BT Pension & AVC lump sum

ExBT_Bob

Just got my quote from BT to take my pension in August (if I want to). The emphasis in the options quoted is all about maximising lump sum payout.
I also have a £36k BT AVC.
I have an option to buy additional increasing (CPI) pension using my final salary BT pension lump sum. I had planned to use my AVC fund as my lump sum and to purchase additional BT pension using my main pension lump sum.
I can buy £1677 of additional annual increasing pension for £44484, which seems low to me. If I don't want to buy any additional pension, I can have my BT pension lump sum AND my full AVC fund as a tax free lump sum (£95k). However, if I use my BT pension lump sum to buy additional pension, I cannot then have my AVC as a tax free lump sum. I then have to use it to buy an annuity. Anyone know why?

traineepensioner

Hi Bob,

Which BT pension scheme are you in? How old are you? and are you still working for them?
I can't understand why they would refuse to pay your AVC as a tax free lump sum should you decide to swap your final pension salary lump sum for additional pension (subject to it remaining within 25% of the total pension pot). The BTPS is one of the few schemes left that allow you to tie your AVC with your final salary pension pot, to get your AVC back as a tax free lump sum........ However, the inverse commutation rate offered works out at 26.5 to 1, which is not that good for CPI indexing:o

The reason I ask for clarification is that I had a similar decision when I left in November last year (section B member). The inverse commutation then was 20 to 1 for a 54 year old and the AVC was available as a tax free lump sum. (The commutation rate to exchange pension for lump sum was 17.4 to 1). I would recheck your estimate with Accenture, they may have got it wrong:cool:

It's a difficult decision to make and one that you're never quite sure is right.... because it all depends on when you die.:A

Good luck with whatever you decide:beer:

ermine

Can't answer you as to why, though BT's pension scheme is anomalous inasmuch as the AVC fund and the pension lump sum can be added together and as much as 25% of the total pension pot can be taken tax free from the AVC first and then the pension. Or the other way round, though doing that is so exceptionally daft IMO.

I presume you've taken up the Wealth@work seminars BT sponsored to help their employees understand their pension options more. I think people get a free one to one finance planning session afterwards if they want, it would be a way to ask these questions of an IFA who has knowedge of the specifics of the BTPS.

Logic indicates basically save your 25% PCLS as AVCs before you leave the company, which means you don't lose any pension to get the lump sum. because you have saved it up beforehand, tax free. That's attractive to anyone, but particularly higher rate tax payers, who get nearly half their AVCs funded by the money the government doesn't get
to otherwise steal from their pay packets.

And then invest it in ISAs to derive a tax-free income. Only in some cases is there an option to buy more pension.

As for your lump sum to pension commutation rate, I take as a rule of thumb you can get an annual income of about 5% from (shares) capital without running it down, but you take on stock market risk and don't get to sleep at night every five years like 2007-9, 2002, 1997, 1992.... But you could get your 44k into ISAs over 4 years and the income would be tax free. With the extra pension where you may pay tax on it (depends on the total) and you get a little bit less.

But you are getting a guarantee and inflation protection, and are both of those perhaps worth roughly £500 a year? Depends on your attitude to risk, but probably they are

ExBT_Bob

traineepensioner wrote: »

Hi Bob,

Which BT pension scheme are you in? How old are you? and are you still working for them?
I can't understand why they would refuse to pay your AVC as a tax free lump sum should you decide to swap your final pension salary lump sum for additional pension (subject to it remaining within 25% of the total pension pot). The BTPS is one of the few schemes left that allow you to tie your AVC with your final salary pension pot, to get your AVC back as a tax free lump sum........ However, the inverse commutation rate offered works out at 26.5 to 1, which is not that good for CPI indexing:o

The reason I ask for clarification is that I had a similar decision when I left in November last year (section B member). The inverse commutation then was 20 to 1 for a 54 year old and the AVC was available as a tax free lump sum. (The commutation rate to exchange pension for lump sum was 17.4 to 1). I would recheck your estimate with Accenture, they may have got it wrong:cool:

It's a difficult decision to make and one that you're never quite sure is right.... because it all depends on when you die.:A

Good luck with whatever you decide:beer:

BTPS Section B. Deferred pensioner, 54. I'll ask for written confirmation. The purchase of additional pension and the issue of then not receiving the AVC fund tax free was verbal!

madeinireland_2

I understand your situation as I also have the same position.

Have you considered switching your AVC part of the pension to a new SIPP and then going into flexible drawdown as you won't have to buy an annuity then - but this does assume you have £20k pension from your basic pension - but I think you can buy a small annuity to make that up if you need to.

komodrg

Hi, I just stumbled on this forum and wonderd if I can get any advice...

I left BT 1 month before my 50th birthday (Nov 2013), based on the Accenture pensions portal calculator 4 months prior to my leaving BT, based on almost 24 years service, it advised me, (albeit at a guestimate) that I can take my pension at 50, options where, £4k lump sum plus £9,000 p/a, or £35,000 lump sum plus £6,600 p/a.
After leaving and applied, was told that I didnt meet the minimum GMP test, since then I have applied every 6 months and received the same letter... The calculator did not advice that I would not be considered for the pension, otherwise I would not have left.
As a sinic (24 years with BT would do that to you) I am wondering when/if I would ever reach this GMP figure. I am extramly tempted to cash in the whole lot, (valuation in 2006 at £76,000) and invest in property, as the rental plus the rise in property value would out perform anything that BT has to offer.
Just sent my latest query, at 51 and DPC of the 5/04/2015, not to sure what the response,, will be..
your Disgruntled

xylophone

I left BT 1 month before my 50th birthday (Nov 2013

And thereby became a deferred pensioner of the scheme.

You started employment with BT around 1989.

The BT Pension Scheme was contracted out of SERPS/S2P.

You therefore have the right to a Guaranteed Minimum Pension which must be paid to you from GMP age (65 for a man/60 for a woman).

If drawing your pension at 50 (and thereby taking a steep actuarial reduction) would reduce your pension below your GMP, then you will not be allowed to draw the pension early.

See this explanation from the NHS Scheme.

http://www.nhsbsa.nhs.uk/Documents/Pensions/GMP_factsheet_V3_06.13.pdf

"Important note
When an employee is planning to take early retirement with actuarially reduced benefits, it is very important to request a GMP Test before the member is committed to retirement as a GMP Test will not automatically be carried out with an Actuarially Reduced Early Retirement (ARER) estimate. If this is not performed the member could have potentially already resigned from their post and should the GMP Test fail, they could be left with no income. NHS Pensions has no discretion to pay the pension early when the GMP test is not satisfied"

xylophone

sinic (24 years with BT would do that to you)

Cynic?;)

With regard to transferring out of your DB scheme, any receiving scheme would almost certainly insist on an IFA sign off which you might find difficulty in obtaining.

I am also wondering whether if you did this, you would be able to access your pension as you would be under 55 - the BT Scheme presumably had some protection in this respect but would it carry over?

https://www.gov.uk/early-retirement-pension/personal-and-workplace-pensions

And if it wouldn't carry over you wouldn't be in any better a position under the new rules?

http://www.thisismoney.co.uk/money/pensions/article-2700019/Key-points-Governments-pension-freedom-plans.html

komodrg

Hi Xylophone

Finally got my response back from BT pensions, this time, after over a year received my pension options. I take it that they must have run the GMP test with positive results...

ermine

komodrg wrote: »

cash in the whole lot, (valuation in 2006 at £76,000) and invest in property, as the rental plus the rise in property value would out perform anything that BT has to offer.

You really would have cashed in a £9000 p.a. income sort of inflation-linked for 30 years-ish for £76,000? Just do the simplistic maths - 30 * 9000 = 270,000

To 'invest' in property? Steer clear of 'investing' in anything - you clearly have difficulty in evaluating the price/value of a future income stream.You really would have tossed 75% of the value?

Talk about cutting off your nose to spite your face. Glad it worked out all right in the end!

tigerspill

komodrg wrote: »

Hi, I just stumbled on this forum and wonderd if I can get any advice...

I left BT 1 month before my 50th birthday (Nov 2013), based on the Accenture pensions portal calculator 4 months prior to my leaving BT, based on almost 24 years service, it advised me, (albeit at a guestimate) that I can take my pension at 50, options where, £4k lump sum plus £9,000 p/a, or £35,000 lump sum plus £6,600 p/a.
After leaving and applied, was told that I didnt meet the minimum GMP test, since then I have applied every 6 months and received the same letter... The calculator did not advice that I would not be considered for the pension, otherwise I would not have left.
As a sinic (24 years with BT would do that to you) I am wondering when/if I would ever reach this GMP figure. I am extramly tempted to cash in the whole lot, (valuation in 2006 at £76,000) and invest in property, as the rental plus the rise in property value would out perform anything that BT has to offer.
Just sent my latest query, at 51 and DPC of the 5/04/2015, not to sure what the response,, will be..
your Disgruntled

I have seen GMP mentioned on a number of threads. Can someone explain what it is and how it can impact a pension? Thanks.