Hitting SIPP lifetime allowance- keep invested?
Discussion
Hello all,
I’m after some general advice- I’ll likely find a paid professional some time soon but there’s such a good brains trust on this forum I thought I’d try my luck here first.
My SIPP is almost at the lifetime allowance with no ability for me to protect it higher than the current rate. It’s invested in roughly a 80/20 split between general global tracker funds (Vanguard etc) and bonds. The performance has been great over the past few years (hence my post!).
I intend to retire in 10 years. I have no ability or inclination to fund any more contributions.
Should I (a) keep it all invested, on the basis that if it continues to go up I will keep at least 45% after tax of the excess over the LTA, (b) cash it all in once it hits the LTA to derisk it from potential future market shocks, or (c) cash in a portion (or (d), do something else)?
It just seems that avoiding a market shock vs remaining invested in relatively risky assets (equities) and allowing the government to keep 55% of any upside just isn’t worth it, but my thinking may not be logical. I was of course happy to run the risk of market shock when I would keep 100% of any increase.
Any help greatly appreciated! Thanks.
I’m after some general advice- I’ll likely find a paid professional some time soon but there’s such a good brains trust on this forum I thought I’d try my luck here first.
My SIPP is almost at the lifetime allowance with no ability for me to protect it higher than the current rate. It’s invested in roughly a 80/20 split between general global tracker funds (Vanguard etc) and bonds. The performance has been great over the past few years (hence my post!).
I intend to retire in 10 years. I have no ability or inclination to fund any more contributions.
Should I (a) keep it all invested, on the basis that if it continues to go up I will keep at least 45% after tax of the excess over the LTA, (b) cash it all in once it hits the LTA to derisk it from potential future market shocks, or (c) cash in a portion (or (d), do something else)?
It just seems that avoiding a market shock vs remaining invested in relatively risky assets (equities) and allowing the government to keep 55% of any upside just isn’t worth it, but my thinking may not be logical. I was of course happy to run the risk of market shock when I would keep 100% of any increase.
Any help greatly appreciated! Thanks.
If you are not already a member have a look at the bogleheads website and ask your query there - almost certainly you will get some v knowledgeable advice
There are several videos on YouTube about this and I saw a good one from Meaningfulmoney which I found v informative - essentially his position was keep invested
The tax rate you quote is I think (I am not a IFA) only charged on cash withdrawals not income - I think from memory it is 25% on income, plus of course the pension (up to the LTA) sits outside your estate for death duties
I strongly suspect the bogleheads position would be to reduce your equities exposure to something you are more comfortable with (60/40 or 50/50) but to stay invested and maybe to take out some of the your tax free element (although what to invest it is a difficult one) and fill up annual ISA limit.
Good luck
There are several videos on YouTube about this and I saw a good one from Meaningfulmoney which I found v informative - essentially his position was keep invested
The tax rate you quote is I think (I am not a IFA) only charged on cash withdrawals not income - I think from memory it is 25% on income, plus of course the pension (up to the LTA) sits outside your estate for death duties
I strongly suspect the bogleheads position would be to reduce your equities exposure to something you are more comfortable with (60/40 or 50/50) but to stay invested and maybe to take out some of the your tax free element (although what to invest it is a difficult one) and fill up annual ISA limit.
Good luck
Edited by Kickstart on Wednesday 17th November 20:39
Kickstart said:
I saw a good one from Meaningfulmoney which I found v informative - essentially his position was keep invested
I watched this video earlier in the week and what he said made sense (circumstances depending) -Edited by Kickstart on Wednesday 17th November 20:39
In a nutshell if you were going to get a promotion that would mean more money but push you into a higher rate tax band would you accept or decline the promotion. The same goes for passing the LTA.
I briefly considered a tactical divorce and later remarriage - but my wife said no 
I was actually semi-serious as she had a negligible pension & it would have transferred half my SIPP to her - under her LTA and then given me the headroom to carry on. The additional benefit being her unused tax allowance during drawdown.
I was actually semi-serious as she had a negligible pension & it would have transferred half my SIPP to her - under her LTA and then given me the headroom to carry on. The additional benefit being her unused tax allowance during drawdown.
Carbon Sasquatch said:
I briefly considered a tactical divorce and later remarriage - but my wife said no
I was actually semi-serious as she had a negligible pension & it would have transferred half my SIPP to her
Love it - that’s the kind of crazy thoughts that go through my head. I was actually semi-serious as she had a negligible pension & it would have transferred half my SIPP to her
When the civil partnership stuff first came round, I actually looked into whether I could ‘marry’ my dad to avoid IHT… loophole closed annoyingly…
forest172 said:
I asked this question a few weeks ago
Can’t you just transfer all the funds to cash and keep that in you SIPP at under the threshold
You could - but why would you ? It's a bit extreme.Can’t you just transfer all the funds to cash and keep that in you SIPP at under the threshold
That is basically saying you'd rather have none of the gain just to spite HMRC - rather than sharing the gain with them.
De-risk is likely a reasonable strategy, but accept that you're over & will have a tax bill eventually. However, that bill may be after your death and only affect the beneficiaries, who may still be better off than inheriting money outside a SIPP and paying IHT.
RichS said:
It just seems that avoiding a market shock vs remaining invested in relatively risky assets (equities) and allowing the government to keep 55% of any upside just isn’t worth it, but my thinking may not be logical. I was of course happy to run the risk of market shock when I would keep 100% of any increase.
Once you’re over the LTA, you’ve effectively transferred 55% of your downside risk, down to the LTA, to the government. So as your pension increases above the LTA, you’re reducing your downside risk and exposure to a market shock.CarlosFandango11 said:
Once you’re over the LTA, you’ve effectively transferred 55% of your downside risk, down to the LTA, to the government. So as your pension increases above the LTA, you’re reducing your downside risk and exposure to a market shock.
Definitely a glass half-full kinda guy!
55% tax is only if you take the excess as a lump sum or you are a higher rate taxpayer in retirement. Otherwise, if you can make withdrawals at basic rate tax the total tax is 40% (25% LTA charge and 20% income tax).
If you're over 55 now you could crystallise the whole pension whilst you're basically at the limit and pay little to no LTA tax. Then you'd have to manage the pension pot as if it's worth more at 75 than it is now the growth would still be subject to a 25% LTA charge.
Also bear in mind the rates of income tax you're having to pay to bring money out of a pension to avoid a 25% LTA charge on an asset that is also normally outside of your estate for IHT...
If you're over 55 now you could crystallise the whole pension whilst you're basically at the limit and pay little to no LTA tax. Then you'd have to manage the pension pot as if it's worth more at 75 than it is now the growth would still be subject to a 25% LTA charge.
Also bear in mind the rates of income tax you're having to pay to bring money out of a pension to avoid a 25% LTA charge on an asset that is also normally outside of your estate for IHT...
bmwmike said:
Oh wow live and learn I thought the LTA was contributions didn't realise it included growth. Great forum this.
Just to add, the above is just one of the 13 (BCE) events triggering a LTA test. I can't be bothered to write these up when a simple Google search can explain it all! 🙂
https://professionalparaplanner.co.uk/techzone/13-...
I'm pretty sure that most SIPP providers will allow you to drawdown all sums above the LTA as income if you want so the highest LTA tax you pay will be 25% of sums above the LTA.
25% LTA tax is nothing compared to what you will lose to inflation over time if you move your pot into cash.
You should also note that the tax is only payable when you crystallise pension above the LTA. This could be years or even decades after you retire.
25% LTA tax is nothing compared to what you will lose to inflation over time if you move your pot into cash.
You should also note that the tax is only payable when you crystallise pension above the LTA. This could be years or even decades after you retire.
LeoSayer said:
I'm pretty sure that most SIPP providers will allow you to drawdown all sums above the LTA as income if you want so the highest LTA tax you pay will be 25% of sums above the LTA.
25% LTA tax is nothing compared to what you will lose to inflation over time if you move your pot into cash.
You should also note that the tax is only payable when you crystallise pension above the LTA. This could be years or even decades after you retire.
Never alter the plan to reduce growth. Cash is dead. paying taxes on gains beats paying no tax on zero. Always take employer contributions regardless of the pot size. If you take the surplus as income you will be taxed at 25% straight off the top and when you withdraw the income you will be taxed on this income.25% LTA tax is nothing compared to what you will lose to inflation over time if you move your pot into cash.
You should also note that the tax is only payable when you crystallise pension above the LTA. This could be years or even decades after you retire.
Remember that the LTA is only frozen until April 2026. It may well increase again thereafter
Burwood said:
Remember that the LTA is only frozen until April 2026. It may well increase again thereafter
I'd take the other side of that bet! I think it comes down to how successful the doctors' lobby is as there is relatively little political sympathy for any other constituency affected by this.NickCQ said:
Burwood said:
Remember that the LTA is only frozen until April 2026. It may well increase again thereafter
I'd take the other side of that bet! I think it comes down to how successful the doctors' lobby is as there is relatively little political sympathy for any other constituency affected by this.Burwood said:
NickCQ said:
Burwood said:
Remember that the LTA is only frozen until April 2026. It may well increase again thereafter
I'd take the other side of that bet! I think it comes down to how successful the doctors' lobby is as there is relatively little political sympathy for any other constituency affected by this.The sensible thing to do would be to have a flat rate of tax relief at, say, 30%, with a cap on how much tax relief you can claim (eg up to £30k per annum for 20-25 years) but no lifetime allowance to penalise those who (a) want to save more than the amount they get tax relief on and/or (b) have decent investment returns.
As there is no downside protection I don’t see why someone taking risks to provide for themselves in retirement rather than expect the state to do so should be penalised because those risks have paid off. This is not how, eg, CGT works.
This limits the amounts of tax relief and incentivises people to save/invest and does not penalise them if their investments do well.
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