Lifetime Allowance (LTA)

[Lance]

Totally agree with you .... what I was drawing attention to was the fact that you would struggle to find a decent place to put £1M and get 2.5% in a savings account.

The current rates are between 0.5 - 2.0%.

There seem to be a few places offering "5%" but the ones I've looked into are all capped at some low, low value, like 3k.

I would never buy an annuity.

perhaps it might be harder to find. I'd not suggest savings accounts anyway, but it was to illustrate the madness of buying an annuity, and that was a very, very poor annuity rate as well.


To be clear though. Interest rates are low now, but a pension is for life not just this decade.
The long term average is considerably higher, and is likely to rise again soon (fingers crossed).


Although with £1M a diverse portofolio of investments is the best suggestion.

[Paralytic]

I don't understand why anyone would voluntarily purchase an annuity.

Better to buy £1m of property as you'd probably end up with a gross yield of around £35-60k plus any capital appreciation.
And best of all, unlike an annuity, which goes to zero on death/spouse's death, the property can still be handed down.

(my bolding)

Or depreciation.

I agree with questioning the benefits of an annuity, however.

[Sterling]

Totally agree with you .... what I was drawing attention to was the fact that you would struggle to find a decent place to put £1M and get 2.5% in a savings account.

The current rates are between 0.5 - 2.0%.

There seem to be a few places offering "5%" but the ones I've looked into are all capped at some low, low value, like 3k.

I would never buy an annuity.

Of course, I wouldn't buy an annuity. I was using it for evaluation purposes to point out that £1m in a pension is not a huge sum of money. The capital in the pension is protected from inheritance tax and should I die before the age of 75 (which in my case is most probable), my family get the capital or an income tax free. I would be using the tax free lump sum first and then drawdown when the cash is depleted.

[ContractorBanking]

I don't understand why anyone would voluntarily purchase an annuity.

Better to buy £1m of property as you'd probably end up with a gross yield of around £35-60k plus any capital appreciation.
And best of all, unlike an annuity, which goes to zero on death/spouse's death, the property can still be handed down.

[tomtomagain]

Im retired but not yet state pension retirement age. if I had a million quid, I wouldnt by an annuity or even consider sticking the million in any pension 'pot.' Even taking 40 grand a year, the million would last me 25 years and that's excluding my current and future pension.

Totally agree with you .... what I was drawing attention to was the fact that you would struggle to find a decent place to put £1M and get 2.5% in a savings account.

The current rates are between 0.5 - 2.0%.

There seem to be a few places offering "5%" but the ones I've looked into are all capped at some low, low value, like 3k.

I would never buy an annuity.

[Hobosapien]

As an older contractor, it would be a double whammy to force me into IR35 and hitting the LTA limit. I agree with the article referenced below. Just as doctors are being forced into retirement, the same must apply to older workers. The present tax system contrives to force older workers into early retirement.

Surely one of the benefits of being a contractor is the flexibility to arrange your investments over your contracting lifetime so everything isn't piled into a pension? So if you still worry about the LTA you should be so well off that you can do what the doctors and others are doing and choose life over work. If you really enjoy it that much you feel you're being forced into retirement, find alternative ways to use your skills that allow you to handle the finances differently. i.e. outside IR35.

Use the flexibility of contracting to assess year to year what makes sense for longer term investment. Maybe take a 'sabbatical' (paid for by your Ltd ) or a career break to make more use of free time while younger, than working year in year out until burnout or retirement where there is no guarantee your health or luck will mean you live to make use of the pension pot anyway.

Spread the risk so you can access the cash earlier than retirement age if necessary, and to avoid any future pension changes that mean you wouldn't have put so much into the pot in the first place.

LTA seems to be targeting well paid permies on the old final salary schemes where they got a ridiculously generous pension compared to those that followed, once the final salary schemes realised they couldn't cover their liabilities so need artificial caps like the LTA to stop it imploding even sooner. So maybe Boris will change the rules so LTA only applies to public sector permies (their real problem) and the rest of us can fill our boots however we wish.

On the flip-side, LTA may force out many permies as they can retire early, meaning contractors with the skills can fill the gap. Those contractors may well fall inside IR35 if they are doing permie style roles, but at least for now they can pile their earnings pre-tax into a pension via the salary sacrifice brolly method and if LTA looms retire early too.

[BolshieBastard]

You'd be surprised ...

Im retired but not yet state pension retirement age. if I had a million quid, I wouldnt by an annuity or even consider sticking the million in any pension 'pot.' Even taking 40 grand a year, the million would last me 25 years and that's excluding my current and future pension.

[tomtomagain]

If you have a £1m pension fund, and buy an annuity of £25k per year, you’ve already gone senile.

You’d get that with just interest on 1m.

You'd be surprised ...

[Lance]

OK, it is a matter of perspective. £1m provides an annuity of £25,000 with indexation and 50% for spouse. When maximum state pension is added, this provides a retirement income of £35,000 annually. A safe draw-down amount would be similar. My family and I have made compromises over the years to fund this pension.

If you have a £1m pension fund, and buy an annuity of £25k per year, you’ve already gone senile.

You’d get that with just interest on 1m.

[Sterling]

From the article:

"It’s not the super-rich that are being hurt by this tax. A lot of middle England that aren’t seen as very affluent have been hit by this tax.”

I suspect that is completely out of touch with reality. The stereotypical "man in the street", when asked if someone with a £1M pension pot was very affluent, would respond with an affirmative.

OK, it is a matter of perspective. £1m provides an annuity of £25,000 with indexation and 50% for spouse. When maximum state pension is added, this provides a retirement income of £35,000 annually. A safe draw-down amount would be similar. My family and I have made compromises over the years to fund this pension.

[BrilloPad]

I can't hit retirement soon enough.

Whatever Admin, NAT and WTFH, we don't want you to retire as CUK mod.....

[Paralytic]

From the article:

"It’s not the super-rich that are being hurt by this tax. A lot of middle England that aren’t seen as very affluent have been hit by this tax.”

I suspect that is completely out of touch with reality. The stereotypical "man in the street", when asked if someone with a £1M pension pot was very affluent, would respond with an affirmative.

[cojak]

I can't hit retirement soon enough.

[Sterling]

As an older contractor, it would be a double whammy to force me into IR35 and hitting the LTA limit. I agree with the article referenced below. Just as doctors are being forced into retirement, the same must apply to older workers. The present tax system contrives to force older workers into early retirement.


Boris Johnson's promise to fix problems with the Lifetime Allowance (LTA) should cover all pension savers in the UK, not just NHS doctors, says Salisbury House Wealth.

Johnson pledged to find a solution to the NHS pension crisis, in which staff are being hit by a punitive tax charge when they breach the LTA, resulting in doctors reducing their shifts and waiting times increasing.


Govt urged not to restrict LTA changes to just doctors - Pensions Age Magazine