Taking AVC as cash

[Brainache]

Hi - Has the new rules on taking AVC money out at 55 been decided yet ? I might pile in even more than I do at the moment !

[RobertT]

Hi - Has the new rules on taking AVC money out at 55 been decided yet ? I might pile in even more than I do at the moment !

As far as i know nothing has been decided yet and it wouldn't come into force until April 2015 anyway.

[terry2972]

From the 6th April 2015 if you are aged 55 you can take your pension pot as a lump sum so it would make sense if you could afford it to save more so RM would put more in. I had a small amount from a previous job which would have got me bugger all as an annuity but now I will get a nice lump sum
Remember you will be able to take 25percent tax free and the remainder would be taxed at 20

[RobertT]

From the 6th April 2015 if you are aged 55 you can take your pension pot as a lump sum

They are the proposals, but I think there's still a few t's to be crossed and i's to be dotted before we know the exact details. Especially about AVC's attached to final salary pensions as that seems to be a slightly grey area based on what I've read in the press.

so it would make sense if you could afford it to save more so RM would put more in.

Whether you get any more in RM contributions would depend on which scheme you're a member of.
As far as I know A/B members can't get any addition RM contributions. Section C members can get more via Bonusplan but it's only about £100 per year for a full time postie, with the employee amount being about £120 after tax relief.
They are however different levels of RM contribution with the RM Defined Contribution pension scheme depending on how much the employee pays in.

I had a small amount from a previous job which would have got me bugger all as an annuity but now I will get a nice lump sum
Remember you will be able to take 25percent tax free and the remainder would be taxed at 20

The remainder will be taxed at your marginal rate. Which means if you have a fairly large pension pot tucked away and chose to take it in one go, that plus any wages or other income in that tax year, could mean you end up paying 40% tax on some of it.

[RobertT]

Hi - Has the new rules on taking AVC money out at 55 been decided yet ? I might pile in even more than I do at the moment !

More details are now available as far as taking your AVC's as cash from April 2015. Info here:
https://www.gov.uk/government/uploads/s ... online.pdf" onclick="window.open(this.href);return false;

But this is the important bit:

Access to flexibility

2.9 In deciding who should have direct access to flexibility, the government has been guided by
the principle that if an individual would previously have had to purchase an annuity or enter
drawdown to access their pension savings, they should be able to access their pension flexibly.

2.10 Thus, those with a money purchase, cash balance or other arrangements which typically
would have required the individual to purchase an annuity will be able to directly access their
pension flexibly from April 2015, should they wish to do so.

2.11 When and how an individual is able to take their pension savings currently depends on the
interaction between the tax rules and the individual’s pension scheme rules. The tax rules
governing pensions are permissive – they allow schemes to make certain payments if the scheme
wants to, rather than mandating that these payments have to be made exactly in line with the
tax rules.
For the purposes of this document
we refer to these types of arrangements as ‘defined contribution’ pensions. Those with
Additional Voluntary Contributions (AVCs) will also be able to access these flexibly, subject to
their pension scheme rules. Those with a hybrid arrangement may be able to access their
pension flexibly without the need for a transfer to a money purchase arrangement, but this will
depend on the nature of their arrangement at the time they take their pension.

2.12 The government is keen to ensure that individuals are not prevented from accessing their
pension savings flexibly under the new system. The consultation document therefore sought
views on whether a statutory override should be put in place, to ensure that pension scheme
rules do not prevent individuals from taking advantage of increased flexibility.

2.13 A number of respondents were in favour of an override, highlighting that a restriction of
flexible access would contradict the principles of freedom and choice.

2.14 However, several respondents also drew attention to the costs and administrative
consequences that a mandatory statutory override could place on some schemes that are not set
up to provide flexible access to pension savings. In essence, providing flexibility would require
schemes to become a drawdown provider. This could be difficult and expensive for schemes,
particularly those with inflexible legacy systems which do not currently have the capacity to take
on this new role.

2.15 The government believes that the introduction of a statutory override mandating that
schemes provide flexible payments would be disproportionate. However, several respondents
highlighted that some schemes may like to offer increased flexibility to their members, but
would prefer not to amend their scheme rules because of the potential legal and administrative
costs. In these situations, the government would prefer that schemes were in a position to
provide flexibility without having to amend their rules.

2.16 Consequently, the government plans to introduce a permissive statutory override. This will
allow schemes to ignore their scheme rules and follow the tax rules instead, in order to pay out
payments flexibly or to provide a drawdown facility. In the government’s view, this achieves the
most proportionate outcome for both individuals and schemes.

[Brainache]

Hi Robert T.
An idea I have is this (if I could afford it):
If I had about £50,000 in the AVC, I could retire at 55, freeze 60/65yr A/B pensions until I am 60. Take about £10,000 out of my AVC each year from 55-60yrs to live on (and avoid paying income tax on it). If this were possible could I then take the 25% tax free lump sum as well when I take my pension at 60 ? Or is all this wishfull thinking ?

[RobertT]

Hi Robert T.
An idea I have is this (if I could afford it):
If I had about £50,000 in the AVC, I could retire at 55, freeze 60/65yr A/B pensions until I am 60. Take about £10,000 out of my AVC each year from 55-60yrs to live on (and avoid paying income tax on it).

The AVC money will still be classed as income, but if your total income is less than the personal tax allowance(currently £10,000 for someone born after 5th April 1948), no tax will be payable.

If this were possible could I then take the 25% tax free lump sum as well when I take my pension at 60 ? Or is all this wishfull thinking ?

You could still take your TFLS at 60 without incurring any tax on it because it's not classed as income. Plus if your pension is less than £10,000 per year( based on current figures) you wouldn’t pay any tax on that either, assuming you had no other income.

[Brainache]

Do you know if RM + Zurich have said that an AVC could be taken in stages yet ?

[RobertT]

Do you know if RM + Zurich have said that an AVC could be taken in stages yet ?

Not as far as I know.

[RobertT]

There is now a download that gives a bit of info about the April 2015 changes on the pension website, although there's no exact details about how taking our AVC's as cash will actually work.

http://royalmailpensionplan.co.uk/65/22 ... on-changes" onclick="window.open(this.href);return false;

[Brainache]

Thanks Robert T.

[heapsy]

AVCs are not exactly tax free. It depends on the size of the overall pot and your tax code at retirement. I'm investing in stocks and shares ISAs instead.

[RobertT]

AVCs are not exactly tax free. It depends on the size of the overall pot and your tax code at retirement. I'm investing in stocks and shares ISAs instead.

There are pros and cons to both pensions and ISA’s and neither will give a perfect solution to your retirement needs, so the common thought among IFA’s is usually that a mixture of both is probably best. Although in my opinion when the new reforms come into force in April 2015, defined contribution type pensions will be more attractive than ISA’s. The reason being is that they have the potential to be totally tax free. So you will receive tax relief and possibly employer contributions on the way in and as long as your income is below the personal tax allowance, you will pay no tax at all on the way out. In fact it’s perfectly possible to get a decent tax free income of more than the personal tax allowance by using pensions, at least until state pension age.

ISA’s offer similar investment choices than pensions and are much more flexible because you don’t have to wait until you’re at least 55 to touch them. They are tax free on the way out, but you will have already paid tax on your money before it goes in. So they will never be totally tax free.