AVC's and NRA Link

[freespeech]

I know AVC's are designed to contribute to the lump sum so that your pension isn't reduced by as much. Can someone tell me which NRA the AVC's help with please. Is it NRA60 only?

Thanks

[RobertT]

It's potentially both NRA60 and NRA65, but it'll depend on the amounts of money involved.

For example:

You have AVC's worth £50,000.

You take your section C NRA60 of £6,000 per year, meaning an NRA60 pot value of £1700,000 and a maximum tax free lump sum of £42,500.
The remaining £7,500 is then taken with your NRA65, with any possible excess being taxed.

If on the other hand your NRA60 was £8,000 per year, you'd have a pot value of £210,000 and you could take all of your £50,000 with your NRA60.


The DBCBS will muddy the waters to some degree, as the majority of that is attached to your NRA65 benefits, and your RMPP(2012-2018) benefits in particular. But some of it, as we already know on this forum, will be taken with your NRA60 too.

[freespeech]

Can I give some figures nearer my situation.....

I have bonusplan approaching £9k and flexiplan a further £1k. I intend to add an additional £20k to flexiplan at VR (through wages). Total AVC's £30k.

EXCLUDING THE ABOVE pension estimate (from the business not calculated) is combined NRA60 and 65 taken at 55 of £15k (inc supplement) with a max LS of £105k. With no LS the pension is £20k.

My cash balance fund sum is £32k. However, the max NRA65 LS is £22k (from the business estimate).

The frustration is that the pension estimate doesn't include the AVC's or the cash balance fund so I am assuming their inclusion will push up the max LS and unlock the use of more AVC's. Not to include this in the estimate is so misleading. It isn't calculated properly until you sign to say you are drawing your pension.

[Hawkey99]

Im sure Robert will reply regarding the mechanics of your sum but as you have said the current estimates are woeful.

I had my NRA 65 estimate and available lump sums from both RMPP and RMSPS reciently.

What they make you do it choose blindly or certainly not without full knowledge decisions that affect us for the rest of our life.

This statement is at the top of the estimate

“The value of your DBCBS fund-Pension contributions from 2018, any AVC funds and court orders as applicable will be included in the options should you decide to take payment of your benefits.”

The problems being before you get the figures that include your AVCs and DBCBS you have already committed to taking your pension. This is because the estimate have a declaration on them stating that your contributions will cease. Once this is returned that is normally the end of the line as once your deductions cease we cannot be restarted

To muddy the waters even future I was told by Pension Service Centre on the phone that I COULD make a final decision when I get my options which include AVCs and DBCBS.

So it’s a tricky old process and you need to be very very careful….

[RobertT]

Can I give some figures nearer my situation.....

I have bonusplan approaching £9k and flexiplan a further £1k. I intend to add an additional £20k to flexiplan at VR (through wages). Total AVC's £30k.

EXCLUDING THE ABOVE pension estimate (from the business not calculated) is combined NRA60 and 65 taken at 55 of £15k (inc supplement) with a max LS of £105k. With no LS the pension is £20k.

My cash balance fund sum is £32k. However, the max NRA65 LS is £22k (from the business estimate).

The frustration is that the pension estimate doesn't include the AVC's or the cash balance fund so I am assuming their inclusion will push up the max LS and unlock the use of more AVC's. Not to include this in the estimate is so misleading. It isn't calculated properly until you sign to say you are drawing your pension.

You haven't told me your actual NRA60 and NRA65 figures, assuming your get them in that format from RMSPS/RMPP?

But if your max NRA65 lump sum is £22k I can only guestimate the pension would be around £3,300 and therefore your NRA60 pension is £11,700 with a lump sum of £83,000 ????

If those figures are anywhere near correct you have an NRA60 pot of £317,000.
Add on your AVC's of £30,000(assuming VR) giving you £347,000 and so a max lump sum of £86,750.

Your NRA65 pot is around £88,000 plus the DBCBS, which is where it gets muddy because nobody really seems to know(I don't anyway) how much DBCBS is attached to the NRA60 and therefore how much to the NRA65.

But if for this example you just attach all of the DBCBS to the NRA65, you get a pot value of £120,000, which in turn gives you a max lump sum of £30,000.

So in very ballpark terms, allowing for maybe £3,000? of the DBCBS to be attached to your NRA60 and based on your figures, it sounds to me as if your numbers will be:

NRA60: £13,125 pension + £87,500 tax free lump sum(£30k coming from AVC's & £3k from DBCBS)
NRA65: £4,400 pension + £29,000 tax free lump sum from DBCBS.
Factoring in the AVC's and DBCBS you get a bigger tax free lump sum and a bigger pension!
In practice it looks as if the DBCBS pot will be on the cusp of 25% of your NRA65 pot, so if it's slightly over, a little tax might be payable.

Plus I believe there is also the option to take the max lump sum from the NRA65 pension, aswell as all the DBCBS as cash, although tax will be payable.

That would bring your NRA65 pension down to £3,300 and increase your lump sum to around £51,000, but anything over the 25% tax free will be paid out as an UFPLS, meaning the first 25% of that excess would also be tax free, with the remainder being taxed at your marginal rate.

In your case, basically most if not all of your NRA65 DBCBS cash will be paid out as a UFPLS, meaning about £24,600 in your pocket, assuming 20% tax rate.

[RobertT]

Im sure Robert will reply regarding the mechanics of your sum but as you have said the current estimates are woeful.

I had my NRA 65 estimate and available lump sums from both RMPP and RMSPS reciently.

What they make you do it choose blindly or certainly not without full knowledge decisions that affect us for the rest of our life.

This statement is at the top of the estimate

“The value of your DBCBS fund-Pension contributions from 2018, any AVC funds and court orders as applicable will be included in the options should you decide to take payment of your benefits.”

The problems being before you get the figures that include your AVCs and DBCBS you have already committed to taking your pension. This is because the estimate have a declaration on them stating that your contributions will cease. Once this is returned that is normally the end of the line as once your deductions cease we cannot be restarted

To muddy the waters even future I was told by Pension Service Centre on the phone that I COULD make a final decision when I get my options which include AVCs and DBCBS.

So it’s a tricky old process and you need to be very very careful….

That is true when taking your NRA65 because you're leaving the RMPP!. If you're taking just your NRA60 you can currently continue to pay into the DBCBS and AVC's.

But I agree with both yourself and Freespeech that all benefits including AVC's and DBCBS should be included in all pension estimates.

[freespeech]

Can I give some figures nearer my situation.....

I have bonusplan approaching £9k and flexiplan a further £1k. I intend to add an additional £20k to flexiplan at VR (through wages). Total AVC's £30k.

EXCLUDING THE ABOVE pension estimate (from the business not calculated) is combined NRA60 and 65 taken at 55 of £15k (inc supplement) with a max LS of £105k. With no LS the pension is £20k.

My cash balance fund sum is £32k. However, the max NRA65 LS is £22k (from the business estimate).

The frustration is that the pension estimate doesn't include the AVC's or the cash balance fund so I am assuming their inclusion will push up the max LS and unlock the use of more AVC's. Not to include this in the estimate is so misleading. It isn't calculated properly until you sign to say you are drawing your pension.

You haven't told me your actual NRA60 and NRA65 figures, assuming your get them in that format from RMSPS/RMPP?

But if your max NRA65 lump sum is £22k I can only guestimate the pension would be around £3,300 and therefore your NRA60 pension is £11,700 with a lump sum of £83,000 ????

If those figures are anywhere near correct you have an NRA60 pot of £317,000.
Add on your AVC's of £30,000(assuming VR) giving you £347,000 and so a max lump sum of £86,750.

Your NRA65 pot is around £88,000 plus the DBCBS, which is where it gets muddy because nobody really seems to know(I don't anyway) how much DBCBS is attached to the NRA60 and therefore how much to the NRA65.

But if for this example you just attach all of the DBCBS to the NRA65, you get a pot value of £120,000, which in turn gives you a max lump sum of £30,000.

So in very ballpark terms, allowing for maybe £3,000? of the DBCBS to be attached to your NRA60 and based on your figures, it sounds to me as if your numbers will be:

NRA60: £13,125 pension + £87,500 tax free lump sum(£30k coming from AVC's & £3k from DBCBS)
NRA65: £4,400 pension + £29,000 tax free lump sum from DBCBS.
Factoring in the AVC's and DBCBS you get a bigger tax free lump sum and a bigger pension!
In practice it looks as if the DBCBS pot will be on the cusp of 25% of your NRA65 pot, so if it's slightly over, a little tax might be payable.

Plus I believe there is also the option to take the max lump sum from the NRA65 pension, aswell as all the DBCBS as cash, although tax will be payable.

That would bring your NRA65 pension down to £3,300 and increase your lump sum to around £51,000, but anything over the 25% tax free will be paid out as an UFPLS, meaning the first 25% of that excess would also be tax free, with the remainder being taxed at your marginal rate.

In your case, basically most if not all of your NRA65 DBCBS cash will be paid out as a UFPLS, meaning about £24,600 in your pocket, assuming 20% tax rate.

My reduced figures (draw both pensions at 55) are NRA60 RMPP £1659 pension, £11059 LS, RMSPS £10723 pension, LS £71,487. For NRA65 (at 55) RMPP is £2589 pension, £17266 LS and RMSPS £799 pension, £5327 LS. Total combined figures are £15771 pension and £105,141 LS. Thanks.

[RobertT]

So you should be able to come up with revised figures factoring in your AVC's and DBCBS.

[freespeech]

So you should be able to come up with revised figures factoring in your AVC's and DBCBS.

We aren't all as knowledgeable as you!

I have a simple way of looking at it.....I have £30k of AVC's and cash balance of £32k. It seems that a £20k LS is equivalent to around £1000 pension so I suspect the not included AVC's and Cash Balance will probably add combinations equalling around £60k (ie £2k a year more pension and £20k LS). The skill is knowing where they fall!

My figures are better than I thought they would be (mainly due to staying in the same job family with final salary and seeing more flow through than most).This means I may take my NRA60 a year before NRA65. What I don't know is that if that will disadvantage me. What I mean is that if the cash balance is not considered when I take NRA60 and it's more than the LS at NRA65 I may find I'm paying tax on things if I take the benefits separately than if I were to take them at the same time. Problem is I'm guessing.......I do, however, like the thought of taking the benefits in two separate tax years as I will benefit twice with the personal allowance.

[RobertT]

I don't know how much DBCBS will be assigned to NRA60 benefits(does anyone?), but going by posts on this forum it seems to be around 10-15% of the total DBCBS balance. Although that is also a bit of a guess from me too!
In practice it'll probably vary from person to person to some degree.

Your AVC's and the NRA60 element of the DBCBS will clearly be well inside the 25% tax free limit for your NRA60 benefits. While as mentioned previously. I suspect the remainder of the DBCBS will be on the cusp of the 25% limit of your NRA65 benefits.
Meaning that overall the AVC's and DBCBS will enable a bigger pension and a bigger lump sum, with possibly a small amount of tax to pay on the NRA65 DBCBS?

The NRA60 element of the DBCBS will be assigned to those benefits at the point of taking your NRA60, whether you're taking your NRA65 at the same time or not.

Going by your figures for taking your NRA60 at 55 you'll be just below the personal tax allowance. Plus on top of that you might have the effects of your AVC's and DBCBS increasing your pension amount/s, and any other income from your RM job and any possible VR payment over £30k.

So assuming your overall yearly income when you take your pension/s is within the basic 20% tax band(below £50k), will taking your NRA65 in a different financial year make much difference from a tax point of view?

[freespeech]

I don't know how much DBCBS will be assigned to NRA60 benefits(does anyone?), but going by posts on this forum it seems to be around 10-15% of the total DBCBS balance. Although that is also a bit of a guess from me too!
In practice it'll probably vary from person to person to some degree.

Your AVC's and the NRA60 element of the DBCBS will clearly be well inside the 25% tax free limit for your NRA60 benefits. While as mentioned previously. I suspect the remainder of the DBCBS will be on the cusp of the 25% limit of your NRA65 benefits.
Meaning that overall the AVC's and DBCBS will enable a bigger pension and a bigger lump sum, with possibly a small amount of tax to pay on the NRA65 DBCBS?

The NRA60 element of the DBCBS will be assigned to those benefits at the point of taking your NRA60, whether you're taking your NRA65 at the same time or not.

Going by your figures for taking your NRA60 at 55 you'll be just below the personal tax allowance. Plus on top of that you might have the effects of your AVC's and DBCBS increasing your pension amount/s, and any other income from your RM job and any possible VR payment over £30k.

So assuming your overall yearly income when you take your pension/s is within the basic 20% tax band(below £50k), will taking your NRA65 in a different financial year make much difference from a tax point of view?

Lots to think about. Thanks Robert - exemplary as always.