What caught my eye this week.
A reader prompted an email discussion with my co-blogger The Accumulator about what the £1 million pension lifetime allowance (LTA) meant for where you should hold your different asset classes.
The reader said he thought bonds should go into his SIPP and equities into his ISA, since there was a lower chance of the total return from bonds eventually pushing him up against the LTA. In ISAs, of course, his equities could grow indefinitely without any such fears.
Interesting and novel idea, I thought, albeit a rich person’s headache to have. The Accumulator was less convinced. We kicked about various pros and cons.
I also thought about this when reading a White Coat Investor article this week on these sorts of allocation decisions (albeit in a US context).
Because as much as I like discussing investing minutia with my co-blogger, I agree with the White Coat Investor that getting things approximately right is infinitely preferable to being paralysed by attempting to get them exactly right.
WCI writes:
“The truth is that investment management is probably the least important aspect of your financial success and certainly the easiest to automate.
Maybe it’s okay to quit trying to optimize it (especially since nobody really knows the optimal asset allocation a priori) and just get something reasonable done.
You can certainly save yourself a lot of hassle and advisory fees that would help make up for any under performance issues.”
I often get emails from anxious readers who’ve been wondering for half a year what platform to use to begin investing £50 a month on, or something similar.
It’s great that they’re paying attention to costs and consequences. But at this level it’s far more important that they just get started.
Have a great weekend!
From Monevator
Cashing in a final salary pension is just the first decision – Monevator
We had a big debate about inheritance tax, in case you missed it – Monevator
From the archive-ator: Long-term returns from alternative assets – Monevator
News
Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1
FTSE 100 chiefs earn 100-times the average wage – Guardian
Electric vehicle growth is already shaking up the metals markets – Bloomberg
‘Big Short’ fund manager says financial system is safe [Search result] – FT
Check your pension is not accidentally over-exposed to equities after the long bull run – Bloomberg
Products and services
Where to save as bank account interest rates edge up – ThisIsMoney
Investors turn to AIM stocks for inheritance tax savings [Search result] – FT
Film and TV investment flops under fire [Search result, on EIS schemes] – FT
Student Loans Company is a ‘nightmare’, say graduates – Guardian
Cheaper rates for £35bn of remortgages due in next two months – ThisIsMoney
If you own Co-Op bonds you need to act now before ‘haircut’ – Telegraph
Emerging markets are now more exposed to finance and tech [Graph] – Templeton
A quick look into A J Bell’s passive fund-of-funds – DIY Investor
Cheap Blackrock hedge fund has doubled its assets in six months – Bloomberg
Understanding Bitcoin and other crypto-currencies – Musings on Markets
Comment and opinion
Investors should embrace the power of doing nothing [Search result] – FT
Indexing isn’t just for quitters – Pragmatic Capitalism
A cashed-up employee can fire their boss – SexHealthMoneyDeath
Stop thinking in terms of black and white, or in or out – Irrelevant Investor
Time scarcity and the allure of more – A Wealth of Common Sense
An interview with Vanguard’s new Chief Investment Officer – Denver Post
Winter is coming for overvalued growth stocks – The Value Perspective
The first rule of investing is… – Abnormal Returns
Stock pickers need arrogance and independence – Gannon on Investing
Early retirement could be bad for your brain [Two months old] – LifeHacker
Seven tips for a new hedge fund manager today – Nicholas Kapur via LinkedIn
Commodities and a diversified portfolio [PDF] – Gerstien Fisher
Off our beat
The new Tesla Model 3 has no competition – Futurism
The cult of the line: It’s not about the merch – New York Times
Men will lose the most jobs to robots, and that’s okay – Wired
Kitchen sponges are festering germ dens – Ars Technica
Cannabis company buys Californian town to build pot-friendly outpost – Bloomberg
And finally…
“It is actually quite easy to be a great investor. Have faith in capitalism; there may be stormy weather at times, but capitalism is a pretty effective system for creating wealth. Own global capitalism by owning a global market tracker that puts as much of the market return that it generates in your pocket, not someone else’s.”
– Tim Hale, Smarter Investing
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- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩]
Comments on this entry are closed.
Faster growing in ISA, slower growing in SIPP has worked for me, no navel gazing, just where I land the shekels.
I’m surprised you haven’t linked to Tim Hartfords 50 Things that Shaped the Economy yet. Perhaps you have and I missed it. Index Funds, Companies, Banks, Money, and Tally Sticks are just a selection. Awesome.
http://www.bbc.co.uk/programmes/p04b1g3c/episodes/downloads
Just this week I moved all the bonds I could out of my ISAs and into my SIPPs, and switched the equivalent value of stocks from my SIPP into my ISAs. I’m approaching the LTA, and need to make sure that investment growth doesn’t cause me to overshoot it. Getting back 45p in the pound and watching the government confiscate the other 55p holds no appeal.
So yes, I’d say if you have a choice, why not focus on stocks in ISAs and rein in growth on your SIPPs by putting your bond allocation there? That should prove to be a reasonable tax minimisation strategy even if you don’t hit the LTA. The government is going to take a slice of your SIPP when you draw from it no matter what, but nothing from your ISA.
Because of the asymmetrical tax situation, ISA money is more “dense” than SIPP money. That’s exploitable.
“Own global capitalism by owning a global market tracker …”: caution counsels that I own at least two, preferably on different platforms too. Just so that I can sleep more soundly.
Me too. My SIPP is approaching the LTA so I’ve invested it 100% in short-term bonds. Overall though I’m about 50% bonds and 50% equity, but not all my equity fits into ISAs. Nice problem to have – I’m lucky, I know.
“The new Tesla Model 3 has no competition”
Wow. Those reviewers were really going for maximum hype. Impressive. Yes, if you want a medium-sized car made by Tesla, the Model 3 has no competition. Amazing.
If I knew that Equities were going to outperform Bonds, including any free lunch coming from rebalancing periodically from Bonds to Equities and vice versa, including sequence of returns while I drawdown my pension, then I’d do the same. Unfortunately, I don’t know that plus I need to live between FIRE and access to my private pension so I’ll stick with my current plan:
– Cash/Bond to Equities ratio pretty even between SIPP and non-SIPP; and
– House purchase and 3 years living in cash outside SIPP.
Then again if I knew Equities would outperform Bonds during all that why would I want any bonds in my portfolio in the the first place…
@RIT: “I need to live between FIRE and access to my private pension”
This does not prevent you from placing bonds in the SIPP. The pros and cons are more subtle. Here is an example.
Imagine you have £100k equities in the ISA and £100k bonds in the SIPP (which you cannot access yet). Equities are down so you don’t want to sell, but your bonds are locked up in the SIPP.
You do the following:
1. Sell £10k equities from the ISA and withdraw the cash. But wait, there’s more…
2. Sell £10k bonds in the SIPP and rebuy £10k of equities in the SIPP with the proceeds.
You have effectively sold £10k bonds. The ISA balance is reduced by £10k and equities have replaced £10k of bonds in the SIPP.
There are some caveats:
1. Market movements could result in you ending up with less (or more!) equities after rebuying
2. This maneuver involves multiple transactions so you pay more transaction fees
3. The ISA balance must be large enough to see you through market crashes until you have access to the pension
@Stefan
A couple of thoughts:
1. In that scenario isn’t my SIPP now outperforming the non-SIPP as the market “eventually” recovers which is what we were trying to avoid from an LTA perspective in the first place. Your caveat 1.;
2. What about when the State Pension age is raised to “70”, private pension access is State Pension Age minus 10 years and the equities market falls 50%. The government has shown their hand on this topic with the recent “surprise” increase to 68 and markets can fall 50% in a lifetime. All of a sudden I have the risk of a few years living under a bridge until I can access my private pension unless I have a very big number in relation to my living costs in my non-SIPP or am prepared to cut back while I await the recovery. This is your caveat 3 and is IMHO a very important point given what pensions etc are designed for.
I think these two points alone rule it out for me. Better to focus on quality of life rather than standard of living, which should then mean less wealth is required in the first place, which should mean LTA avoidance in the first place IMHO.
I am in my early 30s.
My partner and I have 60k invested in ISA (all equity ITs).
Our pension is (USS for both) is split DB and DC such that we have 1k each in equity fund 50/50 split between global and EM funds (started in oct 2016) and currently DB pension projection of 1.5k each.
I am not close to hitting the LTA (lolz) but reading other peoples opinions on it makes me wonder how to proceed over the next 5 to 10 yrs. Especially as the DB part of the pension (the multiple the govt applies to calculate LTA) is rife for govt meddling.
I wonder if keep min pension contributions (to get employers contribution) and just topping up ISA is the best way fwd for us.
Any suggestions are welcome.
@ Gone Fishing
Interested in this as I’m 54 and nearing the LTA. My plan is to wait until the SIPP hits the LTA and then take the 25% tax free lump sum. I’ll then draw as income 3-4% annually from the SIPP to stay below the 40% income tax rate and that effectively withdraws most of the growth. The SIPP then only gets tested again at age 75 and provided one continues to be below the LTA one is in the clear for the punitive tax rates. Any flaw in this you can see?
@pulpo
One thing to watch for is to make sure the government follow through on their promise to inflation link the LTA otherwise that withdrawal rate may not be aggressive enough in a decent market.
I’m going about it slightly differently. Looking to head to a Mediteranean country that treats large’ish pensions very favourably tax wise but which doesn’t include a 25% TFLS. So will be looking to pull out 8-10% per annum with what is not spent invested elsewhere. The sooner the majority is away from government tinkering the better as far as I’m concerned.
@RIT: Fair enough. By the way, I enjoy reading your blog and have followed it with interest!
One thing to add regarding where to place equities vs bonds: ISA and SIPP accounts are not subject to capital gains tax so it’s easy to switch approaches any time. If someone gets close to the LTA they can put on the brakes by considering this strategy.
@Stefan
Thanks for the hat-tip and pleased you find it interesting.
Good point about no CGT in an ISA/SIPP. It’s also important to not forget about the £11,300 CGT annual tax free allowance outside of those as well.
@pulpo
That’s my plan too. Glide the pension gently up to the LTA and then crystallise the whole lot for optimal PCLS. I’m over 55 already so all down to markets for me now. No flaw that I can see. Of course, the government’s constant goalpost-moving doesn’t help, so as already noted by RIT you’ll have to watch them carefully.
For the same reasons as RIT I’m also considering a move abroad. Start point was EU, but post-Brexit I’m now looking further afield. SE Asia looks promising. Central America might be okay, but perhaps a bit US-centric for my tastes.
@ Rishi: there’s no reason to think that ISAs are less vulnerable to Government meddling than pensions, in principle. Just because in recent memory there’s been lots of pension meddling and no ISA meddling doesn’t mean that’s how it’s always going to be! As I’ve said before here at Monevator Towers, just wait until enough people have large ISA portfolios and you can bet that the lure of political meddling will be irresistible. Re USS, the way the LTA is worked out currently is actually very favourable to you, i.e. it understates the value of the DB benefits. If you’re paying into the USS DC too section you must be higher-rate tax payers, so in your place (which I have been, though now FI) I’d allocate savings like this (a) make sure the pension soaks up all the salary otherwise taxable at 40%, plus any available match, then with what’s left (b) fill your ISA (stocks and shares, not cash!), then if there’s anything left after that, (c) make overpayments on the mortgage. If you are either cautious or are over 40 and with 15+ years on the mortgage, unless the mortgage is trivial, after (a), split available money 50:50 between ISA and mortgage. That way you are spreading the (political) risk across pension, ISA, interest rates.
Just following on from that comment — if the government looks like it’s going to meddle in ISAs then withdrawal is an option. With pensions it is not. But it *is* politically harder to mess with the long term promises inherent in pensions than with savings incentives. Although they’ve had no trouble introducing and squeezing the LTA and the inputs (although why you need both is beyond me: the LTA seems to be hard to justify given the punitive rate once over it).
Thanks for the links this week, TI
Here is how I structure my portfolio across accounts at present:
SIPP: US ETFs, US REITs ETF, gilts, US Treasuries ETF (partial)
ISA: UK, Asia/Pacific, Global EM and European trackers, US Treasuries ETF (partial)
Unsheltered: cash deposits, Japanese equity trackers, European trackers (small amount), VCTs.
Rationale:
– I get US withholding tax relief by holding the US ETFs in my SIPP, but not in the ISA.
– gilts carry a relatively high coupon, so interest paid is high compared to cash deposits, so I want to shelter gilt interest from income tax. These could go in an ISA, but I am likely to exceed the LTA at age 75, even though I am drawing down as much as I can without going into 40% tax. Unless by some miracle the 40% tax threshold is substantially increased or age 75 LTA test abolished. Gilts will probably not perform as well as equities, so this mitigates the potential LTA charge.
– US Treasuries ETF interest is relatively high as well, so I want that tax sheltered (SIPP or ISA is fine)
– Japanese equities have the lowest yield compared with UK and other regions, so I keep them outside my ISA to minimise unsheltered dividend income.
– No tax on VCTs
– Cash deposit interest is low at present, the rates available are better outside tax shelters, so cash deposits sit outside SIPP/ISA. First £1k interest is not taxable either provided I don’t go into higher rate tax bracket.
– Everything else goes in the ISA.
– Each year I try to work more assets inside my ISA, using the annual permitted amount and dividends accruing in the ISA.
I have said this before, but worth repeating, the charge for exceeding the LTA is not as bad as it first appears, provided you don’t take the lump sum and 55% tax route. Pay only 25% and leave the excess in for normal drawdown at basic rate tax. That way the charge for going over the LTA is only 40% in total, so in effect it just negates the 40% tax relief you probably received when putting money in. In addition the money in the SIPP can be passed on completely free of inheritance tax, for continued drawdown at basic rate (or lower) tax.
Although I am trying to minimise the age 75 LTA tax hit, I still hope I end up paying a large amount of tax when I get there!
@Naeclue
You can get a reduction in US withholding tax in an ISA and outside any tax wrapper with a W-8BEN form.
@Everyone worried about the LTA
If you are hitting the LTA and have too much to put in an ISA (or are planning to move abroad) there is also the good old “non-qualifying life insurance policy” normally sold as an Investment Bond; especially an offshore Investment Bond.
They have a number of caveats, but are very useful at keeping you in basic rate tax only (top slicing etc) and the “offshore” variants are only taxable at all when you take the money out; if you’ve bogged off to the channel islands by then HMRC don’t get a peep.
You can get “Investment Bonds” with control over the underlying investments so you don’t end up in the bas old world of with-profits funds, but you do need to be aware of the gotchas regarding tax treatment.
And for a maximum of £25 a month there’s the “qualifying life insurance policy”, with even better tax treatment. But since these are limited to such a low contribution and can only be sold by friendly societies who tend to give naff all choice on the underlying investments it’s questionable whether to bother.
Even without the LTA, you’ll still pay less tax generally this way, and hit fewer thresholds
But since I’m on child tax credits it’s worth ploughing everything into sipp even if I eventually breach the LTA – I invest aggressively so I consider it possible
@Alex
The W-8BEN reduces US dividend tax from 30% to 15% in ISAs and unsheltered accounts, but in the right SIPP or pension it can get you a 0% US tax rate specifically for dividends paid to UK pension funds. Not every pension provider does the work to claim that rate though, so you have to pick your pension provider carefully. Otherwise you still pay 15%, even inside a pension.
@Mathmo
Instant withdrawability of ISAs doesn’t alone seem to make them immune to investor-hostile government tinkering. Imagine a new ‘ISA lifetime allowance’. At the limits you could withdraw from the ISA to duck under, but withdrawals have to go elsewhere. And without other viable tax shelters that ‘elsewhere’ will be fully taxable.
@GF: is Hargreaves Lansdown one of the firms that reclaims the whole withholding tax?
@dearieme, yes SIPPs with Hargreaves Lansdown receive US dividends without any withholding tax. As far as I know they don’t actually reclaim withholding tax, instead the dividends are paid to them gross. I think the custodians must have some mechanism in place to allow them to identify the appropriate level of withholding tax to apply before making payments. As part of the US/UK tax treaty, UK pension funds pay zero withholding tax.
I should point out that this trick only works with US listed shares and ETFs, London listed ETFs will not do. For example, Vanguard have a US listed S&P 500 tracker (VOO) and a London listed one (VUSA), but to get the tax saving you must buy VOO. You will still suffer 15% withholding tax if you hold VUSA in a Hargreaves Lansdown, or other qualifying SIPP.
@Matthew — 55% feels like a lot of marginal tax to be paying — particularly for something which is not obviously immoral like saving for your retirement. Smokers seems to get away with it by contrast.
Emerging markets. China and India have been leading economies except some short periods. Maybe we see mean reversion.
@mathmo – it is but with tax credits there’s a 41% income taper, add that to the 20% tax relief for 61% – so hypothetically if someone on tax credits hit the LTA they’d still beat an ISA tax wise
But whether it’s worth sacrificing accessibility for 6% is more dubious
I bet majority of DIY passive investors will underperform active funds in a long bear market. In a long bear market the main challenge will be Your emotion. 2008 was deep but short.
@Gregory
Vanguard research suggests otherwise: https://personal.vanguard.com/pdf/icribm.pdf
@gonefishing The 15% US withholding tax can be offset against your overall tax bill in your tax return. So income from US ETFs held on your personal account is effectively received gross. You still have to pay UK tax on the income of course, but there isn’t the same tax leakage on the way.
Two more reasons to hold bonds in SIPP and equities in ISA:
1) More money even without the LTA, and less income tax to pay.
Let’s contribute £16,000 net to SIPP (£20,000 gross) and £20,000 to ISA. Suppose 50/50 starting allocation to equities/bonds. Say equities go up 50% and bonds go up 20% over a decade. You then cash in your chips as a basic rate taxpayer.
£20,000 bonds in SIPP becomes £24,000. Take £6,000 PCLS and £18,000 gross income, tax paid of £3,600 and take home £20,400. £20,000 equities in ISA becomes £30,000, so a total of £50,400 net.
But £20,000 equities in SIPP becomes £30,000. Take £7,500 PCLS and £22,500 gross income, tax paid of £4,500 and take home £25,500. £20,000 bonds in ISA becomes £24,000, so a total of £49,500 net, or £900 less (the difference being the extra tax)
The difference is larger for those who end up higher rate taxpayers in retirement, and while regular rebalancing will dilute any difference, it won’t entirely.
You could argue that as part of the money in the SIPP effectively belongs to the taxman, your true exposure to whatever you hold in your SIPP is lower, and so you are not truly 50/50. But that’s not the kind of adjustment most people make when thinking about their asset allocation.
2) More scope to make contributions before you get to the LTA
There are two ways to get to the LTA – contributions and growth. Pension contributions can be hugely valuable in terms of avoiding higher rates of tax, the tapering of the personal allowance, loss of child benefit and other benefits, and so on. Assuming you have the annual allowance for it, less in the way of growth means you can get away with more in the way of contributions and more tax relief before you hit the LTA.
@Charles P
This requires nuance. True for unwrapped taxable accounts providing your UK tax on these dividends exceeds 15%, so for example you can still lose if inside the annual tax-free allowance. Not true for ISAs, because there is no UK tax on the ISA against which to credit the US tax paid. Also not true for SIPPs if the SIPP provider does not claim the treaty 0% rate for pensions.
@ pulpo
A common approach, though beware that unless your SIPP is very defensively positioned, withdrawing 3-4% pa of the drawdown fund (to stay within basic rate band) may not withdraw all of the growth. Safe withdrawal rates of that kind of level are based on the worst of historical experiences (to date), and though you absolutely have to plan for the worst, higher withdrawal rates can prove sustainable (with the benefit of 20/20 hindsight).
So while a good problem to have, but if you get to age 75, then there may be 25% tax to pay (but nothing to pay if you don’t get that far, as no second test on death before age 75). So once you get to the point where you are confident of getting to age 75, it may be worth paying some tax at 40% to save tax at 25% later on.
The main downside to any planning to avoid the LTA is that, if you don’t need most or all of the money from your pension (because you could live mainly off non-pension assets), it is usually worth just paying the LTA tax charge (at 25%) for the estate planning benefits of pension these days.
@RIT
Small point, but once you have used up all of your LTA, then what the government does with the LTA thereafter (such as whether or not they link it to inflation or not) is irrelevant. 0% of any sized LTA is still £0, so if there is any growth left in the drawdown fund at age 75, then it would be taxed in full (at 25%).
@GoneFishing
I mean the DIY investors will underperform not the passive strategies. DIY investors will be alone except their emotions. Passive investing is great but without a financial advisor it is very hard to stick to it for the majority.
@Mathmo (23) – “Smokers …..”
An interesting point that I heard today, is that the earlier death that tends to befall smokers (I am not one, nor ever have been) brings a net financial benefit to the nation, since the NHS costs that smokers cause are far outweighed by the state pension savings their early deaths generate.
@Gregory I don’t know why you think that passive investors will be more likely than active investors to flee the market following poor returns. I would have thought the opposite was true.
I flipped to 100% passive investments many years ago (apart from VCTs) and as far as I am concerned, I am getting the market return less a small fee, so there is absolutely no reason to bail out following poor returns. When active investments perform badly that maybe because the market performs badly, or it maybe due what fund managers like to call “Unfavourable Conditions”, a euphemism meaning their stock picks were no good. In that situation, I think it far more likely that investors will conclude the fund manager was lucky in the past, but the luck has gone and then bail out.
@Naeclue It will be too easy to change any passive portfolio without financial adviser. There will be no optimistic newsletters but panicking DIY investors on the forums. This is why DFA sells its funds only through financial advisers.
Passive is more about general faith in the market, and general belief that indexes can’t be beaten
Active has no real faith, it flits about trying to time things
I’m sure passive investors still read opinion articles, I do, i.e now we’re learning tax stuff, and I also read for the same reason I watch the news- I just find it an interesting hobby and enjoy feeling a part of the economy
@Matthew — I appreciate you’re just typing quickly, but as I’m sure you know indexes can be and are beaten. 🙂
The difficulty is finding one of the very rare managers who will do it, in advance (or managing to do it yourself, of course…)
Another difficulty we should talk about more here is assessing how they manage it, too, in risk-adjusted terms.
To oversimplify, if they say buy a bunch of FTSE 100 stocks with 75% of the portfolio and put 25% into a single small cap growth stock that is a triple-or-bust, then even if they do beat the market the results are probably not comparable with a FTSE 100 tracker on a risk-adjusted basis.
@ John
I don’t quite follow the references to LTA tax rate of 25%, but thank you.
@TI – as you say generally not risk adjusted, if they have to increase the risk to beat the market, I could just increase my proportion of small cap tracker or go ewi, it seems like they don’t know themselves and it’s fluke if they win, and with relatively efficient markets the odds are against them, akin to dabbling in roulette – there may be more mispricing in small cap, but I myself haven’t seen an active small fund that beats the msci world small cap index.
There may be formulas for active that work – like fundsmith’s? – that could become more common. If everyone was indexing there’d be more mispricing to exploit, so active will always be about
@pulpo
The 25% is the ‘LTA excess charge’, after which marginal rate applies on the remaining 75%. And there is a second age-related and inescapable LTA ‘test’ and possible charge at age 75. This second test is the one being referred to.
For HRT, 0.25+0.4*0.75 is the often-quoted 55% LTA rate, but if in BRT you would pay 0.25+0.2*0.75 for a blended 40% on withdrawals over the LTA. Generalised, if M is your marginal tax rate then 0.25+M*0.75 is always greater than M (for M<1, that is, for tax rates below 100%!).
So aside from weird interactions around the junctions of tax bands and allowances, and ignoring IHT shelter effects (which you may or not want to do), it is better to withdraw from the pension even at full marginal rates than pay the 25% LTA excess at the age 75 LTA test and then withdraw later. Depending on what you hold in it (not to mention a host of other factors, including goalpost-shifting by the government), that may argue for a pension withdrawal rate above your initially suggested 3-4%.
@GoneFishing
Got it; thank you.
Example of the age 75 LTA test: If a retiree goes into drawdown with an £800k fund, taking £200k pension commencement lump sum and £600k into a drawdown fund, they will have used 80% of the current LTA of £1m. Let’s say at age 75 the LTA has increased to £1.2m. They have used 80% of the LTA, so have 20% left. 20% of the new LTA is £240k. Provided the drawdown fund is worth less than £840k on the 75th birthday, they don’t pay any LTA charge, but for any amount over £840k, they will be charged 25%. e.g. if the drawdown fund is worth £1m, the excess would be £160k and the charge £40k. The charge will be taken from the fund and the retiree is then free to drawdown as before, with no further LTA tests.
The above assumes only one pension pot. If someone has more than one, the LTA usages are accumulated. For example if the retiree has a DB pension that used 10% of the LTA when it was taken, then only 10% would left at age 75. 10% of the age 75 LTA of £1.2m is £120k, so the 25% charge would apply to the drawdown pot in excess of £720k.
One extra reason not to drawdown too rapidly is that if the retiree dies before their 75th birthday, the entire remaining drawdown fund can be drawn by nominees free of both inheritance tax AND income tax.
This whole shambolic system is subject to change at the whims of future chancellors.