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Calculation of Life Time Allowance
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Phil S
Posted: 07 May 2022 10:43:31(UTC)
#1

Joined: 29/08/2014(UTC)
Posts: 10
Just wondering if anybody can help with this? Have searched but can's seem to get an answer.

I too early retirement back in 2004 taking the tax-free lump sum from my company defined benefit scheme.

As part of my investment portfolio, I opened a SIPP (via Hargreaves Lansdown) in 2014 making the maximum (£2880) annual contribution each year since.

In 2 years I'll be 75 years old and am reading about the 55% tax levied if my 'pot' exceeds the Lifetime Allowance - this would clearly negate a large portion of the tax benefits/investment returns accrued since 2014.

My questions are:-

1)Is my understanding of the rules at 75 years of age correct ?

2)If so how is the LTA calculated ? (I think I saw somewhere it might be a multiple of your defined benefit annual payment)?

3)Finally is there any advice on minimizing possible taxes.

Many thanks in anticipation.
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Jasper40
Posted: 07 May 2022 11:07:23(UTC)
#2

Joined: 10/03/2016(UTC)
Posts: 52

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Unable to help with 1.

2. I believe lifetime allowance is calculated at 20 x annual defined benefit pension plus lump sum taken although you could make an enquiry to your DB pension scheme. I did this as I had two small DB schemes with one paying from age 63 and the other age 65. When completing the application form for the DB scheme payable at age 65 it asked for the LTA of any other pension schemes. Emailed the DB scheme already in payment and they were able to advise the LTA figure required.
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Phil S on 07/05/2022(UTC)
Molly M
Posted: 07 May 2022 16:52:58(UTC)
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Joined: 23/11/2019(UTC)
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Just checking, do you know if you have any degree of LTA protection, due to your pension being in payment for a number of years? Also I think some early pensions are valued at 25 times the annual DB pension amount, so as Jasper mentions it’s definitely worth checking with your scheme administrator for an accurate calculation. They might be able advise on the tax payable on any LTA excess too?

There’s some info on LTA protection on this gov.uk website:

https://www.gov.uk/guida...me-allowance-protection

Also this link might be quite helpful, though some of it gets too technical for me, there’s lots of links to other sites, including hmrc, or browse the Royal London website, if you prefer not to click links. I usually click to say I’m an adviser, you seem to get better info.

https://adviser.royallon...e-75-our-top-five-faqs/

I think you can lose yourself trying to read it all, with no guarantee you’ve understood it properly (been there, done that!) so if your scheme administrator can help, that’s probably ideal.
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Phil S on 08/05/2022(UTC)
Easyrider
Posted: 07 May 2022 17:36:01(UTC)
#4

Joined: 09/11/2020(UTC)
Posts: 1,951
Never realised that DB pension schemes were subject to the Lifetime Allowance.
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Monty Claret
Posted: 12 May 2022 08:19:36(UTC)
#5

Joined: 24/05/2015(UTC)
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Yes, you will be tested at 75 against the LTA.

Subject to protection you may have had, a DB benefit is the annual pension times 20 plus any PCLS(tax free cash).

You should have a statement showing how much percentage of the LTA was used up when you started you DB pension.

You can avoid the 55% tax by taking income from the SIPP to reduce the balance to below todays LTA limit before your 75th birthday.
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Phil S on 13/05/2022(UTC)
Lex Further
Posted: 15 August 2022 21:30:09(UTC)
#6

Joined: 18/09/2021(UTC)
Posts: 181
I discuss those kind of things with the professional adviser. Here is the example of one of the good ones - https://lightstream.pissedconsumer.com/review.html. Finances where never my strengths and i have opinion we all should do what we can do best. All the rest - delegate to others. Only this way you can get the most from your life.
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