4. Check if the DB scheme will allow a partial transfer in which case you can work out a mixture of one or two, plus three. We’ll assume a partial transfer is not offered to make our sums simpler.
Options for scheme B
As above:
1. Leave in DB and take full pension. £15,000 x 20 = £300,000 LTA, using 2018 to 2019 rates this is 29.12 per cent.
2. Leave in DB scheme and take maximum pension commencement lump sum (PCLS) and reduced pension. (£9,643 x 20) + £64,285 = £257,145 LTA, 24.96 per cent.
3. Transfer from DB to DC. £450,000 LTA, 43.68 per cent.
Options for scheme C
Mr Bevan will continue to make regular contributions to this scheme until he is age 75, at which time the fund will be converted to an annuity at a rate determined in the plan rules.
This is a DC fund and if used to buy an annuity it is the purchase price of said annuity that uses LTA, so (assuming no growth) £90,000, 8.73 per cent.
Options for scheme D
This can be taken as a small pot and won’t actually use any LTA. It may be beneficial for Mr Bevan to take this before reaching age 75 when the automatic LTA test takes place and the scheme administrator would deduct the 25 per cent charge from LTA excess funds.
Is LTA protection available?
A few of Mr Bevan’s ex-work colleagues have already transferred their DB pensions and mentioned to him that he can apply for LTA protection as his pension funds, assuming he takes the transfers, will exceed the standard LTA. There’s no deadline for applications so he asks if you can help him with this.
The two current forms of LTA protection are Fixed Protection 2016 (FP16) and Individual Protection 2016 (IP16).
Is Mr Bevan eligible for either?
FP16
As Mr Bevan has made contributions to scheme C since 5 April 2016, this means he can’t benefit from FP16.
IP16
Mr Bevan’s relevant amount on 5 April 2016 was £1,020,000. If he had used any pension funds between 6 April 2016 and 5 April 2018 he would have benefited by having a LTA of £1.02m rather than the standard LTA which would have been £1m.
However, with the CPI increase from 6 April 2018 taking the standard LTA up to £1.03m, and overtaking Mr Bevan’s personal LTA, there is nothing to gain from IP16 now.
What is the right way to use the 100 per cent lifetime allowance?
Let’s look at a few of the many possible options open to Mr Bevan for taking his benefits and their outcomes.
