My Flexible Access Drawdown Pension will likely go over my LTA limit of £1,073,100 in the near future. Is there something I should be doing now in terms of protection?

22 April 2022

Question by Mark

I recently transferred my defined benefit pension, across to a flexible access drawdown pension. My investment will likely go over my LTA limit of £1,073,100 in the near future. Is there something I should be doing now in terms of protection, or can this wait for another day?

Answered by Boring Money

Hi Mark,

There is a mechanism to protect your LTA. These mechanisms are called fixed protection and individual protection, but these are only relevant when the lifetime allowance has been reduced, which has happened a few times since the LTA regime was brought in. This will only be relevant to you if your total pension savings was worth over £1m on 5 April 2016.

I suspect this isn't what you are referring to however and instead is to do with the value of benefits now being measured against £1,073,100.
The issue you have is the risk/reward trade-off by going over the LTA limit. Any risk you take to try to grow the value over the LTA limit theoretically does not come with the full reward as some of that will be taxed.

Despite this, I personally *generally* recommend people not to alter their risk approach, just to try to avoid LTA charges. This is for a couple of reasons, firstly because we don't know what will happen with legislation, which has changed significantly already since the LTA regime came in. Second, it is likely that your pot will grow over the limit if you continue invested the way you are, so really, why limit growth to save tax? whilst it hurts paying more tax, a higher net amount after tax is still better than a lower net amount after a lower amount of tax.

Of course this isn't intended to be financial advice to you in your circumstances and is only my general approach, assuming all things being equal. If there is something unique in your circumstances, it's very possible this approach may not be appropriate.

If you'd like to discuss this further, I'd be happy to have a chat.

All the best


Answered by

Boring Money