Section B members who have taken their NRA60 with AVCs

[linntroika]

Hello
Recently i have been informed that its not the same procedure as section c members (were you can use 25% as tax free lump sum )I contacted pensions branch this morning and asked them if i can take my full NRA 60 pension as pure pension and use my current AVC (approx 25% of the nra60 pot ) as the tax free lump sum . I was advised that i would have to contact an independent finical advisor
So its over to you chaps especially for those in section b with avcs who have taken their pension - any advice appreciated

[RobertT]

I'm not sure where the need for financial advice comes from. Maybe they thought you wanted to transfer out?

With your main NRA60 benefits you should have the choice to take:

The standard lump sum and pension; or
The maximum lump sum, in which case your pension would reduce; or
No lump sum, in which case your pension would increase; or
A mixture of the above, for example a lump sum of somewhere between 0-25%.

If you took no lump sum or perhaps a smaller one, you could then potentially take all your AVC's as tax free cash instead.

Have you used to info on page 12 of the guide to benefits:

NRA60 pension x 20 + standard lump sum + AVC's = pot value

If your AVC's equal more than 25%, you should be able to reduce the standard lump to give more pension, and therefore enable the AVC's to be taken tax free.

But as per our PM's, the commutation rate for giving up lump sum for more pension isn't very good.

[linntroika]

Many thanks Robert

[heapsy]

A friend of mine, who works at another office is adding to his section B pension via AVCs. He intends to use these to replace some of his guaranteed lump sum, therefore increasing his annual pension. Whats not to like? The fact is the pension closed early, therefore robbing him of further accrual. Secondly, he is married. So he is also ensuring that there will be a bigger widows pension, if he dies first. If the pension is due to be taken at 60, instead of 65, there's also an extra five years to draw the pension. Sounds like a plan to me.

[RobertT]

A friend of mine, who works at another office is adding to his section B pension via AVCs. He intends to use these to replace some of his guaranteed lump sum, therefore increasing his annual pension. Whats not to like? The fact is the pension closed early, therefore robbing him of further accrual. Secondly, he is married. So he is also ensuring that there will be a bigger widows pension, if he dies first. If the pension is due to be taken at 60, instead of 65, there's also an extra five years to draw the pension. Sounds like a plan to me.

The main thing not to like with that is the commutation rate when giving up section B lump sum for more pension. I believe it's in the region of 30:1, meaning in simple terms, a pay back time of 30 years.
Plus as the widows pension is 50%, that pay back time would double for his wife when your friend passes away.
Although inflationary increases would reduce the time frames a bit.

It's only a suggestion, but has he considered taking the section B lump sum as normal and transferring the AVC's to a DC scheme for 25% tax free and drawdown, with his wife inheriting on his death.
It could be a much more flexible way of doing things?

[heapsy]

Its worth thinking about. I'll ask him about that. His main concern was that his wife has been self employed for years, and before that, worked in her dads business, prior to the employer having to provide a pension. I knew her years ago, but I doubt if she had a works pension back then. Thanks for the reply

[linntroika]

Ive been thinking about this a-lot lately but will see what they offer me nearer the time regarding my pension +lump sum +avcs

Just a few questions as i dont know much about draw down (but its starting to sound appealing ) I understand you take 25% as tax free lump sum and then take the rest as and when you want it ? I would probably like to take it as quickly as i could (would it be 20% tax on the remaining funds?)- any recommendation who to go to for DC draw down pension ?

If i do decide to take my NRA65 at 60 (by my calculations i would be up until 75 years old) so can i take the excess money in the cash balance scheme and add it to my AVCs for draw down?

Or would you just be better getting taxed on excess avcs / cash balance scheme (and if so what would the tax rate be ?)

Im now thinking about taking all pension pots with max lump sums and reinvesting the cash into isa /bonds etc , reason being the tax allowance is going to be at £12570 for the next 5 years and i cant see it rapidly increasing when it does start to increase again (previously i was aiming to take all pension pots as pension and no lump sums )- good idea or not now ?

thanks in advance

[heapsy]

For what it's worth, I'll give you a few ideas I have of my own. I'm in section C of the pension. I have the NRA 60, 65 and Cash Balance schemes, plus, when it comes, the new pension. I have a private pension which, I'm thinking of going to draw down at 60. I'd take the max lump sum and then draw down just enough, staying just under the tax code figure set at the time, to avoid tax, if possible. I'll wait for the NRA 65, and the NRA 67 or whatever you want to call the new scheme, until their natural NRA. Yes, I know, some would say take it early, it evens out etc etc. Remember, they are DB schemes. So what you see on the statement is NOT what you have paid into the schemes, contrary to what people seem to think. My thinking is, I will have a higher pension along the way, with full lump sum entitlements, as they come, NO reductions. Remember, cash runs out, a DB pension doesn't. My thinking is that as time goes by, a smaller pension will not keep up with cost of living. I have shares and a S&S ISA, to plug the gaps, along with AVCs to be taken with my NRA 60 pension. I have just added a new fund to my ISA, which I am hoping, will replicate, to some extent, my AVCs, (think Robert T may be right about them ceasing). I will take this as cash, along side my AVCs, to bridge the gaps. Taking a pension early may not be the best thing to do. Ask yourself a few questions. What is your health like? What life span have your parents had? A reasonable indicator of your own life span. Too many people think negatively about that last question. I know someone with a smaller pension who has taken them all, because, in his own words "if I get to 75, I'll take that" He could be in for a massive shock, and a much poorer retirement. I overheard him say to someone in work, "you've put all that money into your pension", a clear indicator that he probably hasn't understood his statements and believes, as I mentioned above, that he has actually put all the money in, that his pension statement mentions. Hope that gives you a few thoughts. Once you've made the descision, there's no going back.

[RobertT]

Ive been thinking about this a-lot lately but will see what they offer me nearer the time regarding my pension +lump sum +avcs

Just a few questions as i dont know much about draw down (but its starting to sound appealing ) I understand you take 25% as tax free lump sum and then take the rest as and when you want it ? I would probably like to take it as quickly as i could (would it be 20% tax on the remaining funds?)- any recommendation who to go to for DC draw down pension ?

You can go 3 ways:

1. Take it all in one go with the first 25% being tax free and the remainder being classed as income as taxed under normal PAYE rules.
2. Take 25% tax free up front and then drawdown the remainder over a period of time, with the remaining 75% classed as income as above.
3. Take it as Uncrystalised Funds Pension Lump Sum(UFPLS), where 25% of each withdrawal is tax free, with the remainder as above.

Income up to the Personal Tax Allowance(currently £12,570) is tax free. 20% tax is payable from that amount to £50,270, and it's 50% tax above that.

There are many pension providers out there that will enable you to drawdown your pot of money. The main things to look for are charges and frequency of withdrawals.

If i do decide to take my NRA65 at 60 (by my calculations i would be up until 75 years old) so can i take the excess money in the cash balance scheme and add it to my AVCs for draw down?

Or would you just be better getting taxed on excess avcs / cash balance scheme (and if so what would the tax rate be ?)

If you want to use your AVC's for drawdown, you have to transfer them out separately from taking your main NRA60/65 benefits.
If you use your AVC's to fund some or all of your NRA60/65 lump sum, then transferring any excess for drawdown is not allowed. You can only take excess as a taxable lump sum or buy an annuity.
As far as I'm aware, the same applies to excess Cash Balance(DBCBS) money.

If any excess is taken as taxable cash, it will be paid out as a UFPLS, where the first 25% is tax free and the remainder treated as income.

Im now thinking about taking all pension pots with max lump sums and reinvesting the cash into isa /bonds etc , reason being the tax allowance is going to be at £12570 for the next 5 years and i cant see it rapidly increasing when it does start to increase again (previously i was aiming to take all pension pots as pension and no lump sums )- good idea or not now ?

thanks in advance

The important thing to remember is that any tax free lump sums are exactly that – they're tax free. So they're not included when working out how much tax you have to pay.

As a general rule it's probably better to take AVC's with your main benefits because they have the potential to be 100% tax free. As soon as you transfer them, only 25% is guaranteed to be tax free.
But with section B members having a lump sum as standard, the DBCBS and possibly AVC's too, the waters get a bit murky, as there can be more than one way to go.

The correct thing for you isn't necessarily the correct thing for someone else.

[RobertT]

For what it's worth, I'll give you a few ideas I have of my own. I'm in section C of the pension. I have the NRA 60, 65 and Cash Balance schemes, plus, when it comes, the new pension. I have a private pension which, I'm thinking of going to draw down at 60. I'd take the max lump sum and then draw down just enough, staying just under the tax code figure set at the time, to avoid tax, if possible. I'll wait for the NRA 65, and the NRA 67 or whatever you want to call the new scheme, until their natural NRA. Yes, I know, some would say take it early, it evens out etc etc. Remember, they are DB schemes. So what you see on the statement is NOT what you have paid into the schemes, contrary to what people seem to think. My thinking is, I will have a higher pension along the way, with full lump sum entitlements, as they come, NO reductions. Remember, cash runs out, a DB pension doesn't. My thinking is that as time goes by, a smaller pension will not keep up with cost of living. I have shares and a S&S ISA, to plug the gaps, along with AVCs to be taken with my NRA 60 pension. I have just added a new fund to my ISA, which I am hoping, will replicate, to some extent, my AVCs, (think Robert T may be right about them ceasing). I will take this as cash, along side my AVCs, to bridge the gaps. Taking a pension early may not be the best thing to do. Ask yourself a few questions. What is your health like? What life span have your parents had? A reasonable indicator of your own life span. Too many people think negatively about that last question. I know someone with a smaller pension who has taken them all, because, in his own words "if I get to 75, I'll take that" He could be in for a massive shock, and a much poorer retirement. I overheard him say to someone in work, "you've put all that money into your pension", a clear indicator that he probably hasn't understood his statements and believes, as I mentioned above, that he has actually put all the money in, that his pension statement mentions. Hope that gives you a few thoughts. Once you've made the descision, there's no going back.

I agree that many people don't understand how valuable their RM DB pension is.
I'm sad enough to have made a note of how much has gone in over the 30+ years I've been with the company. Factoring in tax relief and the more recent benefit of PSE, I would only have to draw my NRA60 pension for around 3 years from age 60 to get back the total net amount I've paid in. From then on, I'll be in profit for the rest of my life.

There does seem to be a lot of people on this forum and in RM in general that expect to die relatively young and they may well do – who knows?
There are figures in the RMSPS report and accounts that say male members actually live to slightly above the national average, with females hitting the average.
Obviously those are just average figures and don't apply to any one individual, but for everyone that dies earlier than average, there's likely to be one that lives longer.

[linntroika]

Many thanks Heapsy &Robert for the advice ,much appreciated

[Hicksville]

Hi,
I’m a FT Section B member and next December I will be 55.
I’m ok financially so don’t need to draw my lump sum or pension early.
However, I don’t trust RM and I’m tempted to take my lump sum just to make sure I get it before something changes.
I was reasonably knowledgeable regarding pension benefits before 2008, but since it’s split into two parts I’m not sure how to calculate it.
Do I just add the totals (pension allowance and lump sums) on Capita and RMPP’s latest statements and also add the Cash Balance onto my lump sum or is that separate?
Thanks

[RobertT]

Your pre 2012 benefits are in the RMSPS which is backed by the government, so should be safe.

Your post 2012 benefits are in the RMPP which RM are responsible for. That is in surplus, so there's more money in the pot than is deemed to be needed to pay everyone's benefits.

If you take your NRA60 lump sum, you'll have to take the pension aswell. The same applies to your NRA65.

Both your statements will have NRA60 and NRA65 figures on them, so just add them up to give you what you will get at those ages.
If you want to take them early, take off 5% per year.

The cash balance is usually paid out with your NRA65 benefits.

[Hicksville]

Thanks, Robert.
I get the 5% off the pension each year for the five remaining years but regarding the lump sum, is it 25% off that as a one off (5% x 5 years = 25) ?

[RobertT]

Yes