AVCs with new pension scheme

[pacey]

Hello,

I’m new to the boards but am learning so much. Apologies if these are stupid questions, but I haven’t seen the answers yet, and as I’m new to trying to get my head around all things pension related I don’t know if what I’m asking is obvious or not!

I’m turning 50 later this year and finally starting to think about retirement! I honestly don’t think I can last doing this past 60 at the latest!

I am thinking I should invest in AVCs with the hope of supplementing my early retirement. But I’ve just seen that the pension is changing to CDC (I know I should have known this, but I have totally buried my head in the sand about pensions until now!).

I see the new scheme will be NRA67 - does that mean I’d have to wait until aged 67 to get any AVCs out as a tax free lump sum?

Also, when calculating the ‘pot’ on which to work out how much of a tax free lump sum I can take, can I count all three pensions or would it just be the CDC pot as that’s the one I’m putting AVCs in to?

As I say, sorry if these are stupid questions - I’m on a steep learning curve!

[freespeech]

Hello,

I’m new to the boards but am learning so much. Apologies if these are stupid questions, but I haven’t seen the answers yet, and as I’m new to trying to get my head around all things pension related I don’t know if what I’m asking is obvious or not!

I’m turning 50 later this year and finally starting to think about retirement! I honestly don’t think I can last doing this past 60 at the latest!

I am thinking I should invest in AVCs with the hope of supplementing my early retirement. But I’ve just seen that the pension is changing to CDC (I know I should have known this, but I have totally buried my head in the sand about pensions until now!).

I see the new scheme will be NRA67 - does that mean I’d have to wait until aged 67 to get any AVCs out as a tax free lump sum?

Also, when calculating the ‘pot’ on which to work out how much of a tax free lump sum I can take, can I count all three pensions or would it just be the CDC pot as that’s the one I’m putting AVCs in to?

As I say, sorry if these are stupid questions - I’m on a steep learning curve!

Current rules allow you to draw your private pension from 55. In the schemes already in existence with NRA60 and NRA65 a rough guide is a loss of 5% per year taken early for the overall pot. There would be no reduction for AVC's as you would have already contributed and they grow with each payment. Your issue will be the relatively short time you have to contribute. My advice.....don't wait for the new scheme, start an AVC now in the current schemes.

[freespeech]

Hello,

I’m new to the boards but am learning so much. Apologies if these are stupid questions, but I haven’t seen the answers yet, and as I’m new to trying to get my head around all things pension related I don’t know if what I’m asking is obvious or not!

I’m turning 50 later this year and finally starting to think about retirement! I honestly don’t think I can last doing this past 60 at the latest!

I am thinking I should invest in AVCs with the hope of supplementing my early retirement. But I’ve just seen that the pension is changing to CDC (I know I should have known this, but I have totally buried my head in the sand about pensions until now!).

I see the new scheme will be NRA67 - does that mean I’d have to wait until aged 67 to get any AVCs out as a tax free lump sum?

Also, when calculating the ‘pot’ on which to work out how much of a tax free lump sum I can take, can I count all three pensions or would it just be the CDC pot as that’s the one I’m putting AVCs in to?

As I say, sorry if these are stupid questions - I’m on a steep learning curve!

Current rules allow you to draw your private pension from 55. In the schemes already in existence with NRA60 and NRA65 a rough guide is a loss of 5% per year taken early for the overall pot. There would be no reduction for AVC's as you would have already contributed and they grow with each payment. Your issue will be the relatively short time you have to contribute. My advice.....don't wait for the new scheme, start an AVC now in the current schemes.

[RobertT]

Hello,

I’m new to the boards but am learning so much. Apologies if these are stupid questions, but I haven’t seen the answers yet, and as I’m new to trying to get my head around all things pension related I don’t know if what I’m asking is obvious or not!

I’m turning 50 later this year and finally starting to think about retirement! I honestly don’t think I can last doing this past 60 at the latest!

I am thinking I should invest in AVCs with the hope of supplementing my early retirement. But I’ve just seen that the pension is changing to CDC (I know I should have known this, but I have totally buried my head in the sand about pensions until now!).

I see the new scheme will be NRA67 - does that mean I’d have to wait until aged 67 to get any AVCs out as a tax free lump sum?

The CDC scheme will have an NRA of 67 but it will be possible to take it earlier if you wish. However, it will be reduced as a result, just as NRA60 and NRA65 benefits are.

With the current AVC's attached to the RMPP( Bonusplan & Flexiplan), the idea is that they can be used to fund the tax free lump sum when taking your NRA60 & NRA65 benefits. But they can also be transferred out to a personal pension independently and accessed via that instead.
I'm expecting the same arrangement with the new DC AVC via CDC, although once transferred only 25% is guaranteed to be tax free with the remainder being classed as income under normal PAYE tax rules.

At this stage, it's unclear whether the Defined Benefit Lump Sum along with the additional Lump Sum Booster, will be transferable.

Also, when calculating the ‘pot’ on which to work out how much of a tax free lump sum I can take, can I count all three pensions or would it just be the CDC pot as that’s the one I’m putting AVCs in to?

The new DC and lump sum booster AVC's will specifically be attached to the new CDC scheme, just as the current Flexiplan & Bonusplan are specifically attached to the RMSPS/RMPP. Therefore there's not likely to be any crossover.

As benefits from CDC can go down as well as up, the method for calculating 'pot value' won't necessarily be the usual 20x multiple as is used with defined benefit schemes.
We don't currently know how it will be calculated.

As I say, sorry if these are stupid questions - I’m on a steep learning curve!

If you haven't already seen it, there's lots of CDC info here: https://www.myroyalmail.com/collective-plan

[RobertT]

Just to follow up on Freespeech's comments:

The minimum age for access to any pension is due to increase to 57 in 2028, but there's always the possibility that could change again.

The sooner you start and the more you save the better, so any money saved via the current AVC's can still be used via NRA60/65 or else transferred out.

[pacey]

Thank you all so much for taking the time to post such comprehensive replies, I really do appreciate it and am trying my very best to learn from your wisdom!

So, the reason I haven’t started investing in AVCs as yet, (aside from the fact I’ve only just started thinking about retirement!) is that we are currently trying to repay our mortgage before our fixed rate comes to an end next year and the payments rocket! Our plan is then to fund the AVCs with the mortgage repayments but this won’t happen now before the new pension scheme comes in (assuming it does so by the end of 2023 of course!)

So, if I’m understanding you all correctly, are we saying I can take my AVC pot along with my NRA60 benefits? (I don’t want to take any part of my pension early due to losing a percentage of it), and Ive read that I can take my AVCs when I take my main pension benefits, but does that mean as my AVCs will be linked to the NRA67 scheme, that I have to take the NRA67 benefits if I’m wanting the AVC lump sum at 60?

And again, if I’m understanding your posts correctly - if I can only take a tax free lump sum for the equivalent of 25% of the new pension scheme (not the total of my three RM schemes) then that isn’t going to equate to very much is it. Although I guess I could take the rest taxed?

Apologies if I’m misinterpreting what has been said above - as I say, I am so very new to all this and so I’m starting from a very basic level of understanding! I’m sure you are being very clear - it’s my slow brain trying to get on top of it all!

[RobertT]

Pensions in general are quite difficult to understand and RM pensions are ridiculous!!!

If you were to pay into the current AVC's(Bonusplan & Flexiplan), they would have to be taken with your NRA60/NRA65 benefits, which are paid jointly by RMSPS & RMPP. Or else transferred out independently.

If you were to pay into AVC's via the new CDC scheme, they would be linked to that scheme and have to be taken with those benefits. Or else transferred out independently(I'm not 100% sure about DB lump sum and booster).

It won't be possible to take CDC AVC's with NRA60/NRA65 benefits, or vice versa, because they're going to be completely different and unlinked schemes.

You don't say which section of the RMSPS/RMPP you're in, but I'm assuming section C!
If you want a lump sum at 60, then your options are:

1. Commute some of your NRA60 pension to fund a lump sum. As a rough guide, for each £1 of yearly pension you give up, you'll get £20 in tax free cash. Up to a maximum of 25% pot value as tax free cash.
2. Take your NRA65 at 60 and use the DBCBS to provide tax free cash.
3. Take your CDC NRA67 benefits early with the lump sum being part funded by CDC AVC's.
4. Take a transfer value of your total CDC scheme benefits and move to a personal pension for drawdown.
5. Transfer just your CDC AVC's to a personal pension for drawdown.
6. Save extra independently of RM, which could mean via a personal pension or ISA, etc.

[pacey]

Thank you so much Robert! That’s amazing and I think I’m finally getting it!

So I started with Royal Mail as a Postal Cadet in 1990, and so would have started my pension in 1991 when I turned 18. I know I’m in RMPP and RMSPS section C.

I have spent the day looking at it all as I happen to be off, and I think I will save as much as I can into AVCs, being sure to just save the maximum amount I can but still be able to take the AVC total as a tax free lump sum - at least that way I will feel I’ve done something in that regard, even though I know I will leave it there until I turn 67.

I know that I want to do everything I can to leave the pensions untouched and only take them when I reach the 60/65/67 marks and can claim the respective benefits without losing anything.

So that means after sorting the smallish pot of AVCs, I’ll look at the private pension/stocks and shares isas/SIPPs - I haven’t even touched on those things as I’ve spent the day getting to grips with the RM pensions, so these are all meaningless words to me at this stage, but I’ll get there! (Hopefully!)

Thank you so much, you’ve been more help to me today than the hours I’ve spent over the last few weeks trying to understand it all on my own! Just wish I’d found this group before now!

[Hyrrokkin]

OP

I and many others feel your pain in understanding pensions and RM pensions in particular

As RobertT said they are ridiculous and if he struggles with it what chance do the rest of us have !!



You have the right idea put what you can into AVC's now and look at SIPPs & ISAs
Every little helps