Can the Lump Sums if paid, be paid directly into your AVC, thereby reducing tax?

[derricksmyth]

Wondering whether if we get these Lump Sums, that they can be paid directly into your AVC, thereby reducing the tax you pay?

[Jack1960]

Zareena Brown does mention this in the anouncement in the pay schedule.
It says it that information would be announced shortly.

[robking]

Yes, but you will pay the tax on the money first and then get it back in your pension pot.

For example £100 paid minus 20% tax = £80 so you pay the £80 as a one off payment into your AVC and 20% is added by the taxman meaning that there will be an extra £100 in there eventually, but it will take a few weeks for the tax relief to come through.

[RobertT]

Zareena Brown does mention this in the anouncement in the pay schedule.
It says it that information would be announced shortly.

That seems to have been updated – but there's no longer any mention of putting the money into AVC's.

https://www.myroyalmail.com/sites/defau ... 140723.pdf

I would suggest anyone wanting to pay their lump sum/s into AVC's, should contact the wages dept. and perhaps RMPP too.

[RobertT]

Yes, but you will pay the tax on the money first and then get it back in your pension pot.

For example £100 paid minus 20% tax = £80 so you pay the £80 as a one off payment into your AVC and 20% is added by the taxman meaning that there will be an extra £100 in there eventually, but it will take a few weeks for the tax relief to come through.

I'm not sure that's right.

AVC's have to be paid via payroll.
Standard pension payments aswell as weekly AVC's, receive tax relief at source, meaning it's all sorted out automatically as part of your wages.
The pension/AVC contribution on your wage slip is the gross amount and your income tax and NIC's(in the case of PSE), are reduced accordingly.

Therefore I would have thought any additional payments using the upcoming lump sums, would be similar.

[robking]

Yes, but you will pay the tax on the money first and then get it back in your pension pot.

For example £100 paid minus 20% tax = £80 so you pay the £80 as a one off payment into your AVC and 20% is added by the taxman meaning that there will be an extra £100 in there eventually, but it will take a few weeks for the tax relief to come through.

I'm not sure that's right.

AVC's have to be paid via payroll.
Standard pension payments aswell as weekly AVC's, receive tax relief at source, meaning it's all sorted out automatically as part of your wages.
The pension/AVC contribution on your wage slip is the gross amount and your income tax and NIC's(in the case of PSE), are reduced accordingly.

Therefore I would have thought any additional payments using the upcoming lump sums, would be similar.

Yeah you're right, just checked the Flexiplan booklet, page 7 says they don't accept cheques anymore and one off payments have to go through the payroll.
I left Flexiplan and transferred the money to my own SIPP because I wanted to put it into drawdown, the way I've described is the way I pay one off payments into there although I can't put too much in because it's crystalised now that I've taken the tax free bit and lower contribution limits apply.

[max49]

On our last payrise, I calculated the back pay and, having spoken to the Pension people, paid most of it into my AVC on the payment date. This caused no end of problems, my argument was that my regular payments were within the threshold, therefore the extra would not affect this, as it was the back pay. However I had to pay NI on ALL my pension and AVC payments that week, though I didn't pay tax on the pension and AVC payments. So for me it didn't really work.

[RobertT]

I left Flexiplan and transferred the money to my own SIPP because I wanted to put it into drawdown, the way I've described is the way I pay one off payments into there although I can't put too much in because it's crystalised now that I've taken the tax free bit and lower contribution limits apply.

I don't know if you're aware, but the money Purchase Annual Allowance went up from £4,000 to £10,000 in April 2023.

The MPAA only applies to taxable income you withdraw from your SIPP. It doesn't apply if you've only taken the tax free lump sum.
Info: https://www.unbiased.co.uk/discover/pen ... wance-mpaa

[RobertT]

On our last payrise, I calculated the back pay and, having spoken to the Pension people, paid most of it into my AVC on the payment date. This caused no end of problems, my argument was that my regular payments were within the threshold, therefore the extra would not affect this, as it was the back pay. However I had to pay NI on ALL my pension and AVC payments that week, though I didn't pay tax on the pension and AVC payments. So for me it didn't really work.

PSE is worked out on a weekly or monthly basis, depending on how you're paid. If you go over the limit, you lose the benefit of it for that pay period.

Any lump sum sum will take you over the PSE limit, so it's a matter of deciding whether the extra amount going into your AVC is worth the extra NIC's you'll have to pay.

[Wullie10]

My Avc has lost a large amount this year. With interest rates going up better to put the money in an ISA

[Jack1960]

Zareena Brown does mention this in the anouncement in the pay schedule.
It says it that information would be announced shortly.

That seems to have been updated – but there's no longer any mention of putting the money into AVC's.

https://www.myroyalmail.com/sites/defau ... 140723.pdf

I would suggest anyone wanting to pay their lump sum/s into AVC's, should contact the wages dept. and perhaps RMPP too.

Thanks for that update ! even in retirement you are still helping out! Yes that information is not in the latest statement so will check with wages depto.thanks again and no doubt you still waking up at postie time !

[RobertT]

My Avc has lost a large amount this year. With interest rates going up better to put the money in an ISA

With tax relief and PSE, AVC's provide a 47% uplift on your money. You'd be hard pressed to find an ISA that does that.

[RobertT]

Zareena Brown does mention this in the anouncement in the pay schedule.
It says it that information would be announced shortly.

That seems to have been updated – but there's no longer any mention of putting the money into AVC's.

https://www.myroyalmail.com/sites/defau ... 140723.pdf

I would suggest anyone wanting to pay their lump sum/s into AVC's, should contact the wages dept. and perhaps RMPP too.

Thanks for that update ! even in retirement you are still helping out! Yes that information is not in the latest statement so will check with wages depto.thanks again and no doubt you still waking up at postie time !

Even earlier today!

[derricksmyth]

On our last payrise, I calculated the back pay and, having spoken to the Pension people, paid most of it into my AVC on the payment date. This caused no end of problems, my argument was that my regular payments were within the threshold, therefore the extra would not affect this, as it was the back pay. However I had to pay NI on ALL my pension and AVC payments that week, though I didn't pay tax on the pension and AVC payments. So for me it didn't really work.

PSE is worked out on a weekly or monthly basis, depending on how you're paid. If you go over the limit, you lose the benefit of it for that pay period.

Any lump sum sum will take you over the PSE limit, so it's a matter of deciding whether the extra amount going into your AVC is worth the extra NIC's you'll have to pay.

So Robert, if the weekly amount of the lump sum is greater than 1/52 of the £ 40000 annual limit then you would pay higher N I C rate for that week? Would that be right?

[RobertT]

On our last payrise, I calculated the back pay and, having spoken to the Pension people, paid most of it into my AVC on the payment date. This caused no end of problems, my argument was that my regular payments were within the threshold, therefore the extra would not affect this, as it was the back pay. However I had to pay NI on ALL my pension and AVC payments that week, though I didn't pay tax on the pension and AVC payments. So for me it didn't really work.

PSE is worked out on a weekly or monthly basis, depending on how you're paid. If you go over the limit, you lose the benefit of it for that pay period.

Any lump sum sum will take you over the PSE limit, so it's a matter of deciding whether the extra amount going into your AVC is worth the extra NIC's you'll have to pay.

So Robert, if the weekly amount of the lump sum is greater than 1/52 of the £ 40000 annual limit then you would pay higher N I C rate for that week? Would that be right?

I think you have your wires crossed slightly?

The maximum you can pay into pensions is any one tax year and receive tax relief, is equal to what you earn, up to a maximum of £40k. So if you earn £30k you can put £30k into pensions and get tax relief.
It is possible to put in more than you earn if you want to. But you won't get the tax relief, which is the main benefit of paying into a pension.

So the £40,000 you mention, won't really be of interest to most posties!

however, if you pay more into your RM pension/s than the weekly/monthly PSE limit, then you will not benefit from PSE in that week/month, and you will then pay NIC's at a higher rate than if you'd stayed within PSE.

In money terms, if you're within PSE, each £1 gross(the amount on your wage slip) will only cost you 68p net. Because your income tax will be reduced by 20p and your NIC's by 12p.

If you breach the PSE limit, each £1 gross will cost you 80p. Your income tax will still be reduced by 20p but you won't benefit from the reduced NIC's.