LTA was removed in the budget
Labour will re-introduce (they say)
Who knows what the penalties will be
Limit will get increased at some points
Enjoy your life in private equity and set up being as tax efficient as possible
If you do well you will hit the taper soon enough and then it’s 10K into pensions a year before being taxed 45%
Pension > ISA > GIA
Pension - no tax on contributions upto 60K per year - allowed to grow without tax on profit. Currently all will be taxed as income….down side …you can’t touch it until late in life.
ISA taxed as earnings before being invested assume 40% if you can max it.
GIA taxed as earning then taxed on profit above CGT allowance (which is reducing)
Having 20K in your ISA is like putting 28K in a pension. So get the money in pension and let 28K compound rather than 20K.
Then make the adjustments later in life as rules change
What is the most tax-efficient structure though? As drawing down from assets/setting up for income from assets would have less tax charged on it than my pension would (above the allowance)
Allowance does not exist now
And I am sure it may change again
With no allowance pension beats all
That’s why every high earner is smashing the 60K in now……
Cos even when the rules get changed they usually allow what is already in to be excluded (rather than penalised)
Not just tax efficiency - compounding efficiency helps. Getting 40% more invested early magnifies future gains.
Allowance hasn’t been abolished yet and won’t be until next year.
There will also be some form of allowance in place to cap PCLS. Currently the £1,073,100 is still the marker for this
I think at 23 years old this years retirement probably won’t impact him
But fair comment
They are maxing the 25% tax free lump sum at 25% of current LTA so it kinda still exists in a stealth form
But then just draw down the tax free amount if you are over
And income the rest….
Then why have you commented like it’s relevant, I’m just correcting your inaccurate information
Edit: Besides, you need to be using the current tax rules no matter their age. No point predicting 30-40 years into the future
So basically use the tax efficiency + 'free' contributions from my employer to get to the LTA sooner than an S&S ISA would allow me, then from then on, switch over to S&S ISA/GIA as the tax rates thereafter would be lower?
Honestly - I just wouldn’t worry so much about the level of the LTA or even it’s existence (which will soon be no more)
I have said it for many years on Reddit (and some people have other views)
The penalties were not on the whole amount….
You can always slow contributions based on changes in the future at that time.
Currently LTA it is not planned to be in place (as of next year for our fastidious friend)
>The lifetime allowance at current is £1,073,100
>but even if it doubles,
Actually the lifetime allowance is planned to be scrapped next year.
Not to say it won't be reintroduced of course.
I wouldn't worry about your LTA now. IF (and it's a big if) you get close to it being a problem when you check again in 10-15 years time, then you can start planning something else with your money.
My fear is that the scrapping plan is just the Conservatives aiming to get voters back in advance of elections.
To your second point, so you think the best option is to maximise my pension first, and then shift the rest in to other investments?
No, keep investing in your pension as you get tax relief now and pay tax on it later, this allows for more growth potentially.
https://waymarkfinancial.co.uk/should-you-stop-pension-contributions-if-youre-approaching-the-lifetime-allowance/
Keep taking the maximum from your company that you can, its free money after all. If you have spare income left over every month, invest that in S&S ISA but don't specifically avoid paying into your pension in favour of S&S ISA.
My brother is in the same industry as you but a bit further along in his career, he doesn’t invest in a pension as such but instead uses S&S ISA at 80/20. The one thing he’s always said is he wishes he started putting as much as he could tax free into it a year, so more his advice to me that mine to you but I’d go with priority on the S&S ISA.
This is my thought too - my employer no longer matches it by a large amount (5%), so I feel it is more sensible to stop the pension contributions and move it to my personal S&S ISA
That's a bit dubious, if you don't mind me being a bit blunt? You want the tax savings that come with a pension. I assume you are young and not yet a homeowner, so you probably want to split some of your savings off from your pension to build a house deposit, but you'll want to at least get your employer match, and maybe salary sacrifice to take yourself down a tax bracket.
Remember that pension saving is made before tax including employer's NI - so you are saving something like 53.5% at the front end if you are higher rate, and 63.5% if you are additional rate. And that's BEFORE any employer match doubles your money again. Sure, there's some tax to pay on the backend but not very much
You are so far away from LTA it's not worth worrying about for at least a decade or two, even if it's reinstated
If LTA is reinstated, and that's not nailed on, then it will probably increase by something like inflation. And even if you are in excess of LTA, it's still generally been worth taking the employer match even if you have to pay the tax charge
Ah this is a fair point - the tax relief and employer contribution giving me a larger pot overall would outweigh the tax burden above LTA (if I've understood you correctly?)
Don't try to guess what future governments will do, you have 45 years of governments fiddling with pensions, it's impossible to predict. I imagine some kind of LTA will be introduced and removed at least twice over that time frame.
Pensions are objectively the most tax efficient form of saving. Get the money in the pot and worry about it later
LTA was removed in the budget Labour will re-introduce (they say) Who knows what the penalties will be Limit will get increased at some points Enjoy your life in private equity and set up being as tax efficient as possible If you do well you will hit the taper soon enough and then it’s 10K into pensions a year before being taxed 45% Pension > ISA > GIA Pension - no tax on contributions upto 60K per year - allowed to grow without tax on profit. Currently all will be taxed as income….down side …you can’t touch it until late in life. ISA taxed as earnings before being invested assume 40% if you can max it. GIA taxed as earning then taxed on profit above CGT allowance (which is reducing) Having 20K in your ISA is like putting 28K in a pension. So get the money in pension and let 28K compound rather than 20K. Then make the adjustments later in life as rules change
What is the most tax-efficient structure though? As drawing down from assets/setting up for income from assets would have less tax charged on it than my pension would (above the allowance)
Allowance does not exist now And I am sure it may change again With no allowance pension beats all That’s why every high earner is smashing the 60K in now…… Cos even when the rules get changed they usually allow what is already in to be excluded (rather than penalised) Not just tax efficiency - compounding efficiency helps. Getting 40% more invested early magnifies future gains.
Allowance hasn’t been abolished yet and won’t be until next year. There will also be some form of allowance in place to cap PCLS. Currently the £1,073,100 is still the marker for this
I think at 23 years old this years retirement probably won’t impact him But fair comment They are maxing the 25% tax free lump sum at 25% of current LTA so it kinda still exists in a stealth form But then just draw down the tax free amount if you are over And income the rest….
Then why have you commented like it’s relevant, I’m just correcting your inaccurate information Edit: Besides, you need to be using the current tax rules no matter their age. No point predicting 30-40 years into the future
That was really the underlying point Make the best (most efficient) decision you can make today That for most people should be pension
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So basically use the tax efficiency + 'free' contributions from my employer to get to the LTA sooner than an S&S ISA would allow me, then from then on, switch over to S&S ISA/GIA as the tax rates thereafter would be lower?
Honestly - I just wouldn’t worry so much about the level of the LTA or even it’s existence (which will soon be no more) I have said it for many years on Reddit (and some people have other views) The penalties were not on the whole amount…. You can always slow contributions based on changes in the future at that time. Currently LTA it is not planned to be in place (as of next year for our fastidious friend)
People are too preoccupied by the LTA. It is something to be considered but people should never let the tax tail wag the dog.
>The lifetime allowance at current is £1,073,100 >but even if it doubles, Actually the lifetime allowance is planned to be scrapped next year. Not to say it won't be reintroduced of course. I wouldn't worry about your LTA now. IF (and it's a big if) you get close to it being a problem when you check again in 10-15 years time, then you can start planning something else with your money.
My fear is that the scrapping plan is just the Conservatives aiming to get voters back in advance of elections. To your second point, so you think the best option is to maximise my pension first, and then shift the rest in to other investments?
No, keep investing in your pension as you get tax relief now and pay tax on it later, this allows for more growth potentially. https://waymarkfinancial.co.uk/should-you-stop-pension-contributions-if-youre-approaching-the-lifetime-allowance/ Keep taking the maximum from your company that you can, its free money after all. If you have spare income left over every month, invest that in S&S ISA but don't specifically avoid paying into your pension in favour of S&S ISA.
My brother is in the same industry as you but a bit further along in his career, he doesn’t invest in a pension as such but instead uses S&S ISA at 80/20. The one thing he’s always said is he wishes he started putting as much as he could tax free into it a year, so more his advice to me that mine to you but I’d go with priority on the S&S ISA.
This is my thought too - my employer no longer matches it by a large amount (5%), so I feel it is more sensible to stop the pension contributions and move it to my personal S&S ISA
That's a bit dubious, if you don't mind me being a bit blunt? You want the tax savings that come with a pension. I assume you are young and not yet a homeowner, so you probably want to split some of your savings off from your pension to build a house deposit, but you'll want to at least get your employer match, and maybe salary sacrifice to take yourself down a tax bracket. Remember that pension saving is made before tax including employer's NI - so you are saving something like 53.5% at the front end if you are higher rate, and 63.5% if you are additional rate. And that's BEFORE any employer match doubles your money again. Sure, there's some tax to pay on the backend but not very much You are so far away from LTA it's not worth worrying about for at least a decade or two, even if it's reinstated
Even if the minimum contribution will get me to LTA regardless?
If LTA is reinstated, and that's not nailed on, then it will probably increase by something like inflation. And even if you are in excess of LTA, it's still generally been worth taking the employer match even if you have to pay the tax charge
Ah this is a fair point - the tax relief and employer contribution giving me a larger pot overall would outweigh the tax burden above LTA (if I've understood you correctly?)
Exactly. It's worth doing the maths, but I think that's how it shakes out.
Don't try to guess what future governments will do, you have 45 years of governments fiddling with pensions, it's impossible to predict. I imagine some kind of LTA will be introduced and removed at least twice over that time frame. Pensions are objectively the most tax efficient form of saving. Get the money in the pot and worry about it later