Increase to the LTA

[Nowisthesummerofourdiscontent]

It is widely reported today that Jeremy Hunt is considering increasing the LTA. I suspect he’s testing voter reaction but I’d be surprised if he doesn’t go through with it due to the labour force gains and increased tax take (as higher earners will continue to pay tax and add to their pension pot). An exodus of highly skilled over 50s from the job market follows the law of unintended consequences. Who is with me thinking this is welcome news?

It was Rishi that said it was frozen until 2026 when he was chancellor!

I think it is a good idea if they really want over 50s back in the workplace which seems to be the current fashion (not clear why).

I’d say there are 3 main groups have left work early - sick, carers and those who can afford to and want to. Only the last group are the most temptable. And that’s my group.

I have recently retired (very) early and one factor (though definitely not the only one) is that I stopped a nice £25k short of my LTA. So giving me more LTA might help all this talk of tempting people like me back to the workplace. But it would still be unlikely! I think it would make more of a difference to people still contemplating leaving and LTA being a factor (i.e. me several months ago).

I wonder why you don't explain what the LTA is in your title or use the full pension Lifetime Allowance title?

I'm not sure if it's my experience, but you might find you get more inclusive discussion if you explain acronyms.

If posters don’t know what the LTA is they’re not that likely to have an opinion. Calling it LTA is entirely normal.

Hmmm.

Keep to your clique then, @Chewbecca.

Not necessarily true.

I didn’t know that LTA was lifetime allowance, but I do have an opinion.

I only realised last week that I had messed up by thinking the limit was for lifetime contributions, not total value. Would therefore be very glad if it was increasing!

What would any downside be?

I didn't know what an LTA was until explained on here, I don't worry about pensions too much as I have a good one and happy with my forecast, does it affect defined benefit pensions? I didn't think they could be valued in the same way?

@UserNameSameGame downside would be reduced tax take (potentially, depends if people would pay the LTA charge, return to work, pay income tax - he should be modelling it anyway) and how voters might respond to something that might be seen as a tax break for rich people - after all, it only kicks in when you've got a pension pot of around a million.

Personally I'm in favour of increasing it but I'm surprised Hunt thinks it will play well.

Of course it does, it‘s why the NHS is losing so many doctors. Fifty grand here or there is not going to change anybody’s mind. Plus doctors are also likely to be caught by the annual allowance.

DB pensions are subject to LTA. It’s one of the reasons an increase is being suggested because Drs quote it as a reason they’re retiring early.

Many are valued at 20x the annual amount to be paid + DC pot / TFLS. But it’s not always the same & that is rough. The pension provider should regularly tell you the % LTA used.

Downside is the perception of giving tax breaks to already rich people.

I’ve already benefitted from tax relief on the way in - why should I begrudge paying tax on what is mainly unearned/investment returns on the amount over the LTA at the time I start to draw it? 🤷‍♀️

Thank you, how do you know the projected worth of your pension??

Ah, I just assumed they would have modelled it and figured out they’d get more tax by increasing it (through having more people working) than by leaving it as is. Would be daft to raise it otherwise.

@Chewbecca sorry just saw you mentioned the times 20 thing. Well clearly I need to pay more attention as I am projected around 1.06 assuming I stay healthy, working full time etc etc and in the civil service, and I'm only mid 30s so still planning on a few more promotions yet. Im glad I clicked, will look into in more detail.

I will have to think about more carefully for an opinion ha, I thought it was taxed on the way out of over the personal threshold, so an additional tax?

Is that you Jeremy?

LTA should be abolished entirely.

Interesting. It would save a load of admin and definitely stop putting doctors off retiring.
Would you keep the annual allowance?

And the ability to pass DC pots on after death outside inheritance tax?
And the MPAA?

I think it should be simplified, then I start contemplating the potential knock on effects and the people who would have the ability to abuse them and it puts me off again and I revert to thinking we have a decent system. We just mucked up by reducing the LTA too much in the last few years when it should have been left at around 1.5/1.6m and continued to rise with inflation.

If it was (pretty unlikely!) - would your answer be different?

I would be happy if the LTA was increased as an upturn in the stock market could push me over the edge in future.

I don’t think that people are aware that if you don’t take all of your pension at once, (i.e. use drawdown) the rest of it can keep growing and it all gets retested for LTA every time you put more into drawdown and then automatically when you reach the age of 75. If the stock market has done well, you could be in for a large and unexpected tax bill.

Throughout my working life, the government have repeatedly moved the goal posts on private pensions often with very little notice. If a commercial body did that there would be uproar and it would probably be deemed illegal.

So, increase the LTA please, Jeremy. I am still not going back to work.

You most certainly didn‘t benefit from 55% tax relief. And even if you don‘t mind paying it, you would still much rather retire than do a very stressful job for which you get very little recognition.

No, I’m definitely not Jeremy. I think they must be testing the water as it’s a difficult message. ‘Tax cuts for millionaires’ is an easy headline over ‘NHS (National Health Service) consultancy retirement rate stalls’.

There has been far too much meddling with the threshold over the last decade.

Not only would the tax take increase but highly skilled labour would remain in the workforce.

I would love it to be increased, as then I could keep paying into my pension for longer. I currently get 60% tax relief, though, so it probably makes sense to keep going even if the LTA stays where it is. I’ll happily pay tax on the excess.

But I very much doubt it will tempt many people (doctors aside) back to work - very few people (certainly v few without DB pensions) get anywhere close to the LTA.

I think the LTA should be abolished for DC, anyway, and just have the annual allowance.

I benefitted from 45% tax relief (and maybe more while the higher rate tax rate was 50% - I can’t remember the rules). So do I mind paying a little bit more than that on the value above the LTA? Not a bit for two reasons: I didn’t save £1m+ out of my earnings - a big chunk of that is investment returns/unearned. And secondly, someone has to pay for public services and I believe strongly that should be on the wealthy. It’s not going to make me stop working until I want to.

People in your position have benefitted substantially more, firstly from tax relief at 50% and then secondly at a time when you could protect the LTA at £1.8m so who is really paying for public services here?

It is a stupid policy, the whole thing should be abolished. There is a total mismatch between the allowable annual contribution limit (40k) and the LTA. I would rather they dropped the annual allowance. I can control my contributions but not long term stock performance.

Having had a few lucrative years before having kids we piled into pensions, but now in our 40s looking like we will both hit the current lta if next 10 years looks like the last in terms of stock performance even if we make no further contributions. Or we could fall well short if markets stagnate. Totally realise I am lucky either way, but it makes financial planning impossible.