AVC Question

garnery · Post by **garnery** » 23 May 2016, 12:56

I intend to start putting extra into my pension via AVC's later this year to give me a larger lump sum without reducing my pension. I know my AVC has to stay invested until i take my benefits, however, can i withdraw my AVC with my NRA 60 benefits or would i have to take it with my NRA 65 benefits ? Or do i have a choice when i take it ? Thanks

mark.cup · Post by **mark.cup** » 23 May 2016, 15:06

You can take it at an age that suits you within the legal age set out by the goverment

I'm putting away a decent amount so hopefully I can retire early and take all the tax free cash from the AVC and as big a pension as possible from the main fund

Post by **fly-catchers** » 23 May 2016, 15:07

You can take it anytime from 60 onwards. Or carry on investing into until you are 75!

Post by **RobertT** » 23 May 2016, 15:32

The main aim of AVC’s is to fund the tax free lump sum and so preserve your pension amount. But you can actually take them anytime after 55 and you don’t even have to take them at the same time as either your NRA50 or NRA65 benefits if you don’t want to. There will potentially be tax implications however.

This will give you a bit more info: http://www.royalmailchat.co.uk/communit ... 27&t=69013" onclick="window.open(this.href);return false;

garnery · Post by **garnery** » 23 May 2016, 16:41

Thanks for the replies. Much appreciated

garnery · Post by **garnery** » 31 May 2016, 01:05

RobertT wrote:The main aim of AVC’s is to fund the tax free lump sum and so preserve your pension amount. But you can actually take them anytime after 55 and you don’t even have to take them at the same time as either your NRA50 or NRA65 benefits if you don’t want to. There will potentially be tax implications however.

This will give you a bit more info: http://www.royalmailchat.co.uk/communit ... 27&t=69013" onclick="window.open(this.href);return false;

I am a section C member. Is there a way of working out how much i would have to build up in my AVC account to allow me to take my maximum monthly pension plus the maximum tax free lump sum ? Thanks

Post by **RobertT** » 31 May 2016, 13:08

The easiest way is to take the amount your pension is currently worth(page 4 of your annual statement) and multiply it by 20, then add on the value of your AVC’s. You can take 25% of the total as a tax free lump sum.

*I would advise the above figure rather than the estimated amount at 65(on page 2) because it’s probably going to be more accurate considering the scheme is expected to close in 2018.

For example:

If your pension to date is worth £5,000 per year and you have £20,000 in AVC’s, you could take a max lump sum of £30,000 but that would mean giving up some pension.
But AVC’s worth about £34,000 would mean you could take all that as cash and still preserve your maximum monthly pension.

If you go over that optimum amount there are procedures in place, as mentioned in the thread I linked to in an earlier post.

garnery · Post by **garnery** » 31 May 2016, 16:30

Very helpful. Thank you

garnery · Post by **garnery** » 31 May 2016, 18:48

How did you come up with the figure of 34k ? The value of my pension is around 10k per year. Is there a formula to tell me how much i need to have in AVC's to enable me to take 10k per year pension whilst also taking max tax free lump sum ?
Thanks

Post by **RobertT** » 31 May 2016, 19:13

It was just an example based on a pension income of £5,000 and just rough figures. So:

5,000 x 20 = 100,000 + 34,000 = 134,000/4 = 33,500

If your pension is £10k everything in my example is just doubled.

EDIT: I haven’t used a set formula and because everyone’s pension & AVC’s are going to be different, I’m not sure there is one. It’s a case of trying out a few figures so the AVC amount equals the 25% max lump sum amount.

Hawkey99 · Post by **Hawkey99** » 24 Jun 2016, 21:02

Does anybody have any idea of how much it would cost the company to allow AVCs to stay open for people who currently pay into them. ie % wise.

May be something they would be prepared to compromise on rather than closing this and the pension scheme.

Thoughts anyone.....

Post by **RobertT** » 25 Jun 2016, 09:49

Hawkey99 wrote:Does anybody have any idea of how much it would cost the company to allow AVCs to stay open for people who currently pay into them. ie % wise.

May be something they would be prepared to compromise on rather than closing this and the pension scheme.

Thoughts anyone.....

I’m not sure if there are any figures available as to how many people pay into AVC’s, but my observations are:

Addplan was closed in 2008 apart from to those who were already paying into it. I’m sure there will be an ongoing cost to RM but I would imagine there’s not too many people paying into it anymore, so that cost is probably relatively small.

Bonusplan benefits from extra RM contributions but based on mine, it only equates to £100 per year at best. I don’t know how many people pay into it but even it’s 10,000 nationwide, that’s still a £1 Million yearly cost to RM. While that’s a small proportion of the profits, it still makes it a target.

Flexiplan doesn’t offer any contributions off RM but as we can put in more or less as much as we want, this has the potential to be a much larger pot than Bonusplan. Because most people usually want to take the tax free lump sum and the main aim of AVC’s is to fund that, a larger AVC pot means RM will be paying out a higher pension too and therefore their ongoing liabilities will also be higher. If Flexiplan were to stay open those liabilities would be a large unknown factor for RM, which is something they don’t want.

Post by **fly-catchers** » 25 Jun 2016, 12:14

Hi Robert,
with about 18 months to go till I retire if I decide to go at 60 do you think there is much point me opening a Flexiplan AVC? As I would probably go for the Growth option that does not give much time particularly with all the ups & downs of the stock market. I have been paying £24 a week into the Added years and with a transferred in pension will have 40 years of RM pension at 60. And have a Bonusplan AVC as well. Though I lost 20% of its value early on when Equitable Life who I was using with it went under. :( My current one Growth option with Zurich is doing ok though. I think it was the Equitable Life problems that stopped me from setting up a Flexiplan early on. I do also have both S&S ISA and cash ISA. And save any and all spare cash!

I see that a letter from RM Group today confirms the likely closure of the RMPP in March 2018. Though with the exit from Europe and any affect on pensions I suppose it might even be sooner now!! :(

Post by **RobertT** » 25 Jun 2016, 12:47

With that short time frame the main benefit from opening a Flexiplan would be to gain the tax relief, plus you’ll also benefit from PSE if paying directly from your wages. A £10 gross contribution will effectively only cost £6.80. But it would only really make sense if you’re going to put a lot in, so investing a lump sum or two might be the better option. I would suggest the Cash option would be better than Growth considering the short term volatility of the stock market, which is probably likely to be worse considering we’re going to Brexit.

I had my Flexiplan with Equitable Life originally, but transferred out when things went wrong for them. I did take a hit but as the fund was quite small at the time, I think I only lost about £150.

With 40 years total service along with your ISA’s, etc it sounds like you’re doing ok.

It was only a matter of time before we got that letter about the closure of the RMPP, unfortunately it means a lesser pension for many people.

Post by **tinkerdil** » 15 Jul 2016, 19:22

RobertT wrote:The main aim of AVC’s is to fund the tax free lump sum and so preserve your pension amount. But you can actually take them anytime after 55 and you don’t even have to take them at the same time as either your NRA50 or NRA65 benefits if you don’t want to. There will potentially be tax implications however.

This will give you a bit more info: http://www.royalmailchat.co.uk/communit ... 27&t=69013" onclick="window.open(this.href);return false;

Robert, is it possible therefore, to take your NRA60 benefit only, at say aged 57/58 and leave your AVC pot until 60?