AVC Question

[Hawkey99]

Hi all,

Assuming the pension is allowed to run until 2018 and both the pension and the AVC are closed down, can someone you help with the following questions please.

Would it make any difference putting extra money into the AVC next year before it closes or is there generally a similar scheme which continues when these kind of scheme close.

If they were financially able to will anybody be able to pay anything extra on top of their current pension payments into their pension pot before the scheme closes.

Many thanks

[RobertT]

Assuming the pension is allowed to run until 2018 and both the pension and the AVC are closed down, can someone you help with the following questions please.

Would it make any difference putting extra money into the AVC next year before it closes or is there generally a similar scheme which continues when these kind of scheme close.

The main aim of AVC’s is to fund or at least help to fund the tax free lump sum and therefore preserve the index linked pension that the RMPP provides. Any payments going into your AVC’s between now and April 2018 will help to achieve that.
The RMPP and AVC’s are inherently linked to one another, so if the former closes then the latter probably will too, although that’s not been announced yet.

The RMPP is a Defined Benefit pension which is supplemented by Flexiplan and Bonusplan which are both defined contribution schemes. From April 2018 that arrangement is expected to be replaced by the RM Defined Contribution Plan(RMDCP). I don’t expect the RMDCP to be linked to the RMPP in anyway and will be a stand alone pension in its own right.
There shouldn't be anything stopping you from putting in as much as you want into the RMDCP, in a similar way to Flexiplan now.

*Addplan used to be a way of increasing benefits in the RMPP but that was stopped for all except those already paying into it in 2008.

If they were financially able to will anybody be able to pay anything extra on top of their current pension payments into their pension pot before the scheme closes.

It’s not possible to pay more into the RMPP, that’s what AVC’s are for.

[Hawkey99]

Hi Robert,

As always thank you for your reply.

So just to be clear there is no advantage in paying extra into the AVC whilst its still open. ie If you pay in extra in all it would give you is a larger lump sum which you could by simply continuing to pay in the new RMDPC type AVC.

Thanks

Hawkey

[RobertT]

Hi Robert,

As always thank you for your reply.

So just to be clear there is no advantage in paying extra into the AVC whilst its still open. ie If you pay in extra in all it would give you is a larger lump sum which you could by simply continuing to pay in the new RMDPC type AVC.

Thanks

Hawkey

OK let’s assume you’re in Section C:

Your RMPP will have a value of roughly 20x your annual pension, so if your pension is £5,000 per year, that makes £100,000. If you have £10,000 in AVC’s that makes a total value of £110,000. You can take 25% as a tax free lump sum, that equals £27,500, but you would have to forgo some of your annual income to get that lump sum.

However if you have £33,000(roughly) in AVC’s you could take all that as a tax free lump sum and still get the £5,000 per year pension.

Therefore if you currently have less than 25% of your total RMPP/AVC value in actual AVC’s then it makes sense to put enough in before 2018 to try and make sure you hit that target.

If you’re likely to have an AVC pot that takes you over that optimum 25% amount, there are procedures in place as detailed here: http://www.royalmailchat.co.uk/communit ... 27&t=69013" onclick="window.open(this.href);return false;

The RMDCP is almost certainly going to be a completely separate thing to the RMPP – they will not be linked in any way! Therefore the maximum guaranteed tax free lump sum from that is going to be 25% of its value, just like it would be if you had a DC pension from a previous employer or direct from a pension provider.

There will be no ‘RMDCP type AVC’ – just the RMDCP!
If you want to pay in more than the standard amount you will be able to do so, but it will go into the RMDCP with the rest of yours and RMs contributions.

There is some general info on defined contribution schemes here: https://www.moneyadviceservice.org.uk/e ... on-schemes" onclick="window.open(this.href);return false;

I hope that helps.

[Hawkey99]

You are a star.

Thanks

[Hawkey99]

So any extra payments which I make between now and the end of the scheme would therefore give me a larger tax free lump sum and mean the less bring taken from my actual pension pot to fund this and therefore have a bigger pension.

I assume that if you did not want to take the whole 25% of your pension tax free, that you could just take smaller percentage of your total pension pot and therefore increase your actual pension.

Thanks

[RobertT]

So any extra payments which I make between now and the end of the scheme would therefore give me a larger tax free lump sum and mean the less bring taken from my actual pension pot to fund this and therefore have a bigger pension.

Yes.

I assume that if you did not want to take the whole 25% of your pension tax free, that you could just take smaller percentage of your total pension pot and therefore increase your actual pension.

25% is the maximum tax free lump sum you can take. There is nothing stopping you from taking a smaller %age if you want to – you will be given that option at the time.
The easiest thing to do is to just take the AVC’s as tax free cash, assuming they’re worth 25% or less, and so preserve the maximum pension.