Anyone planning CDC AVCs

[Jefferson Starfish]

Just wondering if anyone is planning on paying into the lump sum booster or AVCs when the new CDC pension start,s and what your reasons are whether it's a yes or a no.

Thanks in advance.

[Schiff]

I will at least pay the additional 1% contribution to get the further 1% employer contribution. Who doesn't like free money?

[RobertT]

The general rule of workplace pensions is always join and always pay in whatever it takes to get the maximum employer contribution. So paying into the Lump Sum Booster is a no-brainer!

It also makes sense when you work out how much you put into the overall scheme, compared to what you might get out.

By just paying the standard 6% gross contribution, the DBLSS will guarantee to give you back about 95% of your money.
But the thing to remember is that 6% is actually more like 4% net, when factoring in the benefits of tax relief and salary sacrifice(PSE).

If you pay into the Lump Sum Booster, you'll get back 115% of your net contributions via the DBLSS. That's before any annual increases, so you can't really lose!

The CDC pension itself is additional income on top!

Paying into the new DC AVC, which I assume will be similar to Flexiplan, will be a more personal choice, based on your own circumstances, etc. But the same tax breaks will apply, so it's generally a good thing to do.

It will be a totally separate pot and one that I assume can be transferred out, just as Flexiplan & Bonusplan can be.
Which is perhaps how many people might be able to utilise the new AVC to enable retirement before the CDC NRA of 67?

[Jaggs]

I will be. I don't know which provider they will use for them. I hope it's not Scottish Widows though as I find there site really poor to use and I don't think the selection of funds they let us choose from is all that great

[Hyrrokkin]

I will be. I don't know which provider they will use for them. I hope it's not Scottish Widows though as I find there site really poor to use and I don't think the selection of funds they let us choose from is all that great

I am too lazy and thick to look this up

Has the new provider for CDC AVC's been decided...or will it just fall back on SW
If SW will it be the same funds or new funds provided
What will the fees be and will they be fair and competitive compared to other providers

I am guessing these points are still being decided and we will find out in due course
I agree about SW website - can be a little confusing and i think the design could be simpler and better layed out
I am fairly happy enough with SW - but we do not have a choice or say in the matter considering it is our money - i would like to have more choice

[NWpostie]

I have about 5 years to go before retirement, I wonder If its worth paying into a lump sum booster and how much would you be allowed to pay into it ?

[RobertT]

I will be. I don't know which provider they will use for them. I hope it's not Scottish Widows though as I find there site really poor to use and I don't think the selection of funds they let us choose from is all that great

I am too lazy and thick to look this up

Has the new provider for CDC AVC's been decided...or will it just fall back on SW
If SW will it be the same funds or new funds provided
What will the fees be and will they be fair and competitive compared to other providers

I am guessing these points are still being decided and we will find out in due course
I agree about SW website - can be a little confusing and i think the design could be simpler and better layed out
I am fairly happy enough with SW - but we do not have a choice or say in the matter considering it is our money - i would like to have more choice

The important thing to remember is that the RMCPP will be a separate scheme to the RMPP, with different trustees, etc. Therefore it's possible they may well decide to use a different AVC provider.
But as far as I know, that info hasn't been made public yet.

Whichever provider they end up using will probably offer a broadly similar number and choice of investments, to SW.

[RobertT]

I have about 5 years to go before retirement, I wonder If its worth paying into a lump sum booster and how much would you be allowed to pay into it ?

All the info says it's going to be an extra 1% of pensionable pay, which will be matched RM.

My maths says that will increase the amount of lump sum you're building up by about 53%, not including the annual bonuses.

Personally I'm planning on leaving RM no later than about this time next year, so don't expect to be in the RMCPP for more than about 6 months at the most. But I still intend on paying into the Lump Sum Booster to take advantage of the 'free money'.

I would also gain by paying into the new DC AVC, mainly due to the benefit of PSE. But I'm not sure it's worth the hassle of having money in another pension vehicle, for what will be a fairly small financial gain.
But for those planning on staying longer, there's definite long term benefits.

[heapsy]

Your latest post is of interest to me Bob. I'm thinking of leaving at 60, so wont have many years in the scheme. 55 this summer. But I'm not sure about the maths on this. Is there a chance that I could have too much lump sum if the investments just don't do it? Meaning tax on the lump sum. I'm assuming you cannot take a reduced lump sum as with other sections of our pension to balance things in your favour. Any thoughts?

[RobertT]

What we don't know(at least I don't) is exactly how the CDC pension will be valued. That's what we need to know to stand any chance of working out whether the lump sum will end up being more than 25% of pot value, or not.

It's not likely to be the same as a DB scheme and use a multiple of 20, due to the un-guaranteed nature of it.
It was mentioned back in 2018 that a multiple of 15 or 16 could be used, but that was the last I heard of that!

It may be a much more complicated formula?

But based on that 15x or 16x and just the money going in, I worked out a while ago that the basic lump sum would equal around 16-17% of the total CDC/DBLSS pot value. With the additional 2% from the Lump Sum Booster making that up to around 23-24%.
So not far off the optimum point for tax purposes.

But it's obviously just guess work really!

There's also the issue of whether paying tax is important to an individual, and whether its better to have a bigger lump sum and pay some tax, or stick rigidly inside the tax free parameters but have a smaller lump sum. Bearing in mind that a decent chunk of the contributions going in are from RM and the taxman. Plus investment growth.
But that's probably something for another thread!

Based on what I've read, there will be no ability to convert lump sum to pension, or vice versa. But I seem to remember, the original idea behind the Lump Sum Booster was to provide the same lump sum at 65(reduced) as it would have paid out at 67(unreduced).