DB TVC head scratcher

Colinstewart76

Hi all

Interesting case on my desk at the moment. Scenario is this:

Client has a DB pension entitlement of £88,000 pa (NRA is in January 2025, but he decided to take benefits a 6 years early at age 59 in January 2019). Since January there has been a lot of back and forth between the scheme regarding the LTA position. After some discussion and concessions made by the Trustees, the options available to the client are:

1. Take the full pension, which after LTA charge reduces to £63,200 pa for the first 5 years (to age 64), before reverting to the £88k (in today's terms) thereafter. Basically, he's paying the LTA charge of c£127k through 5 years of reduced pension.

2. Take a CETV of £1m in respect of just the excess pot, and receive £62,500 pa from the DB scheme (exactly 100% of the LTA).

There were other options, but the client has already taken the £62,500 pension (therefore crystallised up to the LTA) and has just asked for the partial CETV to be considered for transfer compared with taking the full entitlement now (which effectively will pay him nothing extra for 5 years). The problem I have is the TVC system we use cannot model the LTA tax charge in this way.

Question - I am almost certain we will need to do a TVC for the partial transfer but I am a bit worried we may have to do it manually. Anyone got any experience of similar?

Colin

benjaminfabi

Colin,

I'd focus on just using the software for the TVC at NRA, carving out the only remaining transferable benefit he has in the scheme and treating it as its own benefit. You'll need to manually calculate the expected DB pension at age 65 and use that in the TVC.

Then look at the other aspects manually. In this scenario, the TVC is doing nothing more than ticking a compliance box IMO.