Pension 55 avcs

[Yamr1]

Just a quick question still years away yet for retirement
55 you lose 25% of pension if you take your pension early and lump sum .
If you take pension at 55 and don't take lump sum and use avcs do you still lose 25% but better payment because you used avcs
Just a quick random question

[heapsy]

That's right. But you might lose 25% of the AVCs as well, due to early payment, unless you specified 55 on your forms. A very costly error in my opinion.

[Yamr1]

Never thought of that heapsy

[RobertT]

Just a quick question still years away yet for retirement
55 you lose 25% of pension if you take your pension early and lump sum .
If you take pension at 55 and don't take lump sum and use avcs do you still lose 25% but better payment because you used avcs
Just a quick random question

It sounds like you might be in section C?

If you take your pension early it will reduced by 5% per year for early payment. So if you take it all at age 55, your NRA60 will go down by 25% and your NRA65 by 50%.

You also have the option to commute some pension to fund a lump sum, meaning an even lower annual amount.

AVC's are a good way of funding the lump sum instead of giving up some pension, whether you're taking it early or not.

You often have to tell DC pension providers what your planned retirement age is, and that age is reflected the figures on your annual statement. That also applies to AVC's.

But taking any DC pension before that planned retirement age doesn't mean it'll be reduced!
Your DC or AVC pot is worth whatever it's worth at the time of taking it.

AVC statements give figures based on taking the money as an annuity, which provides a pension for life plus spouses benefits on death.
In practice most people use it to fund the tax free cash when taking their main NRA65/65 benefits.

[Yamr1]

Cheers Robert t
Your amazing with all your info on this stuff

You've helped loads of people on this site with all you knowledge Robert and it's well appreciated

[RobertT]

Cheers Robert t
Your amazing with all your info on this stuff

You've helped loads of people on this site with all you knowledge Robert and it's well appreciated

Thanks. I try my best.

[onejontwo]

Cheers Robert t
Your amazing with all your info on this stuff

You've helped loads of people on this site with all you knowledge Robert and it's well appreciated

Thanks. I try my best.

With all your knowledge, have you ever thought of going for Simon Thompsons job??

[Jefferson Starfish]

That's right. But you might lose 25% of the AVCs as well, due to early payment, unless you specified 55 on your forms. A very costly error in my opinion.

Wow!

Here's a hypothetical situation.

I've saved up £40k in AVC's and decide to take them at 55 with my 60 benefits. But i've selected 60 as my retirement age via scottish widows, so I lose £10k.

Is that seriously what you think?

Where do you think that £10k goes?
Scottish widows? Royal Mail? The taxman? Somewhere else?

It's my money!

[heapsy]

I'm not entirely sure, but the only way to find out is check with the company themselves. Robert T has posted earlier that maybe this is wrong. Where you might come unstuck is through taxation. If say your pension pot is 120k, and you AVCs are 40k, they would be tax free. But if you take the pension early and therefore it is reduced to 90k for early payment, then the maximum allowed tax free from your AVCs would be 30k. So 10k would be taxed in the normal way. I couldn't afford to go at 55, unless something dramatic happened.

[RobertT]

Just to clarify:

Cash invested in AVC's won't be reduced in the vast majority of cases, if it's taken before the age you selected.

The only possible scenario I can think of when it might be reduced, is if you have AVC's invested in 'With Profits' products via the legacy AVC providers of Equitable Life & Standard Life(there maybe more, but can't remember off hand).

With Profits products often have a set access age, which you probably would have chosen when you first took out the product.
You can still either access or transfer your cash earlier, but it's usually subject to a Market Value Reduction, which will probably vary with the provider and your age, etc.

Zurich took over the admin of AVC's in 2010 if I remember correctly, followed by Scottish Widows in 2019, but some people may still have cash tucked away with those legacy providers.

Income Tax is also a potential way your pot may be reduced, but that is dependant on specific amounts involved, so might catch some out.

Personally I expect to pay tax on part of my AVC's because I have managed to build more than 25% of pot value. The excess will be paid out as a UFPLS, meaning the first 25% of the excess is also tax free.
As long as I stay within the 20% tax band in the year I take that excess, I'll still keep 85% of it.
As far as I'm concerned, 85% of something is better than 100% of nothing.