Exceeding lifetime pension allowance

Exceeding lifetime pension allowance

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Discussion

williaa68

1,528 posts

166 months

Wednesday 12th February 2020
quotequote all
Cheib said:


One of my reasons for wanting to leave my pension intact is that it falls outside your estate for IHT purposes.
I was thinking the same but have since changed my mind. The maximum IHT liability on my pension is £400k. I've decided I'd rather drawdown over time and insure the IHT risk - cost is about £22k over 20 years (£90 a month). I appreciate there are (probably many!) flaws in my plan (eg the £1m pension pot could be £2m in 20 years time) but Ive decided the political risk is too great. The chances of the pension remaining IHT free for the next 20 years seem slim, in my view.

Cheib

23,248 posts

175 months

Wednesday 12th February 2020
quotequote all
williaa68 said:
Cheib said:


One of my reasons for wanting to leave my pension intact is that it falls outside your estate for IHT purposes.
I was thinking the same but have since changed my mind. The maximum IHT liability on my pension is £400k. I've decided I'd rather drawdown over time and insure the IHT risk - cost is about £22k over 20 years (£90 a month). I appreciate there are (probably many!) flaws in my plan (eg the £1m pension pot could be £2m in 20 years time) but Ive decided the political risk is too great. The chances of the pension remaining IHT free for the next 20 years seem slim, in my view.
Very fair point about chance of legislation changing...one of the reasons I try and keep my options open as much as possible. “Eggs in one basket” is not a sensible approach to financial planning !

I’d definitely contemplate moving abroad once my kids are older to a cheaper place to live and somewhere where IHT doesn’t exist. I have paid a huge amount of tax during my working life and would rather my children got as much as possible when my wife and I are gone ! When I am 60 my kids will just be University age....at that point I can see me making a decision to live in another country. I love living in the UK but neither my wife nor I have massive amounts of family ties.

anonymous-user

54 months

Wednesday 12th February 2020
quotequote all
Cheib said:
One of my reasons for wanting to leave my pension intact is that it falls outside your estate for IHT purposes.
You may have seen that King Boris has all of this under review.

The current system is bonkers - where wealthy people spend their general funds first, their ISAs second and their pensions last. If you're planning to keep ahead of the taxman you may need to export yourself before 11 March 2020 (Budget day).

Similarly there may be a real risk that King Boris will introduce Lifetime IHT. It's incredibly easy to introduce and has existed in the past. In some unusual circumstances it already exists today - at a rate of 20%. At the moment IHT is a "voluntary tax". You can completely avoid it simply by giving stuff away.

On the pensions front it's been on the cards for years that tax relief could be cut to basic rate only (20% for everyone).



p1doc

3,117 posts

184 months

Friday 14th February 2020
quotequote all
government needs to rapidly alter lifetime and annual allowance a is killing off senior gp's and consultants as being told retire or go part time by accountants/financial advisers to avoid tax bills which you are unaware of till after deadline due to pensions lagging years behind tax paid
this is even hitting doctors in mid 40's so no incentive to stay till pension age!

anonymous-user

54 months

Friday 14th February 2020
quotequote all
To be honest, I think that simply shows how highly paid and molly-coddled some of these NHS guys actually are. I'm not aware of any reason why "senior doctors" should be any more affected by the pension rules than anyone else.

Happy to be corrected if I'm wrong!

Mr Pointy

11,220 posts

159 months

Friday 14th February 2020
quotequote all
p1doc said:
government needs to rapidly alter lifetime and annual allowance a is killing off senior gp's and consultants as being told retire or go part time by accountants/financial advisers to avoid tax bills which you are unaware of till after deadline due to pensions lagging years behind tax paid
this is even hitting doctors in mid 40's so no incentive to stay till pension age!
That simply demonstrates that doctors are grossly overpaid and/or their pension arrangements are far too generous (thanks Tony Blair). A good first step would be to cut their pay by at least a third.

The Leaper

4,953 posts

206 months

Friday 14th February 2020
quotequote all
This may help to explain the situation and the possible solution. Apologies for the foreshortened layout.

Budget 2020: pensions changes
expected

The next Budget will take place on 11 March
2020. The Government is expected to
announce its solution to the headline-
grabbing pensions tax problem that is
causing NHS clinicians to reduce their
workloads.
In a nutshell, the problem stems from the
tapered annual allowance. This reduces an
individual's annual allowance (currently
£40,000) for those with a threshold income
over £110,000 by £1 for every £2 of adjusted
income over £150,000. When calculating
adjusted income, the value of pension
savings and non-pensionable pay has to be
taken into account. This can result in a high
earner's annual allowance being reduced to
£10,000. NHS staff who are not able to predict their
income, for example due to on-call duties and
overtime, have found themselves
inadvertently breaching the tapered annual
allowance and facing a large tax bill as a
result.
At the end of last year, the Government
suggested a temporary solution for the
problem in order to keep senior doctors
working. It also promised that a permanent
solution would be in place by the beginning of
the next tax year.
The details are expected to be announced in
the Budget and any solution is likely to apply
across the board, not just to the NHS.
According to the Times, the Treasury is
considering raising the threshold income to
£150,000.

LeoSayer

7,306 posts

244 months

Friday 14th February 2020
quotequote all
The tapered annual allowance seems like nothing more than tax opportunism by the government.

Cheib

23,248 posts

175 months

Friday 14th February 2020
quotequote all
rockin said:
Cheib said:
One of my reasons for wanting to leave my pension intact is that it falls outside your estate for IHT purposes.
You may have seen that King Boris has all of this under review.

The current system is bonkers - where wealthy people spend their general funds first, their ISAs second and their pensions last. If you're planning to keep ahead of the taxman you may need to export yourself before 11 March 2020 (Budget day).

Similarly there may be a real risk that King Boris will introduce Lifetime IHT. It's incredibly easy to introduce and has existed in the past. In some unusual circumstances it already exists today - at a rate of 20%. At the moment IHT is a "voluntary tax". You can completely avoid it simply by giving stuff away.

On the pensions front it's been on the cards for years that tax relief could be cut to basic rate only (20% for everyone).
What is Lifetime IHT ?!

ziontrain

284 posts

121 months

Friday 14th February 2020
quotequote all
Cheib said:
What is Lifetime IHT ?!
Chargeable lifetime transfers - usually on a transfer of assets to a trust - attract IHT. The trustees would have to pay IHT at a rate of 20%.

Cheib

23,248 posts

175 months

Saturday 22nd February 2020
quotequote all
ziontrain said:
Cheib said:
What is Lifetime IHT ?!
Chargeable lifetime transfers - usually on a transfer of assets to a trust - attract IHT. The trustees would have to pay IHT at a rate of 20%.
Ah gotcha. Not anticipating putting anything in trust until I die. Currently going through the process of new wills....found a very good lawyer who has given some great advice.

Pheo

3,339 posts

202 months

Monday 24th February 2020
quotequote all
I really wish they would get rid of the taper which kicks in at 100k, in that at the moment my marginal tax rate seems to be about 65%; makes it seem pointless getting a pay rise.

Mind you, if they do so by removing the higher rate relief on pensions, it’ll completely screw me overnight. Sigh.

JapanRed

Original Poster:

1,559 posts

111 months

Monday 24th February 2020
quotequote all
Pheo said:
I really wish they would get rid of the taper which kicks in at 100k, in that at the moment my marginal tax rate seems to be about 65%; makes it seem pointless getting a pay rise.

Mind you, if they do so by removing the higher rate relief on pensions, it’ll completely screw me overnight. Sigh.
I’ve got it on good information that the taper will be raised in the budget.

p1doc

3,117 posts

184 months

Monday 24th February 2020
quotequote all
JapanRed said:
I’ve got it on good information that the taper will be raised in the budget.
sounds promising

p1doc

3,117 posts

184 months

Monday 24th February 2020
quotequote all
rockin said:
To be honest, I think that simply shows how highly paid and molly-coddled some of these NHS guys actually are. I'm not aware of any reason why "senior doctors" should be any more affected by the pension rules than anyone else.

Happy to be corrected if I'm wrong!
try doing up to 60hrs a week with no back up as only doctor in practice covering semi rural area with small casualty hospital wards ambulance attendance as no ambulance available home visits emergency appts etc with no new gp's coming to area as viewed as too hard work......

p1doc

3,117 posts

184 months

Monday 24th February 2020
quotequote all
Mr Pointy said:
That simply demonstrates that doctors are grossly overpaid and/or their pension arrangements are far too generous (thanks Tony Blair). A good first step would be to cut their pay by at least a third.
doctors did not decide pension arrangements government did and constantly move goalposts such as 2015 forced from old scheme to new scheme increasing pension age from 60-68
lots of doctors I know are refusing extra shifts or be stung by back payments up to 2-3 yrs out of date as capita/SPPA cannot give accurate figures
it will be fine as likely in 10yrs there will be no full time gp's left anywhere due to increasing workload and retiring of gp's who are burnt out
rant over lol

JapanRed

Original Poster:

1,559 posts

111 months

Monday 24th February 2020
quotequote all
p1doc said:
Mr Pointy said:
That simply demonstrates that doctors are grossly overpaid and/or their pension arrangements are far too generous (thanks Tony Blair). A good first step would be to cut their pay by at least a third.
doctors did not decide pension arrangements government did and constantly move goalposts such as 2015 forced from old scheme to new scheme increasing pension age from 60-68
lots of doctors I know are refusing extra shifts or be stung by back payments up to 2-3 yrs out of date as capita/SPPA cannot give accurate figures
it will be fine as likely in 10yrs there will be no full time gp's left anywhere due to increasing workload and retiring of gp's who are burnt out
rant over lol
Completely agree.

BritPop

23 posts

50 months

Tuesday 25th February 2020
quotequote all
Have you worked out your current NHS pension value?

You should be able to login to the NHS Total Rewards website to get a valuation for your scheme(s).

You're probably in two schemes - the 1995 one and the 2015 one. Take your 1995 annual pension and multiply by 20, then add your lump sum. That should tell you your total pot value for that scheme. There isn't a lump sum in the 2015 scheme, so just take your annual 2015 scheme pension and multiply by 20. Add the two together and you'll get your total value.

p1doc

3,117 posts

184 months

Wednesday 26th February 2020
quotequote all
I know my pension value as check annually when SPPA eventually update but unfortunately still long way off as only 46......

JapanRed

Original Poster:

1,559 posts

111 months

Wednesday 26th February 2020
quotequote all
BritPop said:
Have you worked out your current NHS pension value?

You should be able to login to the NHS Total Rewards website to get a valuation for your scheme(s).

You're probably in two schemes - the 1995 one and the 2015 one. Take your 1995 annual pension and multiply by 20, then add your lump sum. That should tell you your total pot value for that scheme. There isn't a lump sum in the 2015 scheme, so just take your annual 2015 scheme pension and multiply by 20. Add the two together and you'll get your total value.
Thanks mate I didn’t realise that this was how you calculated a pots “value”. Seems like I might not hit lifetime limit after all so could potentially put a bit extra in.

Say someone was 5 years from retirement and still earning good money. If they checked their “pot values” and it came close to, or exceeded, the lifetime allowance, would it be prudent to stop paying into the pension, or would they still benefit from paying in?