AVC Lump sum question

[Engy]

Hi, I just got my retirement benefits letter as I'm 60 end of may. I have 72,998 AVC
Option 1 12,422 and PCLS 37,266
Option 2 10,754 and PCLS 71,698
Option 3 14,081 and no PCLS
Option 1A 12,422 and PCLS 82,814 Which uses 45,547 of AVC
Option 3A 14,081 WITH AVC OF 72,998.
There's also a small NR60 of 480 and Tax free 1440 + 1762 from cash balance

That leaves 24, 697 in AVC If I go for option 1A which I think is best option
Will I have to pay tax on that ? Any other options, can I transfer into personal sipp or pay it into sipp for wife?

I have 31,815 in cash balance so don't think I can use AVC To fund lump sum for 65 benefits.
I packed In Royal mail in January so not currently paying tax
Was section A/B
Cheers in advance

[Engy]

My 65 benefits has come as well now
Does 1A Look the best option there? Would the cash balance and AVC be all taxed at 20%

[RobertT]

Someone else asked a very similar question a few weeks ago, so to save duplicating anything, here's the link: viewtopic.php?f=27&t=115356

The DBCBS has to be taken with Age 65 benefits, so any excess cash after the main tax free amount has been accounted for, will be paid as a UFPLS which means 25% of that is also tax free and the remainder taxable.

The same will apply to excess AVC cash if taken with Age60 or Age65, but you also have the option of transferring that out to a personal pension, in your name only.
That could be more tax efficient for some.

*It is possible that a small amount of DBCBS could be taken with Age60 – you'll be informed by RMPP if that's the case.

[Engy]

Thanks Robert, I use my wife's tax allowance so currently it is 14k ISH. So if I take AVC with NRA60 then put surplus in sipp take 25% tax free and drip it in at about 2k a year until I get my NRA 65 I'll get some more out tax free ??

[Engy]

And yes it's letting me take a small sum from DBCBS was just trying to get all my AVC out with as little tax as possible

[RobertT]

I packed In Royal mail in January so not currently paying tax

Thanks Robert, I use my wife's tax allowance so currently it is 14k ISH. So if I take AVC with NRA60 then put surplus in sipp take 25% tax free and drip it in at about 2k a year until I get my NRA 65 I'll get some more out tax free ??

You're using the Marriage Allowance and your wife is transferring £1,260 of her Personal Tax Allowance over to you?
So your PTA is effectively £13,830 and your wife's is £11,310.

It's a nice little perk that can save you up to £252 in income tax per year, as long as the lower earner doesn't go over their allowance. If they do, they'll pay tax on the amount over, meaning the benefit as a couple reduces.

As far as I'm aware the Marriage Allowance is only for couples where one is a 20% tax payer and the other pays no tax. So if you continue to be a non tax payer into the new financial year, I think you'll lose your eligibility for it.

The info I've seen online seems to suggest that:
https://www.gov.uk/marriage-allowance
https://www.moneysavingexpert.com/famil ... allowance/

But whatever your personal allowance is, that's how much income you can have before you start paying income tax.

[Engy]

Thanks Robert

[mrcurve]

I would call the tax office sometime, they don't always update your income, the system may assume your going to be earning your wage and pension,
call early in the day 8am, its very busy.

[sweepster70]

And yes it's letting me take a small sum from DBCBS was just trying to get all my AVC out with as little tax as possible

Out of interest, how much is the small sum that can be added to the final salary?

[Engy]

[attachment=0]IMG_20250218_233051.jpg[/attachment

£1762

[Engy]

Robert if I take my excess AVC and put it on a SIPP should I open one before April pay on this year's, then AVC would go in in may. ? I thought you could only put 2880 in.
Or can I just ask for it to be paid with NRA60 take 25% tax free and pay 20% on the 18500left

[RobertT]

Non tax payers can put £2,880 net into a pension each year, which is then grossed up to £3,600 with the addition of tax relief.
But transfers don't count towards that limit, because you're just moving it from one pension to another. You're not putting in any new money!

Whether transferring and then drawing it down is better for you, will come down to how much other income you have.

For example:
You have a Personal Allowance of £12,570(standard rate) and your only income is £10,000 from Age60 pension, so you have £2,570 in unused allowance(from 6th April 2025).

If you take your excess AVC cash as a UFPLS, the first £2,570 of the taxable element will actually be tax free too, with everything else(around £16k in your case) being taxed in one go.

But if you transfer to a SIPP and then draw it down, you'll have that extra £2,570 allowance every year until either the money runs out, you gain another income(Age65/state pension) or else the Personal Allowance changes.

So you'll be able to take more of it tax free, but it'll be over a longer period of time.
Bearing in mind your pension will increase with inflation and the Personal Allowance is frozen until 2028(under gov plans).

If your income is already at the Personal Allowance or higher, there wouldn't be much difference between the two options for you. But for someone with a larger amount of AVC cash or a higher income, it could make the difference between staying in the 20% tax band and hitting 40%.

It doesn't really matter when you open a SIPP, just have one by the time you want to transfer. A lot of providers let you open one with small amounts(£100?).

My experience of transferring a RM AVC wasn't a great one, as the RM Pension Service Centre took a lot longer than they originally quoted. So if you go that route, don't expect it to be a quick process.

It's perhaps also worth mentioning that transferring is a direct transaction between the AVC(RM/SW) and your SIPP provider. If you take it as a UFPLS and then try to put it in a SIPP, it will count as new money.

[Engy]

Thanks so much Robert. I think I'll take the excess AVC with my 60 pension and get 25% of it tax free and take the tax hit on what's left and invest it. Cheers for your help