To start paying into avc after nra60 paid.

[rks]

I'm thinking of starting paying into Avc as soon as I collect my Nra60 in Oct.
My questions please are :
1. As I understand it an d previously quoted "The normal use of AVC's is to fund some or all of the tax free lump sum when taking your main NRA60 & Nra65"
So I could make lump payments or at least up to 50% of my wages into Avc?
2. How much of the Avc I will have save say in 5 years be put towards the lump sum element of the Nra65?
3. How is the pot element of the Nra65 calculated?
4, will the amounts I put into Avc be saved via Zurich?
5. As it will be short term savings, is it best to fund via the cash fund? What will the charges be?

Thanks for any info and advice.

[Steve_claret]

It's always worth paying into an AVC if just for the 20% tax relief plus the extra 12% NI savings if you stay with PSE. So for every £1 you pay in it only reduces your take home pay by 68p. Also once in receipt of your 60 pension then don't forget if you plan on carrying on working your pension will be taxed at basic rate as your free pay will still be applied to your wage. AVC's are a good way of recouping some of that extra tax back.

The AVC's are now managed by Scottish Widows rather than Zurich but everything else is the same. As you are only 5 years from your retirement age (65) then as you say it is probably best to invest on the cautious side or even just cash. I am scheme B so can only pay into Flexiplan and am currently splitting my savings 50/50 between cash & cautious. There is also a Lifestyle choice which automatically reduces risk as you near your retirement age if you don't want to manage it yourself. Fund charges are usually in the 0.5% per year region although cash is less at around 0.3%.

If you are planning on using your AVC to fund your NRA65 lump sum then don't forget that you can also use your cash balance fund for this purpose as well.
I am planning on taking my NRA65 at 65 and am probably looking at a 25% max lump sum of about £20K which I plan on funding from AVC & cash balance so that I can take the biggest pension with no reductions.

[rks]

Thanks Steve,
May I ask what's the limitations of flexiplan, will that also be the case for me as I'm in pension B plan?
If for arguments sake I have saved say 60k in avc from after I take my nra60, and say my max lump sum is quoted at 20k for pension of 5k, does it mean the 60k is used to fund the 20k lump sump and the remaining 40k of avs Inc cash balance is then converted to yearly pension at ratio of 20:1?
Thanks

[Steve_claret]

Thanks Steve,
May I ask what's the limitations of flexiplan, will that also be the case for me as I'm in pension B plan?
If for arguments sake I have saved say 60k in avc from after I take my nra60, and say my max lump sum is quoted at 20k for pension of 5k, does it mean the 60k is used to fund the 20k lump sump and the remaining 40k of avs Inc cash balance is then converted to yearly pension at ratio of 20:1?
Thanks

Any cash balance money remaining after funding the lump sum has to be taken as cash and therefore taxable.
I am not aware of the option of converting AVC money into more 65 pension. I think there is an option to transfer your AVC fund into an annuity or transfer it to another pension provider for more flexibility. That's my understanding but I would ring the PSC who will send you the pack with more information.

[RobertT]

I'm thinking of starting paying into Avc as soon as I collect my Nra60 in Oct.
My questions please are :
1. As I understand it an d previously quoted "The normal use of AVC's is to fund some or all of the tax free lump sum when taking your main NRA60 & Nra65"
So I could make lump payments or at least up to 50% of my wages into Avc?

You can only pay AVC's via payroll theoretically upto 100% of your pay, although you also have to factor in other payments such as NIC's, etc so I think the actual maximum is about 85%. in practice it makes sense to stay within the limits for PSE. for a full timer and based on basic pay,that's currently a maximum of about £110 per week.

2. How much of the Avc I will have save say in 5 years be put towards the lump sum element of the Nra65?

It will depend how much you have in AVC's, plus you also have your standard lump sum and the DBCBS.

3. How is the pot element of the Nra65 calculated?

Pension x 20 + Standard lump sum + DBCBS + AVC's = total pot value

You can take 25% of the above as tax free cash.
For example:

NRA65 pension = £5,000 per year
Standard lump sum = £20,000
DBCBS = £15,000
AVC's = £60,000

Therefore you have a total pot value of £195,000 and you can take £48,750 as tax free cash. With the rest either being paid as a taxable lump sum, or transferred out to buy an annuity.

4, will the amounts I put into Avc be saved via Zurich?
5. As it will be short term savings, is it best to fund via the cash fund? What will the charges be?

It's now with Scottish Widows.
Cash/Cautious is probably best. The fund performance data of the available funds and their charges can be found here: https://digital.feprecisionplus.com/cor ... ory=2rmp62" onclick="window.open(this.href);return false;

Thanks Steve,
May I ask what's the limitations of flexiplan, will that also be the case for me as I'm in pension B plan?
If for arguments sake I have saved say 60k in avc from after I take my nra60, and say my max lump sum is quoted at 20k for pension of 5k, does it mean the 60k is used to fund the 20k lump sump and the remaining 40k of avs Inc cash balance is then converted to yearly pension at ratio of 20:1?
Thanks

Section B members used to be able to commute some or all of their lump sum to more pension. But I'm unsure whether that option still exists, as it's not mentioned in the plan guide. Perhaps that's question you can ask the PSC!

You can't convert any of your AVC cash directly into more RM pension, but you can transfer all of it separately from your NRA65 benefits, or any excess once you've taken the maximum tax free lump sum, and buy an annuity, which will give you an income for life, although probably nowhere near as good as you'll get from RM. Example annuity rates here: https://www.hl.co.uk/retirement/annuiti ... -buy-rates" onclick="window.open(this.href);return false;
It's not possible to transfer any excess AVC's to a drawdown product.

The DBCBS has to be used to fund the tax free cash when taking your NRA65 benefits, with anything over being paid as taxable cash.

[rks]

Thanks Robert,
You say "
Section B members used to be able to commute some or all of their lump sum to more pension. But I'm unsure whether that option still exists, as it's not mentioned in the plan guide."
So I believe this is still the case as my 2019 Rmsps estimate of pension benefits sent to me on my request gives me 3 options, 1 standard benefit,
2.max lump sum
3. Max pension
And some of my colleagues recently were able to adjust lump sum accordingly to adjust pension amount.
So your answer to my question 3. If I'm reading you rightly shows that whatever I pay into the Avc gets included in the total Pot value?
If so then that's what I want so that I take max 25% tax free lump sum of the pot and hopefully the rest is converted to RM pension. I Will call pension helpline to clarify this though. Thanks for your help and time.

[RobertT]

Thanks Robert,
You say "
Section B members used to be able to commute some or all of their lump sum to more pension. But I'm unsure whether that option still exists, as it's not mentioned in the plan guide."
So I believe this is still the case as my 2019 Rmsps estimate of pension benefits sent to me on my request gives me 3 options, 1 standard benefit,
2.max lump sum
3. Max pension
And some of my colleagues recently were able to adjust lump sum accordingly to adjust pension amount.

So your answer to my question 3. If I'm reading you rightly shows that whatever I pay into the Avc gets included in the total Pot value?

Yes.

If so then that's what I want so that I take max 25% tax free lump sum of the pot and hopefully the rest is converted to RM pension. I Will call pension helpline to clarify this though. Thanks for your help and time.

No problem, I hope everything works out as you want.

The PSC currently have a reduced service due to Covid-19 as mentioned on the RMPP website(https://www.royalmailpensionplan.co.uk/ ... site_0.pdf" onclick="window.open(this.href);return false;), so you might find it difficult to get through on the phone. Personally I've always received much better and more informed answers by emailing, although it does take longer.

[rks]

Further to this debate, I called Rmpp today and asked the question about what happens to excess cash used in avc savings after its used to fund the LS.
Though I'm not 100% convinced but literature and what's the guy said is that excess will be part of the Pot and used as pension, so if that's the case then it's not required to take out and try and buy an annuity elsewhere, is converted to RM pension.

[RobertT]

Further to this debate, I called Rmpp today and asked the question about what happens to excess cash used in avc savings after its used to fund the LS.
Though I'm not 100% convinced but literature and what's the guy said is that excess will be part of the Pot and used as pension, so if that's the case then it's not required to take out and try and buy an annuity elsewhere, is converted to RM pension.

I asked them a similar question a while back and was told that if the excess is under £1,000 then it can be commuted to more pension. But if it's over £1,000 then it has to be taken as taxable cash or transferred out to buy an annuity.

I have that in writing from them.

[rks]

Oh right, thanks for Info Robert, I'll as them also to confirm that thanks

[RobertT]

Further to this debate, I called Rmpp today and asked the question about what happens to excess cash used in avc savings after its used to fund the LS.
Though I'm not 100% convinced but literature and what's the guy said is that excess will be part of the Pot and used as pension, so if that's the case then it's not required to take out and try and buy an annuity elsewhere, is converted to RM pension.

On annuities, I believe RMPP use Hargreaves Lansdown as their preferred provider, hence the link I provided in an earlier post.

So if you went with them. I assume all you have to do is decide what type of annuity you want – single life, joint life, inflation proofed, etc and the rest is done for you.

If you want to use another provider, then RMPP will need to send the funds to them and that will obviously mean you doing a bit of research yourself, or else employing an IFA to do it for you.