Is this enough for 25% lump sum ?

[NWpostie]

Managed to save up to £55k AVC lump sum combined from both Flexiplan and Bonusplan.

At that amount, should it be enough to fund my lump sum without affecting the main pension or do I need to save up even more ?

I'm in the pension scheme since 1987 Section C and DC pension.

Is anyine in a similar circunstance and amount can advise ?

[RobertT]

If you want your AVC's to fund exactly the 25% tax free amount, you first need to work out what the other 75% is worth.
To do that simply use the 20x multiple.

For example:

Your NRA60 pension = £9,000 per year giving you a pot of £180,000.

If that equals 75%, then the maximum tax free lump sum to be funded by AVC's is the other 25% or £60,000.

If your AVC's are worth less than 25% you can either just take all of them as tax free cash with a full pension, or give up some pension to increase the lump sum.

If your AVC's are worth more than 25% you can take the excess as a UFPLS – the first 25% of that is also tax free.
Alternatively, you can transfer the excess out to a personal pension for drawdown, which might be better for some from a tax perspective.

The DBCBS is usually used to fund the tax free cash with NRA65.

[NWpostie]

Thanks for the info RobertT, what is UFPLS ?

[RobertT]

It stands for Uncrystalised Funds Pension Lump Sum.

In the context of RM pensions, it applies to any excess cash held in AVC's or the DBCBS once the tax free lump sum has been paid.

In simple terms it means the first 25% of that excess will also be paid tax free, with the remainder being classed as income and coming under normal PAYE tax rules.

[NWpostie]

Thanks, I plan to use it to fund my NRA60 lump sum, undecided on claiming my NRA65 early or when due, to face the bureaucracy involved in claiming them twice is also a consideration.

[heapsy]

It is also worth considering, that if you remain in employment, you will not receive the supplement payable to section C members. If you retire at 60 and receive the supplement, you will lose it on hitting state pension age.
It looks like I will be a few k short of the full 25% via AVCs and I am considering just taking the AVCs, taking into consideration my previous comment.

[Engy]

Hi RobertT, I've just left RM in April and was 59 at the end of May. I joined in 86 so am in section B. I've just had my preserved benifits letter from RMSPS ,

Current value- £13,266..61
Current lump sum-39,799.84
I've also got 79,000 in an AVC
So do I 20 x current value and add lump sum to get rough figures?

eg 20 x13,266=265,320+39,799+79,000=384,119÷25%=96000

So if I leave until next may it will be 13,266 a year plus 96,000 lump sum?

[wolfman]

I think your £13266.61 yearly value is if you take the £39799.84 lump sum. Adding it all together and taking 25% of your whole pot means you will get a bigger lump sum and less monthly pension. How much your monthly pension will be reduced by I'm not sure. Im in the same position and I think that's how it works but hopefully Robert T can confirm

[renrag40]

Hi RobertT, I've just left RM in April and was 59 at the end of May. I joined in 86 so am in section B. I've just had my preserved benifits letter from RMSPS ,

Current value- £13,266..61
Current lump sum-39,799.84
I've also got 79,000 in an AVC
So do I 20 x current value and add lump sum to get rough figures?

eg 20 x13,266=265,320+39,799+79,000=384,119÷25%=96000

So if I leave until next may it will be 13,266 a year plus 96,000 lump sum?

What about the DBCBS that you had been paying into since 2018?

[renrag40]

The yearly pension will not be reduced as the AVCs are greater than the difference between the standard tax free lump sum and the maximum tax free lump sum.
The surplus AVCs can be used along with the DBCBS to fund the difference between the standard and maximum lump sums on your nra 65 pension.
Though I would imagine you would have a big surplus by using your DBCBS alone.
The question that I cannot find an answer to is if some of the DBCBS has been used to fund the tax free lump sum for your nra 65 pension can any resulting surplus be moved to a private pension or does it have to be taken as an UFPLS with your nra 65 benefits?

[RobertT]

Hi RobertT, I've just left RM in April and was 59 at the end of May. I joined in 86 so am in section B. I've just had my preserved benifits letter from RMSPS ,

Current value- £13,266..61
Current lump sum-39,799.84
I've also got 79,000 in an AVC
So do I 20 x current value and add lump sum to get rough figures?

eg 20 x13,266=265,320+39,799+79,000=384,119÷25%=96000

So if I leave until next may it will be 13,266 a year plus 96,000 lump sum?

Assuming your Preserved Benefits letter is similar to mine, it includes all your RMSPS benefits up to 2012 and isn't separated into NRA60(up to 2010) and NRA65(2010-2012) figures. Although in practice most of it will be NRA60.
You should also be getting a similar letter from RMPP relating to your 2012-2018 pension and the DBCBS(2018-date you left).

As you're in section B your maths will be slightly different to the section C method I used above, but the basics are the same.

Multiply your annual pension figure by 20, that will give you 75% of your pot value. Meaning the other 25% is made up of tax free cash.

Let's assume your figures relate to just NRA60(in practice they'll be lower):

£13,266 x 20 = £265,320

If that is 75%, the maximum tax free cash coming from the standard lump sum and AVC's is the other 25% or £88,440. Which would be made up from the standard £39,800 plus £48,640 from AVC's.

The remaining excess AVC's could then be taken as a UFPLS(see my previous post) meaning a total of £95,530 tax free and £21,270 taxable. If all of that is taxed at 20%, you'll lose £4,254.
Total lump sum = £112,546.

Section B members do have the choice to give up some standard lump sum for a bigger pension, which may mitigate the tax payable.

There is the option of leaving the excess AVC's to help fund the NRA65 lump sum, but you will have a standard lump sum and the DBCBS for that, so tax is likely to be an even bigger issue. Alternatively it can be transferred out to a personal pension.

The question that I cannot find an answer to is if some of the DBCBS has been used to fund the tax free lump sum for your nra 65 pension can any resulting surplus be moved to a private pension or does it have to be taken as an UFPLS with your nra 65 benefits?

As far as I'm aware the DBCBS has to be taken with NRA65, with any resulting tax being payable. Or else the whole balance transferred separately.

[Engy]

Thank you Robert, it is the same letter you got so is up to 2012 so the 13 k figure will be high. I haven't received other one yet when I do maybe see the figures better, might be better to reduce lump and boost monthly up to save on tax. I was even considering taking it now as I thought the 13k might go to 12 to avoid tax. Do you think I'm better leaving it until next may?

[RobertT]

Thank you Robert, it is the same letter you got so is up to 2012 so the 13 k figure will be high. I haven't received other one yet when I do maybe see the figures better, might be better to reduce lump and boost monthly up to save on tax. I was even considering taking it now as I thought the 13k might go to 12 to avoid tax. Do you think I'm better leaving it until next may?

As your NRA60 is likely to be around the personal tax allowance and assuming no other income, it's a case of paying the tax upfront based on current rates, or gradually over time. In which case changes in rates could be either a benefit or disadvantage depending how much they go up or down.

You would also need to factor in the conversion rate for lump sum to pension and whether that is good value for money. I don't know what that is, but suspect it's less generous than doing the opposite and converting pension to lump sum.

It's always good to avoid paying tax if possible, but I don't think you should get too bogged down in trying to do that at all costs, because once your income goes above a certain level, it's hard to avoid anyway!

Personally, given the choice of an income equal to the personal tax allowance(currently £12,570) and paying no tax, or an income of an extra taxable £1,000, I would choose the latter as I'm getting £800 more in my pocket.

A bit off topic, but something to consider if your income from work and pensions is lower than £17,570.
There's an extra allowance on the amount of interest you can earn from savings accounts, which can be up to £5,000 per year on top of the standard £1,000 limit. That would also be over and above any interest you earn from tax efficient savings like ISA's.

Meaning if you're lucky to already have savings or benefit from a nice lump sum from your pension, you can generate an extra tax free income and perhaps make up some of that tax you're paying on your pension.

More info here: https://www.moneysavingexpert.com/savin ... e-savings/

[renrag40]

Using the figures on the estimate letter I received recently from RMSPS.
The commutation rate for converting the standard tax free lump sum into yearly pension is 22.4598:1.
£32,654.32 to create an extra £1,453.9.
The commutation rate the other way is 20.65:1.
£1,461.04 yearly pension reduction to create an extra £30,170.54 in tax free lump sum.
Needless to say I will joining the 85% of members who take the maximum tax free lump sum.

[Hyrrokkin]

Reading all that made my head hurt

Pension are a mess