Pension & AVC's

bigal257

Now at 65 I am due to start drawing a deferred final salary company pension with an attached in-house AVC. The expectation was that the AVC could be used 100% as cash, supplemented by only a small commutation of pension to achieve max tax-free lump sum. The scheme allows this and I had a quote on this basis 5 years ago, when I considered taking it early, and have based my financial planning on it.

The administrators have since changed and the current ones say this cannot be done. They say I can only have 25% of the AVC as cash, and the reduction in pension to get max cash is ruinous.
The annuity available from the remaining 75% of the AVC is only half the reduction in pension for the same cash.

Are they right, and is there anything else I can do?

dunstonh

Are they right, and is there anything else I can do?

Whilst pension legislation allows it, it is up to the trustees/administrators of the scheme if they do. The vast majority of schemes do not. If you cannot persuade them to do so then there is nothing you can do.

RichandJ

dunstonh wrote: »

Whilst pension legislation allows it, it is up to the trustees/administrators of the scheme if they do. The vast majority of schemes do not. If you cannot persuade them to do so then there is nothing you can do.

Just to be contrary dh, most of the FS schemes we administer do allow this.

OP, suggest you contact the new admin's again and ask why they think a decision probably taken in repect of A-Day (6/4/2006) has changed. The Scheme's Rules should have been updated with a Deed of Amendment in respect of the A-Day changes and this is where the ability to use 100% of AVCs as cash came in.

(Yes, yes, I know that pre 8/4/87 AVC payers have always had that right for any admin pedants out these.)

dunstonh

Just to be contrary dh, most of the FS schemes we administer do allow this.

I havent had to ask the question recently so maybe more do than did in the past. Good to hear yours does.

RichandJ

It certainly makes it easier from an admin perspective, most people when they see ca$h from AVCs take it. No CPAs, OMOs, transfers, scheme pension purchase or deferrals to do/record. AVC is extinguished, everyone's happy.

ulster_exile

A change in administrators often results in a change in how the Scheme rules are interpreted. It's definitely worth asking them to explain their reasoning behind this if a quote was previously given assuming AVCs are used as a first charge against the cash.

It's worth pointing out for other people in this situation that AVCs can only be used 100% as cash if 25% of the "total value" of the pension including AVCs is greater than the AVC fund.

Andy_L

bigal257 wrote: »

Now at 65 I am due to start drawing a deferred final salary company pension with an attached in-house AVC. The expectation was that the AVC could be used 100% as cash, supplemented by only a small commutation of pension to achieve max tax-free lump sum. The scheme allows this and I had a quote on this basis 5 years ago,

Does the scheme allow it as a right or is it at the discretion of the trustees?
Allowing it is often more expensive for the scheme than forcing you to commute part of the final salary pension for a lump sum so a change of administrators & worsening financial situation may have changed their willingness to allow it

RichandJ

Andy_L wrote: »

Does the scheme allow it as a right or is it at the discretion of the trustees?
Allowing it is often more expensive for the scheme than forcing you to commute part of the final salary pension for a lump sum so a change of administrators & worsening financial situation may have changed their willingness to allow it

Change of admin should have nothing to do with it. Whether it's a right or T'ee discretion, it should be formally documented and the OP is entitled to ask for a copy of the documentation (may be a charge for this).

My personal (cynical, jaded) view is that he's got an administrator who doesn't know/can't be bothered to find out what the true facts are.