Annual bonus, take it or put it into pension ? LTA issue

[Inspectorclueso]

Just after views on this, as always some good input on here !

Bonus time end of this month and I now have the option of taking is as cash (it's a LTD co, hence no plc shares) or putting it all into my workplace DC scheme for the first time. Whilst this decision may seem simple, i.e. why lose half in tax, when I could shelter it, the slight complication is that I'm over the LTA for pensions at this stage (just over) and I'm 49, with plans to work roughly up to 55 ish...

I note that the last budget saw the LTA increased to £1.8m which I am unlikely to breach, and hence this would mean the bonus value isn't subject to LTA charges, but let's assume this is reversed by Labour at some stage as I think this is a risk, or they may ring fence certain professions and I'm not a doctor.

So, I'm thinking the value of bonus now is halved if I take cash, if I put it in pension scheme it's the value now, plus annual investment changes (let's assume this is positive !) for roughly 9 years (49 to 58) then at some point in the future, 75 I think, I'd get a 25% charge against the value of funds over the LTA...? But overall, I'd net more of this and future year bonus pots if I put them into pension. If the new LTA rules do stick, then this becomes more beneficial again ?

Does this make sense ? I do find LTA pretty hard to fathom to be honest, so may have this wrong.

Feel free to correct me on anything LTA related, I am in the process of engaging some advice on this as well.









I

[alscar]

I think it’s pretty guaranteed that if Labour win the next election they will reversal the decision of the Tory decision to abolish the LTA although whether this is in totality or by bringing in some form of ring fence or a reduction or a Doctors only matrix who knows.
However from listening to various FA’s it is becoming apparent that that may be ways to protect the LTA although of course until the election draws near I doubt there is any need to panic on this.
I think the situation is more complicated if you have any form of fixed protection in place but again I’m led to believe there may be things you can do to hedge in advance of a Labour victory and then potential reversals.

[ukwill]

Use your bonus to max out you/your wifes ISAs. Either freeze or reduce contributions into your pension as you're already over LTA - it will most likely come back when Lab get in - and it really wouldn't surprise me if it's reduced from the current level. Once you've finished working you can then use your ISA pot before touching your pension pot.

As an aside, is there anything you could do to your property that would provide ROI?

[The Leaper]

ukwill said:

Use your bonus to max out you/your wifes ISAs. Either freeze or reduce contributions into your pension as you're already over LTA - it will most likely come back when Lab get in - and it really wouldn't surprise me if it's reduced from the current level. Once you've finished working you can then use your ISA pot before touching your pension pot.

As an aside, is there anything you could do to your property that would provide ROI?

I think Labour's statements recently on LTA are simply making political headlines, as all opposition parties love to do. They have nothing to lose and no powers. However, once in government they see things in a different light, and I cannot for instance see them wanting to so obviously screw again the medical profession with their well known pension issues associated with the LTA. At worse, I think that the LTA could reduce but with protection for those who would be over a lower LTA if introduced.

R

[AdamV12V]

I would pay the bonus into the DC pension if I were you. Thats what I did when I was about your age too and it made a huge difference to where my pot stands today. I have never regretted it once.

You simply cannot guess what will happen with the LTA going forward, but even if they do reduce it back and dont offer any protection against those people who have crossed the line (I really do NOT think this is a likely outcome), then at worst you'll be no worse off than you would be now if you took the bonus as cash and paid 45% tax + NI (Im reading between the lines here on you saying half in tax)...

Im assuming you already have more than sufficient cash to top out your ISA on an income getting into the top rate of tax now, so I think that advice is likely a bit irrelevant.

So all you can do is go on what the rules are as at today, so if you really don't need the cash now and want to retire at 55 with a good deal of comfort then pile it into your DC pot. I refer you to the neighbouring "enjoying retirement" thread....

[alscar]

The Leaper said:

I think Labour's statements recently on LTA are simply making political headlines, as all opposition parties love to do. They have nothing to lose and no powers. However, once in government they see things in a different light, and I cannot for instance see them wanting to so obviously screw again the medical profession with their well known pension issues associated with the LTA. At worse, I think that the LTA could reduce but with protection for those who would be over a lower LTA if introduced.

R

I’d like to think your reply is correct and certainly more measured than Labour will be if they get in but don’t forget it was Labour that bought in the LTA in the first place.

[nickfrog]

Do you need any of it in cash now and what do the maths tell you in terms of comparing the 2 options in a worst case scenario (ie labour reinstating it back the week after the GE) for the 6 years to come at various possible growth rates?

[The Leaper]

alscar said:

I’d like to think your reply is correct and certainly more measured than Labour will be if they get in but don’t forget it was Labour that bought in the LTA in the first place.

Yes, they did, and without thinking through all the consequences. Maybe they will do so again, I doubt it somehow ie without thinking.

R.

[Inspectorclueso]

ukwill said:

Use your bonus to max out you/your wifes ISAs. Either freeze or reduce contributions into your pension as you're already over LTA - it will most likely come back when Lab get in - and it really wouldn't surprise me if it's reduced from the current level. Once you've finished working you can then use your ISA pot before touching your pension pot.

As an aside, is there anything you could do to your property that would provide ROI?

Thanks - assume you mean take the cash and put it in an ISA...? Which yes I could, likely cash ISAs.

Re property, interesting one, that's one of the reasons I am contemplating this. Out own house is pretty much done after 9 years of 'improvements' ! We have a rental which is now prime for reno, I can do this without these funds though...

[ukwill]

Inspectorclueso said:

Thanks - assume you mean take the cash and put it in an ISA...? Which yes I could, likely cash ISAs.

Re property, interesting one, that's one of the reasons I am contemplating this. Out own house is pretty much done after 9 years of 'improvements' ! We have a rental which is now prime for reno, I can do this without these funds though...

Another option - top up your wifes pension?

Re isa, I was thinking stock/shares isa.

[Paul Lazzaro]

Stupid question Incoming - how can you get the bonus into an ISA without paying the income tax on it (assuming PAYE)?

[deja.vu]

Paul Lazzaro said:

Stupid question Incoming - how can you get the bonus into an ISA without paying the income tax on it (assuming PAYE)?

You can’t

[SunsetZed]

The Leaper said:

alscar said:

I’d like to think your reply is correct and certainly more measured than Labour will be if they get in but don’t forget it was Labour that bought in the LTA in the first place.

Yes, they did, and without thinking through all the consequences. Maybe they will do so again, I doubt it somehow ie without thinking.

R.

There's no easy way to ring fence it for the medical profession and it would be pretty controversial if they did it so but on balance I'd still expect them to bring something in sadly. Surely the correct way to control it is by restricting what people contribute (which is already there) not punishing them for returns they may achieve.