CDC and AVCs

[heapsy]

I've just read though the latest document regarding the new pension and am curious to know how AVC payments would work. In section C, AVCs are usually used to build up a lump sum. With the new pension scheme, a lump sum will be included, like in the case of Section B. So what advantage would there be to paying AVCs? Would they have the same effect of replacing some of the automatic lump sum as in section B, therefore converting part of the lump sum to more pension? Thanks in advance.

[RobertT]

Without knowing how the scheme will be valued, we don't currently know what percentage of the overall pot the lump sum will be. But my guesstimated calculations of a 15 or 16% multiple and based just on contributions going in, suggest it will be around 16-17%. Paying into the Lump Sum Booster will increase that to around 23%.
But that is just conjecture on my part!

If I'm anywhere near correct, paying additional AVC's would almost certainly take you over the 25% tax free limit, obviously depending on how much you pay in and investment returns, etc. So whether AVC's are worth it probably comes down to how much you'll gain from the tax breaks and the investments, compared to how much you'll lose in tax.

I assume there will also be the option to transfer the AVC's out to a DC scheme, as there is now.

I currently have an excess amount in AVC's via the RMPP and therefore will pay tax on some of it. But personally, the tax I'll pay is very small compared to the money I've gained over the years and so overall I'm in a better position than I would have been had I hit exactly 25% pot value.
But that will obviously vary with the individual.

There is no option to convert some of the DB lump sum into more collective pension.

[max49]

I think it is disappointing that we can not continue with the present AVC scheme, as we have some flexibility /choice on the funds we wish to invest in. My intention is to transfer out my AVC to another provider so I can drawdown from it to supplement my Royal Mail pension until I am state pension age.

[RobertT]

The current Flexiplan and Bonusplan schemes are specifically attached to RMPP benefits, so as the RMPP is closing those AVC's will be closing too.

Presumably the new AVC's will have fairly similar investment choices?

Would it be more efficient just to take your AVC's as tax free cash with your NRA60/65 benefits and then just dip into it as and when. Once you transfer out, only 25% is guaranteed to be tax free with the rest classed as income.

[heapsy]

I think it is disappointing that we can not continue with the present AVC scheme, as we have some flexibility /choice on the funds we wish to invest in. My intention is to transfer out my AVC to another provider so I can drawdown from it to supplement my Royal Mail pension until I am state pension age.

I intend to use my AVCs as a tax free supplement. I'll just average out the payments and pay myself a weekly wage. Much better than sticking it a pension. Currently my AVCs are worth £92 a week payable for 7 years. Hopefully a bit more by the time I take them in 6 years.