Splitting AVC timing?

artha

I have a company AVC in 3 Standard Life funds.

Pension with Profits
Pension Millennium With Profits
Pension Stock Exchange One

I know I can defer AVC fund taking up to the age of 76 once retired

Is it possible to take part of the package at retirement early as tax free cash i.e stock exchange fund and leave the with profits to mature and take as pension buy at normal retirement age (62 in my case) to avoid the massive penalties that have been applied to with profits funds for transfer or early redemption

artha

artha wrote: »

I have a company AVC in 3 Standard Life funds.

Pension with Profits
Pension Millennium With Profits
Pension Stock Exchange One

I know I can defer AVC fund taking up to the age of 76 once retired

Is it possible to take part of the package at retirement early as tax free cash i.e stock exchange fund and leave the with profits to mature and take as pension buy at normal retirement age (62 in my case) to avoid the massive penalties that have been applied to with profits funds for transfer or early redemption

Just replying to my own message to raise profile in the hope that someone will reply

EdInvestor

artha wrote: »

Is it possible to take part of the package at retirement early as tax free cash i.e stock exchange fund and leave the with profits to mature and take as pension buy at normal retirement age (62 in my case) to avoid the massive penalties that have been applied to with profits funds for transfer or early redemption

Std Life does not allow people to avoid MVRs by going into drawdown with no income, even at NRD, disgracefully. So the above plan won't work. Avoiding an MVR on the WP part of the pension is only possible if you take benefits from the entire pension at the NRD on the policy.

It *may* be possible to switch the money out of the WP fund on the NRD (into the cash fund, say) and then defer the whole pension to a later date. You would need to check with Std Life if this is allowed.

Does your occ scheme allow you to amalgamate the AVC money with the main fund and then take the tax free cash from the AVC only? If so, that would seem to be the way to go, assuming your NRD from both pensions is the same..

artha

EdInvestor wrote: »

Std Life does not allow people to avoid MVRs by going into drawdown with no income, even at NRD, disgracefully. So the above plan won't work. Avoiding an MVR on the WP part of the pension is only possible if you take benefits from the entire pension at the NRD on the policy.

Before replying to all of the questions posed I need to grasp what is being discussed here (thanks for your patience in advance).

First question is what is drawdown with no income?

EdInvestor

When you take benefits there are two basic ways of doing it:

a)use the capital in the fund to buy a guaranteed pension income for life (an annuity)
b)invest the capital and draw an income from it (known as income drawdown).
Up to the age of 75, the amount of income you can take from a drawdown plan varies from zero to 120% of the annuity rate for your age.Thus you can effectively defer a drawdownpension (while still taking the 25% tax free cash) by choosing the nil income option.

Income drawdown also allows you to pass on the fund to beneficiaries (-35% tax).Income is not reduced from the start where a spouse pension is wanted.With an annuity, the fund is lost and the income is lower from the beginning.

Drawdown also offers the possibility of income keeping pace with inflation long term.

artha

EdInvestor wrote: »

When you take benefits there are two basic ways of doing it:

a)use the capital in the fund to buy a guaranteed pension income for life (an annuity)
b)invest the capital and draw an income from it (known as income drawdown).
Up to the age of 75, the amount of income you can take from a drawdown plan varies from zero to 120% of the annuity rate for your age.Thus you can effectively defer a drawdownpension (while still taking the 25% tax free cash) by choosing the nil income option.

Income drawdown also allows you to pass on the fund to beneficiaries (-35% tax).Income is not reduced from the start where a spouse pension is wanted.With an annuity, the fund is lost and the income is lower from the beginning.

Drawdown also offers the possibility of income keeping pace with inflation long term.

Sorry but I am still none the wiser. That's not your fault as I'm still a pension novice. I think I should post a new thread explaining my full position and look for advice. Hopefully you will have some input on that. Thanks again for your help so far

EdInvestor

artha wrote: »

Sorry but I am still none the wiser.

What don't you understand?

artha

EdInvestor wrote: »

What don't you understand?

Don't understand whether "income drawdown" is appropriate/relevant to my needs.

The AVC is a group money purchase scheme that now invests in Standard Life products only. Although I was going to (and may still do) post the big picture re retirement options and my full financial situation it may be useful to explain in more detail my AVC dilemna. Sorry in advance for the long post but it may save further questions.

I detailed in the original post which Standard Life funds I'm invested in.

With the possibility of early retirement + voluntary redundancy I asked our HR dept for an estimate of retirement/severance benefits for 1/8/09 at which time I will be 58 and have 30 years service in a final salary scheme. Normal retirement age is 62 but age 60 is used to calculate benefit reduction for early retirement on main scheme (not sure about the AVC)

I have been paying into the AVC for 14 years as I had always had in mind a target retirement age of 55-57. (In the last twenty years most people have gone at that age with "arranged" voluntary severance. At 55 it is 24 months
salary which tails off after that. At 58 I will still get about 18 months). An IFA advised the funds to invest in at that time. What of course(?) was not known at that time was that SL would heavily penalise(MVR/MVA) early leaving of my with profits or transfer and that my Pension One Stock Exchange fund units would be at a very low value in the current climate.

My main scheme pension would be ~ £19K index linked(fairly comfortable given that I have with my potential redundancy pay and savings about 150+ kcash, no mortgage and a younger wife working for at least another 4-5years but with little occupational pension). We both have full basic state pension. Given those circumstances I see no reason to take any cash free lump sum from my pension given a CR of ~14. I am allowed £65,257. Agree?

With recent changes (A day)I therefore saw my AVC as a source of tax free cash to boost the reserves thereby maximising the return on the investement that was quite significant given the salary i was on 14 years ago. The buy back rate is about 22:1 for AVC funds.

The written quote I received from HR Dept is quite lengthy but here is the paragraph relating to AVC:

"You will be informed of the exact value of your AVC fund shortly after your retirement. You have the option of purchasing an annuity with your fund on the open market, or you may buy extra pension within the company pension fund. Your AVC fund value as at March 31st 2008 stood at 24,705.20, which at current rates and assuming pension increases of RPI to a maximum of 3% per annum, would convert to £1,137.96 in the company pension fund and 50% widow/ers pension. If you would prefer to have your AVC's calculated on a single member basis or with different annual increases, then contact me for further details. You should note that AVC conversion factors are subject to regular change. You may, if you so wish, take all or part or all of your AVC's as a tax free cash lump sum providing that the total amount, including any tax free cash taken as in paragraph 3 does not exceed 25% of the cash value of your total benefits"

Not knowing the value of my fund until after retiring worried me so I sought a current valuation from HR. AS far as I can see the value of my fund at the moment if I were to take it or switch to another fund, after a further input
since march of £1000, of £21,996. Reduction in value is part MVA/MVR of WP and part stock market values.

My instinct says that I have the following easy(?) options:

1.Stop paying money into these funds immediately and any further similar level contributions should go into the Standard Life Sterling Fund. Bite the bullet and take the avaialble tax free cash in August. The stock exchage fund may have improved by then or the converse. Write it down to experience and live with it

2. AS 1 but put the maximum I can afford each month (£1000 -£1500) into the Sterling fund until I retire and get a good (?)tax free investement in the short term provided I am granted voluntary redundancy next year (not certain)

3. as 1 but leave it till I'm 62 and take it as pension buy back after the recession (we hope)

4 as 2 and leave till 62

Phew!

Any comments?

artha

replying to my own post no 8 inthis tread to try and get a reply from someone helpful