Pensions AVC's & PCLS

[T6 vanman]

Hi all,

I think I've been working on incorrect advice so please can someone confirm if this is correct or not.

Figures used are just an example for ease of understanding
I'm almost 55 and about to be made redundant ... (with a good payout),

I have a very good DB pension that is a pot of £300k
I want to put £100k from my redundancy into an AVC (approx max I can add current tax year and last 3 bla bla etc)

When I reach 55 I want to draw my (25% tax free) PCLS,

Can I draw all my PCLS (£100k) from the AVC and leave my DB as my monthly pension???

Or am I only allowed to draw a max of 25% from each "pot" tax free??

Thanks in advance for clarifying this question

[s111dpc]

I will defer to the experts on here, however On my DB pension projection for when I reach 55 next year one of my options is to take 100% of the AVCs I’ve built up as part of my 25% PCLS thus reducing the lump sum from the DB scheme which in turn increases my monthly pension payment. Hope this makes sense?.

[T6 vanman]

Thanks s111dpc
That's what I thought and had planned but I've just been informed our company FI have been advising this is not possible ??

Experts Help ...

[leef44]

T6 vanman said:

Thanks s111dpc
That's what I thought and had planned but I've just been informed our company FI have been advising this is not possible ??

Experts Help ...

Mine is the same as s111dpc. My company scheme allows you to save AVC managed by the same pension company as the company scheme. It may be that because it is managed as one then the two pensions can be incorporated as one. However, my scheme, I have to take both at the same time but it sounds like that is what your plan is anyway.

If your AVC is managed separately then it could be that it is then treated as a separate scheme. You would be allowed to take the 25% (25k) tax free and draw down the other 75k.

With the company scheme, it is treated separately with its own 25% tax free element.

[LeoSayer]

You say you have a DB pension that is a pot of £300k. DB pensions are not a pot. They are normally expressed in terms of annual pension at a defined retirement age (eg. 55, 60 or 65) or as a transfer value. Which are you referring to?

If you take you DB pension earlier than the scheme's normal retirement age then you will get a reduced annual pension.

Is your AVC scheme linked to your DB scheme? If so then this might require a different approach.

Your DB scheme documents will tell you whether you can take 25% tax free lump sum from that, however generally it is not good value. It really depends on your plans, circumstances and the value. Please note that the terms PCLS generally refers to DB scheme lump sums, not AVC or DC schemes.

Generally, 25% tax free is the limit although there are additional taxes if you exceed the lifetime allowance. Don't forget there is a £12.5k annual allowance to utilise as well.

What investment choices are available in the AVC? Are they suitable for you? Are you looking to drawdown funds or purchase an annuity?

There are so many questions here, so many gotchas in this area and you are about to make irreversible life changing decisions.

You need to speak to a professional. It will cost a small fraction of the sums being spoken about here.

[anonymous-user]

My understanding,

• "Scheme AVC's" i.e. Money purchase AVC's paid within the umbrella of an overall DB scheme can generally be used towards the PCLS
• "FSAVC's" i.e. Free standing AVC's you have set up separately yourself generally can't be used towards the DB scheme's PCLS.

Also,

• You must usually "retire" on a single date from a DB scheme. That means both for your main DB benefits and for your AVCs.
• If you have FSAVC's your FSAVC retirement is not tied to the same date as your retirement from the main DB scheme.

[T6 vanman]

LeoSayer said:

You say you have a 1 DB pension that is a pot of £300k. DB pensions are not a pot. They are normally expressed in terms of annual pension at a defined retirement age (eg. 55, 60 or 65) or as a transfer value. Which are you referring to?

2If you take you DB pension earlier than the scheme's normal retirement age then you will get a reduced annual pension.

3Is your AVC scheme linked to your DB scheme? If so then this might require a different approach.

4Your DB scheme documents will tell you whether you can take 25% tax free lump sum from that, however generally it is not good value. It really depends on your plans, circumstances and the value. Please note that the terms PCLS generally refers to DB scheme lump sums, not AVC or DC schemes.

Generally, 25% tax free is the limit although there are additional taxes if you exceed the 5lifetime allowance. Don't forget there is a £12.5k annual allowance to utilise as well.

6What investment choices are available in the AVC? Are they suitable for you? 7Are you looking to drawdown funds or purchase an annuity?

There are so many questions here, so many gotchas in this area and you are about to make irreversible life changing decisions.

You need to speak to a professional. It will cost a small fraction of the sums being spoken about here.

Hi Leo, Thanks for responding,
My plan was (following redundancy) to obtain a NMW no stress job from 54 to 65 & complement my wage with income from the DB pension drawn from 55, My redundancy to be put into an AVC and to retrieve this at 55 as my PCLS.
One of my work colleagues has had advice that this is not possible & you have to draw 25% from each scheme??

1 I say 'pot' but my statement says "Your pension as at the date of this statement is equal to 34.54% of the Lifetime Allowance." ... This combined with the 'Early retirement modeller' indicating I could draw £90k tax free @ 55, Leads me to believe my 'pot' to be around £345k
2 Yes it does and I understand this through using the Early retirement modeller to understand implications
3 Those of us long timers are on a DB scheme,(Company A), Newer workers are on the DC scheme, If you want to add to your pension (AVC) these are managed through the DC company (Company B) the two schemes are managed separately.
4 Yes you can draw 25% but I agree that I get better value by not drawing this 25% from the DB scheme
5 I should be so lucky to exceed the lifetime allowance.
6 The AVC (DC) allows you to nominate between several from Low, Medium, Greater risk.... not personally looked into
7 Ideally the AVC would be closed as I'd draw all funds (100k) as my PCLS 25%

rockin said:

My understanding,

• "Scheme AVC's" i.e. Money purchase AVC's paid within the umbrella of an overall DB scheme can generally be used towards the PCLS
• "FSAVC's" i.e. Free standing AVC's you have set up separately yourself generally can't be used towards the DB scheme's PCLS.

Also,

• You must usually "retire" on a single date from a DB scheme. That means both for your main DB benefits and for your AVCs.
• If you have FSAVC's your FSAVC retirement is not tied to the same date as your retirement from the main DB scheme.

Both DB is paid by my employer & the AVC are to be paid direct from my redundancy by my employer but as they are managed by different companies they are ?? probably not within an umbrella of one scheme,
The intention is to "retire"/"Draw both at the same date"

So the question I am asking is ... IS it possible to draw the whole AVC as my tax free PCLS - In theory
The thing you can't answer is ...... providing both schemes allow for this

Edited by T6 vanman on Wednesday 30th September 18:40

[xeny]

T6 vanman said:

So the question I am asking is ... IS it possible to draw the whole AVC as my tax free PCLS - In theory
The thing you can't answer is ...... providing both schemes allow for this

Can you do a transfer of the AVCs to a SIPP, and work around it that way?

[anonymous-user]

T6 vanman said:

but as they are managed by different companies they are probably not within an umbrella of one scheme,

No, they could well be under one "scheme". Simply different pockets in the same coat.

T6 vanman said:

So the question I am asking ... IS it possible to draw the whole AVC as my tax free PCLS - In theory

YES, probably, if it's all under one overall scheme. You need to read the documentation and/or talk to the administrators.

Seriously, it should be much easier to get these questions answered by asking the scheme administrators. Internet answers will always be relatively generic. It all comes down to the particular rules of the the particular scheme(s).

[anonymous-user]

xeny said:

Can you do a transfer of the AVCs to a SIPP, and work around it that way?

Almost certainly the answer is NO. The two pockets need to be in the same coat if you want to mix them together.

The point is that increasing the "ongoing pension" element of benefits instead of "cash paid out" increases the level of uncertainty around future funding of the DB scheme. Or, to put it another way, guarantees and/or insurance cost money - you're not likely to get them for free.

[T6 vanman]

xeny said:

T6 vanman said:

So the question I am asking is ... IS it possible to draw the whole AVC as my tax free PCLS - In theory
The thing you can't answer is ...... providing both schemes allow for this

Can you do a transfer of the AVCs to a SIPP, and work around it that way?

Although a luddite on pensions ... I believe this is a non starter as you can only release 25% of a SIPP tax free

[xeny]

rockin said:

Almost certainly the answer is NO. The two pockets need to be in the same coat if you want to mix them together.

The point is that increasing the "ongoing pension" element of benefits instead of "cash paid out" increases the level of uncertainty around future funding of the DB scheme. Or, to put it another way, guarantees and/or insurance cost money - you're not likely to get them for free.

Ta - I was thinking of the scheme I'm in where the DB element is has no scope for any additional contributions, and any AVCs go into a separate DC component, where I believe I can separate them out.

[anonymous-user]

xeny said:

I was thinking of the scheme I'm in where the DB element is has no scope for any additional contributions, and any AVCs go into a separate DC component, where I believe I can separate them out.

You may benefit from talking to the scheme administrators and asking them what's what.

The fundamental point is usually that AVC's are defined contribution (DC) whereas the main scheme is defined benefit (DB). Money purchase (DC) AVC's can't usually be turned into DB. However, if both arrangements exist under one umbrella (different pockets in one coat) the AVC's can often be fed into the PCLS since they have a precise value at a precise moment in time.