AVC – extra payments and tax-free lump sum?

HappySeagull

I’m 54 and keen to retire in 2-3 years. I’m lucky enough to have a Final Salary pension, and have accumulated 23/60ths of a £43k salary so far. I can draw this from 60 without penalty, but would need to start by 58.

I also have an AVC fund with the same company, which is worth £18k. However, I’m only adding £56 a month at the moment.

My wife (59) is already retired and has a reasonable pension. We also have slowly growing ISAs, a company ShareSave scheme, and a few shares.

It seems the most/only useful thing I can do now is top up my AVC fund - I can spare about £300 a month (pre-tax), possibly more later on. The annual return would be minimal, so I’d hope to take as much of my tax-free lump sum as possible.

So, the questions are:

1) Are the two pots (FS and AVC) combined to calculate the 25% tax-free maximum?
2) If so, can I effectively take everything out of the AVC fund, tax-free?
3) Can I take the lump sum, without starting to take the (reduced) early pension?

Thanks for reading, I’m grateful for any advice or suggestions!

Zelazny

HappySeagull wrote: »

So, the questions are:

1) Are the two pots (FS and AVC) combined to calculate the 25% tax-free maximum?

Depends on the scheme rules, but usually so long as the AVCs are held as part of the same trust, yes.

HappySeagull wrote: »

2) If so, can I effectively take everything out of the AVC fund, tax-free?

If they are treated as combined, then you can take all of the cash out of the AVC fund (as long as there's enough in there) or take all of the AVC fund as cash and a lesser amount of cash from the Final Salary benefit.

HappySeagull wrote: »

3) Can I take the lump sum, without starting to take the (reduced) early pension?

The scheme rules might allow this, but it's not all that common so I'd not count on it.

Best bet is to ask the scheme administrator.

HappySeagull

Thanks Zelazny, will speak to the Admin. Also, planning to speak to our IFA later in the year, when my wife starts her second company pension.

In the meantime, the extra contributions seem the best option for tax benefits, and there doesn't seem to be any downside.

Batchy

downside, is you dont have access to the cash until you draw your pension... probably not a problem, but still something to consider.

HappySeagull

Batchy wrote: »

downside, is you dont have access to the cash until you draw your pension... probably not a problem, but still something to consider.

True, but we have access to cash in our ISAs, and will continue to add to those each month. No mortgage, no kids, no debts, so this is the next step, according to what I've gleaned from the forum. That probably only leaves Premium Bonds.

But we will certainly consider the balance between the various funds.