Pension lifetime allowance - when to stop contributing?

[LeoSayer]

I'm well short of the pension lifetime allowance but I could theoretically hit it before too long if I get good investment performance.

How do you judge when to stop contributing?

[grahamm]

How old are you?

[LeoSayer]

47

[grahamm]

If you reach the lifetime limit before 55 you will be taxed on the excess, but if you reach the limit at or after 55 you can start drawing a small income from your fund and let the balance continue to grow. I hope you get the growth to make this relevant!

[swatches]

You will need to play around with an online calulator or use the FV function in Excel.

https://www.hl.co.uk/pensions/interactive-calculat...

It will depend on many factors, not least:
You current Pension Pot
Your current contributions
Growth
Anticipated retirement age.
Price of a Lambo.

Here is an example...
E3=FV(B2/12,12,-C2,-E2)+D2

age	growth	monthly contrib	annual contrib	value
47	0.04	3333	0	300000
48	0.04	3333	0	£352,959.93
49	0.04	3333	0	£408,077.53
50	0.04	3333	0	£465,440.71
51	0.04	3333	0	£525,140.95
52	0.04	3333	0	£587,273.47
53	0.04	3333	0	£651,937.37
54	0.04	3333	0	£719,235.77
55	0.04	3333	0	£789,276.02
56	0.04	0	0	£862,169.81
57	0.04	0	0	£897,295.94
58	0.04	0	0	£933,853.16
59	0.04	0	0	£971,899.77
60	0.04	0	0	£1,011,496.47
61	0.04	0	0	£1,052,706.40

Edited by swatches on Friday 20th January 10:25

[PurpleMoonlight]

The maximum lifetime allowance is supposed to increase by CPI from 2018.

But this is only a Government promise so the usual pinch to be considered.

[anonymous-user]

Bear in mind that you can adjust your pension risk by decreasing the rate of investment return that you are targeting and keeping your fund at about the LTA limit.

You wouldn't half feel a muppet if you stopped investing, markets collapsed and your pension fund fell by 30% just before you retired. Ouch.

Now that the LTA has been reduced so much (essentially halved) it's well worth maximising your security in retirement by de-risking.

[Roger Irrelevant]

rockin said:

Bear in mind that you can adjust your pension risk by decreasing the rate of investment return that you are targeting and keeping your fund at about the LTA limit.

Exactly - you can just transfer to cash shortly before you hit the limit. Another thing to bear in mind for people who are lucky enough to be worrying about the LTA is that if you get a decent employer contribution it may well still make sense to continue contributing even with the 55% tax charge.

[LeoSayer]

3/4 of my pot is from a DB scheme so only whole pot so only 1/4 has market risk, but even so I see the benefit of de-risking and withdrawing cash closer to retirement.

My employer gives generous contributions so I could hit the limit before age 60 even with modest performance. Thanks for the formula swatches.

I have been paying in AVCs rather than ISAs recently primarily because I'm able to use the DC pot to pay for the 25% tax free cash from the DB scheme. I wanted to lock that in last year whilst HRT relief and my job was under threat. I think it might be time to stop AVCs but it seems a waste to not take up the opportunity whilst I'm still so far from the allowance limit.