AVC's

[posteee]

I'm 10 years away from being 55 yet, but if I cashed my AVC's in at 55 (in whatever guise, either by transferring them to a different provider for draw down or however I choose), am I still able to keep paying into the RMPP as usual, and keep that pension going in full ?
Thanks

[RobertT]

The only way you can 'cash in' your AVC's is to:

Take them with your main RMPP benefits to provide the tax free lump sum; or
Transfer them to another provider for drawdown, annuity, etc.

If the RMPP is still an active scheme at the time, then yes you would be able to keep paying in.
But the RMPP closed to future accrual in 2018 which means no-one is building any more pension, just a lump sum via the transitional DBCBS!

The DBCBS will only be around for another 2-3 years at the most, the plan is that it will be replaced by the CDC scheme which is still awaiting the required legislation.

When the CDC scheme is introduced, that will be a completely separate scheme to the RMPP and we'll be paying into that instead.

In my opinion, it's doubtful we'll be able to continue paying into the current AVC's once CDC starts.

[posteee]

I hope the AVC's won't end. I understand your rationale, but really hope they are still allowed to continue.

[NWpostie]

Would there be a lump sum with CDC scheme ?

[RobertT]

Would there be a lump sum with CDC scheme ?

The plan is that they'll be another scheme 'sitting alongside' CDC called the Defined Benefit Lump Sum Scheme.
The original proposal also said there would be the option to pay in an additional 1% into the DBLSS, which would be matched by RM.

Full details can be found by following the links here: https://www.myroyalmail.com/pensions" onclick="window.open(this.href);return false;

[freespeech]

No, you can't take the AVC's separate to your pension.

[heapsy]

Would there be a lump sum with CDC scheme ?

The plan is that they'll be another scheme 'sitting alongside' CDC called the Defined Benefit Lump Sum Scheme.
The original proposal also said there would be the option to pay in an additional 1% into the DBLSS, which would be matched by RM.

Full details can be found by following the links here: https://www.myroyalmail.com/pensions" onclick="window.open(this.href);return false;

Am I right in thinking that the pension age for the CDC will be the individuals owns Sate pension age? In other words, the younger you are, the longer you have to wait before drawing your pension if taken at NRA?

[RobertT]

No, you can't take the AVC's separate to your pension.

The normal use of AVC's is to fund the tax free lump sum when taking your main NRA60 & NRA65 benefits, but you can also transfer your cash out to another pension arrangement such as a SIPP if you choose to. It's mentioned in the Guide to AVC's:

When taking their main RMPP benefits, most people use all of the money in their AVC account to provide a larger cash sum (subject to certain HMRC limits). Alternatively, you could use some or all of your AVC account to buy an annuity (a pension) which will provide an income for life. You also have the option to transfer the value of your AVC account to another provider who may be able to offer you different choices.

[RobertT]

Am I right in thinking that the pension age for the CDC will be the individuals owns Sate pension age? In other words, the younger you are, the longer you have to wait before drawing your pension if taken at NRA?

The CWU's original WinRs pension proposal had an NRA of state pension age. But CDC, unless anything changes before implementation, has a set NRA of 67.

[freespeech]

No, you can't take the AVC's separate to your pension.

The normal use of AVC's is to fund the tax free lump sum when taking your main NRA60 & NRA65 benefits, but you can also transfer your cash out to another pension arrangement such as a SIPP if you choose to. It's mentioned in the Guide to AVC's:

When taking their main RMPP benefits, most people use all of the money in their AVC account to provide a larger cash sum (subject to certain HMRC limits). Alternatively, you could use some or all of your AVC account to buy an annuity (a pension) which will provide an income for life. You also have the option to transfer the value of your AVC account to another provider who may be able to offer you different choices.

But that transfer, as far as I understand it, can only take place when taking the main benefits so my original reply stands?

[RobertT]

No, you can't take the AVC's separate to your pension.

The normal use of AVC's is to fund the tax free lump sum when taking your main NRA60 & NRA65 benefits, but you can also transfer your cash out to another pension arrangement such as a SIPP if you choose to. It's mentioned in the Guide to AVC's:

When taking their main RMPP benefits, most people use all of the money in their AVC account to provide a larger cash sum (subject to certain HMRC limits). Alternatively, you could use some or all of your AVC account to buy an annuity (a pension) which will provide an income for life. You also have the option to transfer the value of your AVC account to another provider who may be able to offer you different choices.

But that transfer, as far as I understand it, can only take place when taking the main benefits so my original reply stands?

The quote I gave you in my previous post is from page 6 of the AVC guide, but if you would care to scroll down a bit further to page 8 you'll find this:

What happens to your AVC fund in various circumstances:

• If you leave service or stop paying AVCs, your AVC account will remain invested until you take your main RMPP benefits or until you take your AVC account separately. You also have the choice to transfer your AVC account to another pension scheme or pension provider.

• If you take your main RMPP benefits you have a number of choices. The most common option is to take all of your AVC account as a tax-free cash sum (subject to certain HMRC limits). Alternatively, you may:

• Delay taking your AVC account (in certain circumstances); or

• Take your AVC account before your main RMPP benefits; or

• Convert all or part of the value of your AVC fund into an annuity (an income for the rest of your life – a pension); or

• Transfer the value of your AVC account to another provider who may be able to offer you different choices.

Make of that what you will. But personally I'm planning on leaving RM before I take my pension and will transfer one of my AVC's sometime between the two.

[heapsy]

I'm thinking about possible changes to our current AVC arrangements. If RM stop the AVCs from further contributions I would like to contribute more to my S&S ISA to supplement the AVCs I already have, as it looks unlikely I will achieve 25% tax free lump sum that way So with that in mind I am currently paying £100 per week and am aware that both PSE and tax relief both apply. I am aware that PSE reduces my NI contributions but am uncertain of how the tax relief element is added. Is it added to my contribution or do they reduce my tax before it is paid in? I would like to keep up that £100 per week on top of my ISA payments. Being single I am not too keen on adding even more to a taxable SIPP I already contribute to and am trying to work out what the equivalent figure would be. Any help or advice greatly received, thanks in advance.

[RobertT]

I'm thinking about possible changes to our current AVC arrangements. If RM stop the AVCs from further contributions I would like to contribute more to my S&S ISA to supplement the AVCs I already have, as it looks unlikely I will achieve 25% tax free lump sum that way So with that in mind I am currently paying £100 per week and am aware that both PSE and tax relief both apply. I am aware that PSE reduces my NI contributions but am uncertain of how the tax relief element is added. Is it added to my contribution or do they reduce my tax before it is paid in? I would like to keep up that £100 per week on top of my ISA payments. Being single I am not too keen on adding even more to a taxable SIPP I already contribute to and am trying to work out what the equivalent figure would be. Any help or advice greatly received, thanks in advance.

We get tax relief and salary sacrifice(PSE) at source, which in practical terms means our pay slips show the gross amount going into our pensions, but our income tax and NI payments are reduced accordingly.
So a £100 per week contribution means your income tax bill reduces by £20 and your NIC's by £12, and the net cost to you is £68. The government pays the other £32.
That applies to all pension contributions with RM, as long as you're within PSE limits, if not, you only get the tax relief.

Personally I would think again about the SIPP, especially when factoring in your expected pension income compared to the Personal Tax Allowance. Obviously basing things on your own situation.

For example: If your NRA60 will pay out £8,000 per year and you have no other income, you still have £4,500 of unused PTA. If you had a SIPP worth £30,000, you could take the tax free lump sum(£7,500) then drawdown the rest over 5 years and you've taken the whole £30k tax free and stayed within the PTA.

Tax free lump sums from the main RM pension, AVC's or SIPP's don't count towards your income for tax purposes!

When contributing to a SIPP you've set up yourself, as opposed to one via your employer, you usually pay in the net amount and tax relief is then added on. There is no salary sacrifice, so a £100 gross payment would only cost £80.

You don't get any tax breaks with ISA's on the way in, so a £100 contribution costs you £100, but there's no tax liability on the way out.

[heapsy]

Thanks for the quick reply. I already pay into a SIPP and have just increased my payment for next month. I'm not sure if the SIPP will grow to a huge amount, I only started last year.

[RobertT]

Thanks for the quick reply. I already pay into a SIPP and have just increased my payment for next month. I'm not sure if the SIPP will grow to a huge amount, I only started last year.

If memory serves me correctly you're 53 or will be this year, and you want to retire at 60?

I don't know when CDC will be introduced, but sometime in 2021 seems likely.
So if payments into the current AVC's stop next year and you manage to save the same £100 per week gross you're currently saving, but into your SIPP, you'll have over £31,000 plus investment returns at 60. That's not including current balance & contributions.

That fits in quite nicely with my example, although that's obviously all it is and won't necessarily apply to you.

From a tax perspective a SIPP isn't as good as RM AVC's because you don't get the benefit of PSE, but I would see your position, from the limited amount I know, as one (AVC) door closing, but another (SIPP) door opening.

If you can make the tax side of things work for you and your own financial position, taking the tax breaks on the way in but not paying any or little tax on the way out, then pensions will be beat ISA's hands down.