AVC Query

Academic

Mortgage_&_debt_free wrote: »

To calculate your LTL multiply your annual final pension x 20.

I think the University Superannuation Scheme (USS) has a similar provision allowing up to 100% of an AVC to be taken as a lump sum as long as it is below 25% of the total pension fund. One thing I'm having difficulty determining is what constitutes the 'total pension fund'.

My current understanding is that it is your final annual pension x 20 plus the pension commencement lump sum plus the value of your AVC (plus any other pension rights).

Obviously the larger this total (as long as it remains below the Lifetime Allowance Limit of the scheme) the larger the 25% limit, allowing a larger AVC pot to be built up.

The above is based on my limited understanding of the USS scheme which I'm currently trying to come to terms with before seeing an IFA

Mortgage_&_debt_free

Academic wrote: »

I think the University Superannuation Scheme (USS) has a similar provision allowing up to 100% of an AVC to be taken as a lump sum as long as it is below 25% of the total pension fund. One thing I'm having difficulty determining is what constitutes the 'total pension fund'.

My current understanding is that it is your final annual pension x 20 plus the pension commencement lump sum plus the value of your AVC (plus any other pension rights).

Obviously the larger this total (as long as it remains below the Lifetime Allowance Limit of the scheme) the larger the 25% limit, allowing a larger AVC pot to be built up.

The above is based on my limited understanding of the USS scheme which I'm currently trying to come to terms with before seeing an IFA

Thank you & apologies to the OP, one of the hazards of posting early in the morning!

The LTL does indeed the AVC sum + other cash benefits, etc and it certainly means a larger figure than just 20x your FSP, which of course is good news as it means your 25% tf sum is larger.

Drumtochty_2

Academic wrote: »

My current understanding is that it is your final annual pension x 20 plus the pension commencement lump sum plus the value of your AVC (plus any other pension rights).

A bit out in your understanding of the calcs. This post is a bit complex but it is important

The 20 times multiplier can vary a bit so you have to ask your employers pension department for the actual factors for each possible age you are working out when you may retire.

The approx 20 multiplier is multiplied by the final salary annual pension you would receive at retirement from the fs pension scheme without any reduction for taking a lump sum. The non commuted pension.

Therefore the fs tax free lump sum is not in the calc but a result of it. The reason you are working this out is that if you take the TF lump sum (25% of 20 times approx non commuted fs pension) your employer offers the downside is they reduce the fs pension far too much. So we need to get round the downside of an over reduced reduced pension which is index linked.

As you can take 25% of the employer organised AVC as a tax free lump sum then in reality 75% of that AVC should equate to the TF lump sum from the final salary pension in order to recompense the FS pot. Therefore you do not have to reduce your fs pension after taking the TF lump sum.

So if you can afford it, you will optimise things if your employer organised AVC is approx 6.7 times your non commuted fs pension.

Let's say that 6.7 times your fs pension is £100k. You have been ultra good and have £120k in that employer organised AVC pot.

The extra £20K in the AVC pot is subject to the usual AVC rules. 25% as a tax free lump sum £5k but the remaining £15K has to go to an annuity or some form of drawdown.

So the 75% of the extra AVC money in this case £15k will be paid as an annual pension of say £500 pa and taxed at your particular 20% or 40% rate.

Not the end of the world if your AVC is over approx 6.7 times the non commuted fs pension but possibly better for that dosh to be in an ISA. This may take you into the £21k age allowance trap when you receive your state pension so paying 30% tax on some of your pension.

Any other fs pensions from previous employers and AVC pots not connected with the current employer can be taken as a 25% tax free lump sum and the rest as taxed annual pensions.

The only time to add the total FS pension pot plus AVC's is to make sure it is under £1,650,000 lifetime allowance.

A bit hard to get your head around.

Time to get the spreadsheet or pen and paper out and do the numbers, then get someone to check them, and then check with your employer's pension department.

Pixieboy

The definitive guidance on the maximum TFLS from the LGPS is in the Government Actuary's Department document here: -
http://timeline.lge.gov.uk/GAD/Reg%2021_GAD_LTA_Add_Cash_Commutation_Guidance.pdf
You will need to know how much your standard annual pension, standard lump sum retirement grant and the value of your AVC fund will be at date of retirement.
Remember that membership up to 31/3/2008 provides a 1/80th pension, with a 3/80th lump sum, and membership accrued from 1/4/2008 provides a 1/60th pension only (i.e. no automatic lump sum). You will also need to establish whether your benefits will be actuarially reduced to take account of "early" payment. I would link to the GAD guidance on reductions, but at 28 pages you can probably do without it.
The longer this post has got the more I think you would be better off contacting your administering authority, asking them specifically what your options are if you take immediate benefits in May, taking into account that you will have an AVC fund of £x that you would wish to take as a tax free lump sum.
One final thing - if you want to take more than 25% of your AVC fund as a tax free lump sum you MUST make this election before or at the same time as you claim your main scheme benefits. If you do it later you will be limited to 25% of the AVC fund, with the other 75% having to be used at the same time to purchase an ongoing income either via an annuity or additional pension from the LGPS.
Hope this helps.