Steven lives in England, is a 40% taxpayer aged 55, with pensionable salary of £80,000.
|Steven opts out||Steven stays in the scheme Employer contribution only||Steven stays in the scheme Employer and employee contribution 6%|
|LTA in 5 years’ time||£1,184,789||£1,184,789||£1,184,789|
|Starting fund at 6 April 2018||£930,000||£930,000||£930,000|
|Net Cost to Steven||£0||£0||£15,517|
|Fund at retirement||£1,131,487||£1,159,447||£1,187,408|
|LTA charge (excess taken as lump sum)||£0||£0||£1,440|
|LTA excess lump sum||£0||£0||£1,179|
|Pension fund after charge||£1,131,487||£1,159,998||£1,185,968|
Assumption 1: LTA increases by 2% each year.
Assumption 2: Steven’s pensionable salary increases by 2.5% each year.
Assumption 3: Investment growth net of charges is 4% p.a.
Steven’s adviser explains the situation to him as follows:
The adviser explains that based on the assumptions they’ve agreed about Steven’s likely future pay rises and the investment funds chosen, the potential benefits from remaining in the scheme and continuing to benefit from employer and personal contributions outweigh Steven’s costs including the LTA charge. The adviser ensures Steven understands that if reality differs from the assumptions used, the position could change, and that they should therefore regularly review the position.
The adviser goes on to explain that Steven’s employer does not offer any alternative benefits/payments if an individual opts out of the pension scheme so there are no other options to be considered.
Steven remains in his scheme and continues to pay personal contributions of 6%.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.