LTA and order of taking from each scheme

Nath

Morning All

Just discussing something in the office and wanted to run this past others in the group to clarify my understanding (or otherwise).

Prior to the LTA changes, if a client was going to have an LTA charge when taking benefits, normally it would make more sense to take the DB benefits, prior to any DC benefits to avoid a reduction in the DB income etc.
We have a case where the client has a large DB income he is going to take shortly at NRD, but this would mean 100% of LTA used (he is taking full income option). He also has a Hargreaves SIPP at around the £500K mark and therefore no PCLS.

I'm just thinking from a PCLS perspective if he takes his full DB pension, he will then have no PCLS available on his HL SIPP. However, if he takes PCLS from the SIPP first (appreciate the provider will likely only allow 25% of the pot value) he will benefit from 25% tax-free and will not get hit with an LTA charge on the DB pot, allowing him full DB income, rather than any sort of reduction.

Just wanted to run it past others to see if my understanding is correct.

Thanks

Nathan

TimMatthias

It looks right to me, although I would rather wait for Les to confirm it.

Looks like I'll have a free hour or so this afternoon, so I'll see if I can find anything to back this up.

Nath

Thanks Tim, yeah it makes sense to me as the client will still have all LTA available from a PCLS perspective if he takes SIPP first.

TimMatthias

Nath,

Couldn't find anything that suggested this wouldn't work.

les_cameron

There is a retained amount i.e. the bit above LTA being used for income. That gets a 0% charge, so no pension reduction and all the income gets marginal rate tax.

Not seen anything suggesting it would work any other way and that's how the law says it should work!

Nath

Thanks for replying, appreciated.