NRA 65 Lump Sum Calculation

[Hawkey99]

Is this right calculation for a NRA 65 Lump Sum taken at 5 years early

RMPP
£3706
Reduced by 25% = £2779

RMSPS
£1146
Reduced by 25% = £859

Total £2779 + £859 = £3638

£3638 x 20= £72760

DBCDS £20000

AVC £70000

£72760 + £20000 + £70000 = £162760

Tax free Lump Sum £162760 x 25% = £40690

Then how do you work out what happens with the reminder of DBCBS and AVC and is any of the reminder tax free….

Many thanks

[RobertT]

I believe they will treat the pension as 75% of the pot value and then pay out the DBCBS and AVC's afterwards, with the remaining 25% being the tax free lump sum.

So if £72,760 represents 75%, then the other 25% equals £24,253.

What's left will be paid out as an Uncrystallised Funds Pension Lump Sum, which means the first 25% of that is also tax free with the remainder being taxed under normal PAYE rules.

Therefore your £40,690 tax free lump sum is correct!

In practice and going by the figures you provided, you'll have:

A tax free lump sum of £24,253
Plus another lump sum(UFPLS) of £65,747 of which £16,436 will also be tax free and the remaining £49,311 will be taxable.

[Hawkey99]

Thanks Robert as always....

[CharltonBoy]

I took my NRA 65 last year, maximum pension with excess AVC’s when due and a few points that may be of help to you :-

1. The initial AVC payout is based on 90% of the value at the time it is requested by Administrators. The remaining 10% is reconciled and paid out about 12 weeks after the initial payment.

2. The RMPP and RMSPS schemes are effectively treated separately as far as the calculations are concerned. Note : DBCBS is attached only to RMPP. Therefore calculation of tax free AVC portion used in relation to RMSPS is simple - pension x 20 divided by 3 will give the 25% tax free amount used.

Both myself and a colleague of mine (more recently) received our initial benefits quotations that made no reference to use of AVC’s. Both only got revised benefit options when we alerted RMPP of intended use of AVC’s and the fact that there would be an excess to be treated as an UFPLS ! The UFPLS was paid out as per RobertT’s post. Do not assume they know what they are doing !

[Hawkey99]

Hi Charlotnboy,

Many thanks for your post.

I assume you mean divided by 4 in your comment below.

"2. The RMPP and RMSPS schemes are effectively treated separately as far as the calculations are concerned. Note : DBCBS is attached only to RMPP. Therefore calculation of tax free AVC portion used in relation to RMSPS is simple - pension x 20 divided by 3 will give the 25% tax free amount used."

Thanks again

[Hawkey99]

Were AVC added to both pension?

i.e. if you take your RMPP pension and lump sum any remaining AVC is then added to RMSPS to calculate the lump sum with that one ?

[CharltonBoy]

Hi Hawkey

No divide by 3 is right ! RMSPS pension times 20 equals 75% of the pot. The portion of your AVC used is the remaining 25% of total Pot !

In your case :-

RMSPS pension £859 x 20 = £17,180 divide 3 = £5,726.66 (or 25%) If you add £17,180 to £5,726.66 this will give total RMSPS pot of £22,906.66 ! 25% of this is the tax free amount of £5,726.66.

Yes, AVC’s added to both pensions - I personally told RMPP the amount that RMSPS had used in their benefit illustration (they probably checked it out) So the portion of AVC used under RMSPS was deducted from my overall AVC total when calculating RMPP benefits. The excess AVC was paid by RMPP only, as there was no excess AVC use under RMSPS benefits.