Looking to take out a product to supplement my final salary scheme.

Drumtochty_2

I am interested to learn how this would work in practice. Do you mean that the cash is a gift to the spouse in this example. Can you expand?

Mike I assume it is a gift as you say. In reality HMRC may consider that this should be done over some time but if you run a joint account that may kind of just happen.

With regards to changing the scheme rules, I will talk to my employers pension people. I think it works like this but will check.

You actually take your tax free cash from the fs scheme but you use the AVC money to buy back the fs pension. So no commutation on your fs annual pension. Will revert next week.

The problem if you can call it that of having a tidy fs pension plus your state pension plus some dividends is the 30% tax on your age allowance from 65 on and possibly some 40% tax.

While I think you should try to avoid where possible paying extra tax, sometimes it can be nice to pay your tax and get on with life in the slow lane.

jennifernil

On retirement my husband took the maximum tax free sum as it did not affect the spouse pension. I had no income of my own so this money is in an account in my name. The interest on it is therefore untaxed.

Surely this is OK? Money can be transferred between spouses without restriction as far as I am aware.

david78

jennifernil wrote: »

On retirement my husband took the maximum tax free sum as it did not affect the spouse pension. I had no income of my own so this money is in an account in my name. The interest on it is therefore untaxed.

Surely this is OK? Money can be transferred between spouses without restriction as far as I am aware.

This is OK. Capital can be transferred between husband and wife. Provided your annual interest is less than your personal allowance there will be no tax to pay.

Drumtochty_2

Mike

I have talked to my employer's pension department this morning.

I can confirm you actually take the TF Lump Sum from the FS pension and a portion of the AVC money is used by the employer to refund the FS scheme for the FS TF lump sum. Any remaining cash in the AVC going TF to the employee up to the limit as detailed on previous posts approx 6.7 time the FS non commuted pension.

My employer has been doing this prior to A day but with the less generous terms in those days. It has also been used to cushion redundancies for the over 50's in the past by filtering redundancy payments via this route.

They did not have to rewrite the scheme rules to do this. As you say some other employers' schemes may have to be rewritten. In other cases it may just be too much bother for some employers with poor HR departments or non interested managements.

MikeJones_2

Hi Drumtochty,

Thanks for the update.

From what you have said your employer appears to take a paternalistic approach to the company's employees - and this is refreshingly commonplace although it may not be perceived to be so by the employees (because they simply might not appreciate what lengths the employer has gone to in order to maximise benefits and flexibility).

Just out of interest, did you find out what happens to the spouse's pension?

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

Drumtochty_2

MikeJones wrote: »

Hi Drumtochty,

Just out of interest, did you find out what happens to the spouse's pension?

Mike

We will not take the pension just yet, in a few years not to far away. I have not talked to HMRC, as we have a joint account we could just keep quiet or if HMRC wants to do the transfer in stages them NSI certificates could be one way to stop tax being paid. The interest rates may be non existent then!!!

Izzy_Skint_2

The more I find out the less I know!

David 78 - "You will get the full tax relief you are entitled to at the time you make the pension contribution"

Is the pension contribution you talk about the lump sum that I would theoretically have built up in the ISA and for which I purchse the annuity for life with?

Drumtochty - "The AVC way can be better; assuming your employer runs such a scheme an AVC not run by your employer cannot do this. So assuming they will do this for you, so ask."

There is nothing in the scheme to suggest that they run their own AVC (if that is what you're asking) and the AVC they recommend upon request is one run by Standard Life (as a reminder, I am in a Police Service f/s scheme). I notice that I have the option to purchase increased benefits through "added years" to my f/s pension? How does this work?

Ed Investor - "Money in an ISA can be used to buy a "purchase life annuity".This is guaranteed for life like a pension anuity, and in addition gets favourable tax treatment as you are not taxed on the part of the income which represents your capital being returned to you."

Therefore, am I right in assuming that all that I have paid in and gained as interest in my ISA would be tax free in any subsequent annuity for life purchased, however anything above and beyond that would be taxed (assuming I live long past retirement)?

Thanks all

*sigh*

dunstonh

purchased life annuity rates are not the same as lifetime or compulsary purchase annuity rates (used by pensions). Also, whilst the purchased life is more tax efficient, it hasnt had the boost of tax relief on the contribution. So, typically, you would expect a pension to beat the purchased life annuity when you are purely looking at income provision.

AVCs are largely obsolete nowadays. There are some schemes that do allow them to be used in the calculation for the tax free lump sum and if that is possible, then that makes AVCs quite attractive. If the employer pays into the AVC then that can be attractive to. However, your typical generic AVC is no longer an attractive option when you look at the alterantives.

Added years is often the most expensive option at first glance but it can also be the best option on a pound for pound basis. The only negative is that its not ideal if you are planning early retirement.

Drumtochty_2

Izzy_Skint wrote: »

The more I find out the less I know!

Drumtochty - "The AVC way can be better; assuming your employer runs such a scheme an AVC not run by your employer cannot do this. So assuming they will do this for you, so ask."

There is nothing in the scheme to suggest that they run their own AVC (if that is what you're asking) and the AVC they recommend upon request is one run by Standard Life (as a reminder, I am in a Police Service f/s scheme). I notice that I have the option to purchase increased benefits through "added years" to my f/s pension? How does this work?

*sigh*

Izzy Skint

Please read all the post again. Go back to your force pension's people or your federation advisers. Get the correct info from them and then ask questions here.

In my case I told you you would have to check with the force that they would do the AVC deal that only some employers do and rather than ask the specific question of your experts who are on hand. You say "There is nothing in the scheme to suggest that they run their own AVC "

Mike Jones has spent time posting for you, I have spent time posting as have others. Please respect our effort and do your own homework, rather than for instance in my case asking me a further question when you have not got your question answered by the expert on your side which could make the question irrelevant.

Feel free to ask but only when you have completed your homework.

Ian_W

Drumtochty wrote: »

In my case I told you you would have to check with the force that they would do the AVC deal that only some employers do and rather than ask the specific question of your experts who are on hand. You say "There is nothing in the scheme to suggest that they run their own AVC "

Whilst understanding your point about the OP doing his own research about the scheme and certainly having some discussions with the Federation the force cannot "do the deal" your employer has.

The Police Pension Scheme is a statutory one established under Act of Parliament and governed by legal regulations with no trustees and no discretion for individual forces to vary it's terms - short history HERE. It applies to all "Home Office" forces in England & Wales but is also mirrored in Scotland.

I'm assuming as you've been in 7yrs you're still in the 1987 scheme and haven't opted into the 2006 less beneficial one. If so there is a summary HERE but you should also have a scheme booklet or be able to easily get one.

Buying added years is expensive but can often be the best bet if you're a late joiner who won't be able to do maximum pensionable service before compulsory retirement age. Is that the case? If yes ask for a quote for the years you're likely to be "short", if not then don't forget you can't improve on 40/60 max.

Also if you're likely to be at or near the max then you'll probably be getting a decent retirement income which is taxable [with penalties above a certain amount] at age 65. Whilst S&S ISAs don't have tax relief on the way in if you draw an income from them [rather than using them to buy an annuity] they're tax free and you can also use the capital as and when you wish. Jem16's post#2 makes a lot of sense to me - but then she usually does. There's a sticky at the top of the board - Pensions v ISA which is worth reading.

You used to only get 2/3 if you accrued 40 years of employment at a rate of 1/60 of final salary for each year of employment (2/3 = 40/60). It is more usual to get less these days as accrual rates have been coming down.

The police and firefighters pensions are based on 30yrs service with fast accrual of 2/60pa between 20-30yrs service because of the relatively young compulsary retirement ages [was 55 but recently raised to 60]. The 2006 scheme has less beneficial accrual rates but those in service in April 06 remain in the earlier scheme unless they opt not to.