Pensions - LTA & Tax-Free Lump Sum, or QORPS?
Discussion
This is a theoretical question because I haven't hit the LTA and I'm not old enough to take my pension.
If someone exceeds the LTA, but takes 25% of the LTA amount tax-free at 55, it's not a BCE. Therefore there's no assessment made at that time, and my understanding is that they're able to continue to contribute £40K and grow their pension back up to the LTA. If they commence DD before reaching the LTA, they wouldn't pay any LTA Charge, even though they'd actually accrued LTA+25%.
Assuming no protections apply, is this correct?
If not, or if someone were fortunate enough to exceed even this amount, how realistic is transfer to a QROP whilst remaining a resident of the UK & Eire? I assume the fees would be higher, but might it make sense to transfer anything above LTA-10% offshore to avoid 55% or 25%+Marginal-Rate tax?
If it does happen to me, I promise to PM whoever gives the best answer for professional advice
If someone exceeds the LTA, but takes 25% of the LTA amount tax-free at 55, it's not a BCE. Therefore there's no assessment made at that time, and my understanding is that they're able to continue to contribute £40K and grow their pension back up to the LTA. If they commence DD before reaching the LTA, they wouldn't pay any LTA Charge, even though they'd actually accrued LTA+25%.
Assuming no protections apply, is this correct?
If not, or if someone were fortunate enough to exceed even this amount, how realistic is transfer to a QROP whilst remaining a resident of the UK & Eire? I assume the fees would be higher, but might it make sense to transfer anything above LTA-10% offshore to avoid 55% or 25%+Marginal-Rate tax?
If it does happen to me, I promise to PM whoever gives the best answer for professional advice
Edited by -Pete- on Friday 12th January 10:05
BCE stands for Benefit Crystallisation Event.
To access your Pension Commencement Lump Sum (25% tax free cash) you have to Crystalise funds.
In your example 100% of the LTA will have been utilised by the BCE at age 55. There would be little point in making further contributions as there would be no further LTA available.
The surplus funds charge would apply when you crystallise them, or at age 75 if earlier. Note the age 75 BCE should increase as the SPA increases, but we will see.
My understanding is you need to be resident in the country where the QROPS is provided to be a relevant transfer.
To access your Pension Commencement Lump Sum (25% tax free cash) you have to Crystalise funds.
In your example 100% of the LTA will have been utilised by the BCE at age 55. There would be little point in making further contributions as there would be no further LTA available.
The surplus funds charge would apply when you crystallise them, or at age 75 if earlier. Note the age 75 BCE should increase as the SPA increases, but we will see.
My understanding is you need to be resident in the country where the QROPS is provided to be a relevant transfer.
Edited by PurpleMoonlight on Friday 12th January 01:33
Thanks, that's what I thought.
I read something yesterday (which, of course, I can't find again today) which suggested taking the tax-free lump sum wasn't a BCE, but I see it now in the list from the pensions advisory service, it's BCE6. It makes sense, but gives me another reason to hate Osbourne, I wonder why he decided to punish DC pension savers and BTL landlords... what would he prefer we do, save nothing and then rely on benefits? No wonder young people don't want to save.
I don't fancy moving to Malta, so it seems (Q)ROPS couldn't be used. Unless someone knows differently?
I read something yesterday (which, of course, I can't find again today) which suggested taking the tax-free lump sum wasn't a BCE, but I see it now in the list from the pensions advisory service, it's BCE6. It makes sense, but gives me another reason to hate Osbourne, I wonder why he decided to punish DC pension savers and BTL landlords... what would he prefer we do, save nothing and then rely on benefits? No wonder young people don't want to save.
I don't fancy moving to Malta, so it seems (Q)ROPS couldn't be used. Unless someone knows differently?
I don't think £1.8M was unreasonable in 2006, but Osbourne brought it down to £1M without index linking it (at that time). Given that many will be taking an annuity, and including inflation over the period, it's reduced the monthly net income for a successful & prudent pension contributor by 40%. Of course many may have seen this coming and decided on BTL for their retirement instead 
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