The client is a 40% tax payer and has a level salary of £100,000. They are currently a member of their employer’s defined contribution pension scheme where the employer pays 6% of salary as standard and employee contributions are matched 1 for 1 up to 6%. They plan to retire in 5 years. The fund was valued at £900,000 on 6 April 2021. They are considering whether they should stay a member (and if so should they contribute or not) or opt out of the scheme.
Opting Out | In Scheme Employer Contributions Only |
In Scheme Employer & Employee Contribution (6%) |
|
---|---|---|---|
Scenario* |
A |
B |
C |
Protection |
None |
None |
None |
LTA in 5 years |
£1,116,453 |
£1,116,453 |
£1,116,453 |
Starting Fund at 6 April 2021 |
£900,000 |
£900,000 |
£900,000 |
Member cost |
£0 |
£0 |
£18,000** |
Fund at vesting |
£1,148,652 |
£1,183,464 |
£1,253,086 |
LTA excess |
£32,199 |
£67,011 |
£136,633 |
LTA charge |
£17,709 |
£36,856 |
£75,148 |
LTA excess lump sum |
£14,490 |
£30,155 |
£61,485 |
Pension fund remaining after LTA excess paid out |
£1,116,453 |
£1,116,453 |
£1,116,453 |