will be needed to bridge the gap between FIRE and the age I can access a personal pension. The rentals unfortunately are less likely.

dreams_and_discoveries

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #37 on: January 20, 2018, 12:27:43 AM »
As a child, and as a young adult, I thought £20,000 a year was a vast salary.
In many countries of the world it still is a vast salary.

Yeah, we need to appreciate how lucky we are, and that we always have the possibility of geographic arbitrage.

poppydog

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #38 on: January 20, 2018, 04:08:46 AM »
As a child, and as a young adult, I thought £20,000 a year was a vast salary.
In many countries of the world it still is a vast salary.

Yeah, we need to appreciate how lucky we are, and that we always have the possibility of geographic arbitrage.

Quite so, DandD.  Mrs PD and me will retire with an income that will put us in the top 10% of UK households - which is probably the top 1% in the world.  Now, we've worked hard, but we are still incredibly blessed to be able to do this.

As for geographic arbiitrage (great phrase!) I guess I could move from the West End of Glasgow to the South Side........   :-)

cerat0n1a

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #39 on: January 20, 2018, 05:17:26 AM »
As for geographic arbiitrage (great phrase!) I guess I could move from the West End of Glasgow to the South Side........   :-)

For reasons I can't remember, I was reading about "the Glasgow effect" last weekend. I know annuity providers do take into account where you live - so I wonder whether you might end up taking advantage of a rather less pleasant bit of geographic arbitrage.

poppydog

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #40 on: January 20, 2018, 07:11:27 AM »
Hi Cerat.  My home town is a multi faceted place with many very prosperous areas, interspersed with some of the most deprived parts of the UK.

Where I live, youíd think you were in one of the leafiest, middle class parts of Britain.  I could drive a couple of miles and show you squalor and deprivation.

There are Glaswegian suburbs where the life expectancy mirrors the best of the SE of England.  And others that would shame a third world country.

A complex, complicated, vibrant, challenging city, and I love it!
« Last Edit: January 20, 2018, 07:14:23 AM by poppydog »

dreams_and_discoveries

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #41 on: January 20, 2018, 07:25:24 AM »
Yeah @poppydog , you could downshift to the South Side or even the East End if things went bad!

My best property purchase ever was in the East End when I was a student.....after living in it, rented it out at a fabulous rate, then sold it for a 50% gain.  Ever since then property has never been as profitable.

poppydog

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #42 on: January 20, 2018, 07:55:00 AM »
Nice one DandD.

Iím not a born and bred Glaswegian - although my wife is.  I moved here 20 years ago.  I love this city.

I hate the weather!   But I love the people and the vibe and the facilities. Itís a great place!


PhilB

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #43 on: January 22, 2018, 07:27:22 AM »
Thanks Philb. With my current employer I also have a DB to start collecting, and considerable DC funds via AVCs and bonus sacrifice etc.  The scheme also allows for leveraging the tax free lump sum element of the DB from the DC funds - and Iíve been happily planning for this.

Turns out though when I applied to put this in practice that this facility only works if I use the DC to buy an annuity or take it all as a (tax burdensome) lump sum, neither of which I want to do of course.  My employerís scheme has no drawdown option which means I have to transfer it out.  Theyíre perfectly happy for me to do so, but for some technical pension reason, this loses the option to leverage the DC funds as part of the DB TFLS.

Iíve had this checked by our head of pensions and the employee trustee reps, and thatís how it is unfortunately.

You may wish to check with your own scheme.......

PD
Hmm.  I was assured back in 2016 that we could choose to transfer as much or little of the DC funds as we wished.  I checked with the scheme today and they are saying no, you have to transfer a whole section at a time as per the statutory rights only.  That's a bit of a bugger and is going to cost me something in the £5k to £15k range I think as well as a lot of juggling and re-hashing of cashflows.  Time to contact the trustees directly.
Well, after a lot of hours spent rejigging my retirement spreadsheets and trying to quantify how much it was going to cost me, the scheme have got back on my email request and confirmed that what I was told in 2016 was correct and the person on the phone last week was talking b@ll@cks!  Back to the original plan.
PD, you might want to try lobbying the trustees of your scheme to ask them to allow split transfers rather than only allowing the statutory minimum flexibility.  It would be a big advantage for scheme members, but minimal cost to the scheme as long as they had a rule about only being able to do it once or twice.  May not work, but worth a try.

Playing with Fire UK

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Re: The lifetime allowance - an unexpected mustachian people problem?
« Reply #44 on: February 01, 2018, 05:38:56 AM »
I agree but for the young its being able to access the funds for a very early retirement (younger than 45 or whatever age you deem young) that's the important bit and you can't do that with a pension. That would concern me more than the LTA.

A chunky remortgage before quitting work, which is paid off by the pension can help address this. I dislike IO mortgages in many ways, but this situation suits them very well. Also - you get to buy your house with untaxed cash (sort of, not really, but sort of).

As for geographic arbiitrage (great phrase!) I guess I could move from the West End of Glasgow to the South Side........   :-)

For reasons I can't remember, I was reading about "the Glasgow effect" last weekend. I know annuity providers do take into account where you live - so I wonder whether you might end up taking advantage of a rather less pleasant bit of geographic arbitrage.

I read an amusing blog about the benefits of taking up smoking prior to applying for an annuity. I think it was a joke...