Avoiding Higher Tax on AVC

[mr hil.]

So with approx 17K wages, £3.5k NRA 60 if she takes it just before her NRA 65 is payable it should mostly work.

Excluding any inflation etc etc ?

There is usually no benefit from delaying taking the NRA60, to leave it until the NRA65 becomes payable would mean you would lose 5 years of NRA60 payments, because I believe that the payments are not backdated. So you would be missing out on over £17,000 pounds by delaying taking it at 60

[Hawkey99]

I think you misunderstood my post.

Im talking about her AVC in the post not her NRA 60...

[Hawkey99]

Hi Robert on your original post you said one of the options was:

"Use the AVC's to fund the tax free cash at 60, then transfer the remainder into a personal pension. She can then drawdown the remainder over time, making sure total income is within the 20% tax band."

If she does this it would give her £23556 tax free lump sum with her NRA 60 and leave £51444 reamining.

If she transfers this £51444 to another provider would she be entitled to 25% of this as tax free cash and then 20% tax on remainder or would all £51444 be taxable at 20% when drawn down?

Many thanks

[RobertT]

As far as I'm aware, the whole £51k would be taxable as she'll have already taken the tax free element. Therefore it would be best to drawdown over a number of years to avoid any possibility of paying 40% tax.

[Hawkey99]

Thank you very much....

[Hawkey99]

One of the options you mentioned was to transfer any remaining AVC money after you take your NRA 60.

Are you still able to transfer this to another provider if you have started drawing down from the pension you would like to transfer it into?

[NWpostie]

How do you go about having a drawdown account ?

[RobertT]

One of the options you mentioned was to transfer any remaining AVC money after you take your NRA 60.

Are you still able to transfer this to another provider if you have started drawing down from the pension you would like to transfer it into?

Yes, you should be able to. Although it may depend on the provider to some degree.

[RobertT]

How do you go about having a drawdown account ?

First you need a personal pension that enables drawdown.

Not all DC pension products allow drawdown, so you might have to transfer to a different pension with the same provider, or else find a different provider altogether.

For example:
I don't think the RMDCP allows drawdown directly.
Nor can you do it with AVC's, without transferring.

The pension is a savings vehicle that you pay into over a period of time. When you want to start accessing it, you tell them you want to convert it into a drawdown arrangement.
You then access the money when you want(within reason), with the first 25% being tax free.

Most providers have a limit as to how often you can access your cash. It's not usually more often the one withdrawal per month but can be less often.

[Hawkey99]

Thank you Robert.

I know in normal circumstances you can only pay in £4000 ish once you have started Drawdown but I guess a transfer from one pension scheme to another isn't considered actually paying in any new money ?

[RobertT]

As far as I'm aware, transfers don't count towards the yearly limits.

It's worth noting, the £4,000 Money Purchase Annual Allowance(MPAA) only applies to DC schemes and only after you've started to dip into the taxable element. You can take out just the tax free cash from a DC pension, without triggering the MPAA!