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Government thinking of cutting the LTA, and more.

I see the government have their eye on cutting the LTA.

Considering how low annuity rates are, reducing the LTA will mean some pretty moderate pensioners will feel incentivised to retire early. Instead people will need to think about having a retirement income made up of state pension, personal pension, AND investments/ISAs. The massive hike in ISA limits a few years ago means that some people might choose not to save into a pension, but instead to be taxed now and put the money into ISAs, though international pressure to harmonise tax laws is always pushing to remove ISAs.

I’m just glad I moved as much as possible out of SIPPs and into drawdown when I hit 55, measured against the LTA at the time.

The “pension relief at marginal rate” principle is a way to put some of your pay aside to be taxed as income later in life. If they start changing that principle, pensions might become very unappealing to some people who will effectively be taxed now AND later.

For the state pension triple lock they could just average over the last 3 years for each of the three measures, but I’ve not heard any mention of that. Though I’ve read that the state pension is relatively low when compared internationally, and the triple lock was partly intended to inflate the state pension so it compares better to other countries.

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Does my spend pay back?

I was looking at electric cars, then at home batteries, solar panels, air-source heat pumps, etc.. Websites talk about typical savings and hence typical paybacks. I thought I’d consider “what if I invest that money instead” to see what different levels of investment return would do to the payback. The result is certainly food for thought. Solar panels are currently a non-starter. Home batteries (Tesla, Solax, etc.) to enable use of Economy 7 tariff is a far longer payback than I had thought. The cost of solar panels is reducing, and similarly home batteries are becoming more cost-effective, so in a few years I can look again. I suspect that if enough people have electric cars and home batteries, both charging overnight, energy companies won’t be offering such good deals for Economy 7. I’ve done a page to show my spreadsheet model.

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Anticipating tax with a revised planning model

After a fairly good investment return this year, I thought I’d better look ahead at what prolonged good return might mean for taxes.  At the same time I’ve adjusted how I plan ahead, which has barely changed the pension that I allow myself, but which gives me a better view of tax implications.  It all means that Lifetime Allowance BCE 5A needs thinking about.  I have a plan for now, and couple of options for a few years’ time.  I’ve written a page on this.

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Bridging pension: it’s welcome but it’s an LTA pain

It seems I may get a bridging pension from one of my ex employers’ DB pension schemes. Bridging pensions are also known as Temporary Pensions or Step-Down Pensions. I think I am going to have to be VERY careful to stay on the right side of the Lifetime Allowance without incurring various unwelcome taxes. Bizarrely, bridging pensions eat up 20x their annual value of my LTA, even though they only last for a few years and are worth far less than the main pension (which is rated at 20x). More info on this on an update of my LTA page.

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Simple maths for DB pensions

For quite a few months I’ve had a pretty simple calculation that mimics the tables that you can easily find online for early taking of DB pensions such as the NHS and Local Government. I’ve realised that exactly the same maths will calculate transfer values. It should apply to any DB pension – indeed, the transfer value I was offered a couple of years back from a company DB scheme can be calculated using the same assumptions that the NHS and Local Government use. I’m using the maths to challenge a DB scheme’s excessive reductions for early starting of a pension. (A page on this is to follow soon.)

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A busy year means lots of new content

It has been quite a year! The biggest news is that my wife has terminal cancer. In parallel my job has been made redundant. I’d planned on working for a few more years, probably reducing hours a little, but with the redundancy payment I think I can just about retire. So there’s pages to be written on all this, starting with redundancy, then my pension plans, and at some point something on the finances of terminal illness.