Occupational Pension AVC

Debt_Free_Chick

sabelu wrote: »

The scheme rules of the XXXX Pension Scheme - XXXX Section state that transferred in amounts are to be invested as AVCs.

When I read this I thought "OK, just allow members to invest the transfer using the same options they have to invest their AVCs" .. which would have been fine. But ..

I can confirm that current regulations allow you to commute your AVC fund as tax free cash before commuting any pension.

But this is still not an AVC. An AVC is derived wholly and only from voluntary contributions paid by the member. A transfer value is not directly related to the member's contributions - it's the cash equivalent of the pension rights built up in a different pension scheme. Arguably, it may include some of the employer's contributions - and these are definitely not AVCs.

What they're saying is, if the rules regarding AVCs change, they will apply the new rules to this transfer - and that would not be right.

By all means use the AVC investment funds for investment of the transfer value - but their records should clearly show that the money in these investment funds comes from a transfer and not AVCs.

HTH

sabelu

So how should i challenge this they are adamant it is?

What sum could be released as tax free income?

Debt_Free_Chick

sabelu wrote: »

So how should i challenge this they are adamant it is?

Here's a suggestion


Dear <whoever>

Thank you for your letter of <date>. I note that my transfer from the <name of previous scheme> has been invested in the funds available for AVCs. However, this does not mean that the amount transferred should be designated as "AVCs" i.e. as if I had paid that amount as additional voluntary contributions.

The amount transferred should be designated as a "transfer value" and not in any way attributed as AVCs. I feel this is particularly important as, should the law regarding AVCs and/or transfer values change, you need to have a clear record that this amount is a transfer value and not an AVC.

Would you please confirm that - whilst the transfer value has been invested in the same funds offered to those who pay AVCs - that your records clearly show that this amount originally arose from a transfer of previous pension rights and not from additional contributions paid by me, personally.

HTH

Debt_Free_Chick

sabelu wrote: »

What sum could be released as tax free income?

Tax free income? None of it. Any income derived from any occupational pension scheme is treated as "taxable". Whether or not you pay any income tax depends on your total income, in retirement, and your personal allowances.

Currently - under the post-2006 tax rules, you can take 25% of the value of your pension as a tax-free lump sum. This is a one off payment, when you take the (remaining) pension.

Also - currently - you can take this 25% from any pensions that you have. Previously, you could not take any cash at all from a pension that arose from the payment of AVCs. This is why I'm insistent that they should identify (or "designate") this amount as a transfer and not an AVC. If any future Government changes the rules e.g. so that transfers are treated differently to AVCs, then you need to make sure that each part of your pension is designated correctly.

At the moment, there is no advantage to having your transfer correctly designated. But that might change, depending on what happens in the future.

HTH

sabelu

'I can confirm that current regulations allow you to commute your AVC fund as tax free cash before commuting any pension.'


This was stated in the letter from Watson Wyatt what do they mean by this?

Debt_Free_Chick

sabelu wrote: »

'I can confirm that current regulations allow you to commute your AVC fund as tax free cash before commuting any pension.'

This was stated in the letter from Watson Wyatt what do they mean by this?

Most pension schemes now allow you to take 25% of the value of your pension as a tax free lump sum.

Many insist that you treat each "layer" of pension separately - so that you take 25% from your AVC pension/fund; and 25% from your main pension/fund; and 25% from any transferred in pension.

Let's say that you have an AVC fund of £50,000 and that this could provide an AVC pension of £350 (don't worry about the actual figures - I've just made them up and they are not in any way an indication of the pension you would actually get).

You also have a main scheme pension of £10,000 and an extra pension from a transfer in of £1,000.

You can take 25% of the value of each amount as tax free cash e.g.

AVC cash = £12,500
Main pension cash = £50,000
Transfer in pension cash = £5,000

You would have to give up some of your main scheme pension and your transferred in scheme pension to get the cash from those layers.

In your case, Watsons are saying you don't need to do this. You can keep all your main scheme pension and your transferred in pension and take the cash from your AVC fund instead.

Is this an advantage? Well ... it depends on the exchange rate that the pension scheme uses to convert your main pension and your transfer in pension to a cash sum. Very often it is an advantage ... but not always. We would need to look at the precise figures they're quoting - and even then, the exchange rate is subject to change and may well be different when you come to retire.

HTH

sabelu

Ok but that being the case when could i take out the 12.5k? Now?

DRS1

sabelu wrote: »

My question is whether this AVC if I feel its underperforming can be moved I'm told by the administrators that it cant, however this was'nt made aware to me at the point of transfer. I would've thought with the new flexible pension legislation that although I would not be able to gain access to the funds now I should be able to move the sum if i so wish to a beeter investment scheme SIPPS etc.

Did you ask the Trustees/Watsons if it was possible to change how the funds were invested - eg move them from Scottish Equitable into something else? This need not involve taking the money out of the scheme.

If they say there is only one way of investing "AVCs" and that is with Scottish Equitable you might ask them when they last reviewed how good this investment was and whether other alternatives should be made available to members for their AVCs.

It is the Trustees' responsibility to keep the investment choices under review, though they may not thank you for saying that.

Anyway the point is if some other investment vehicle is available within the scheme you could see if you think that is better. Not to say it will be, but we live in hope.

Debt_Free_Chick

sabelu wrote: »

Ok but that being the case when could i take out the 12.5k? Now?

You can only take the cash when you take the pension - so not until you "retire".

sabelu

DRS1 wrote: »

Did you ask the Trustees/Watsons if it was possible to change how the funds were invested - eg move them from Scottish Equitable into something else? This need not involve taking the money out of the scheme.

If they say there is only one way of investing "AVCs" and that is with Scottish Equitable you might ask them when they last reviewed how good this investment was and whether other alternatives should be made available to members for their AVCs.

It is the Trustees' responsibility to keep the investment choices under review, though they may not thank you for saying that.

Anyway the point is if some other investment vehicle is available within the scheme you could see if you think that is better. Not to say it will be, but we live in hope.

Scot Eq are advising me of alternative investments within their portfolio. Presume there will be a cost of transfer tho.