Tax advantage of taking out AVC's in final year before retiring

smjxm09

I am in a company pension and have been told that if I put as much money into an AVC in the last year or two before retiring that I can afford I won't pay tax on the savings from my wages and will get all the money out tax free as a lump sum when I retire.

Anyone care to comment about this?

atush

I don't know about all, as you haven't said who you work for and what the scheme rules say. Some AVC plans are limited to 25% TFLS, and others can be used in different ways.

With some FS pensions, the AVC fund can be used to give all the TFLS from the whole pension, rather than commuting some of your valuable index linked income.

In general, given tax relief, it can be a good idea to whack in as much as poss in the last few years esp if you pay HRT.

redbuzzard

What Atush says.

I have accidentally achieved this with one of my DB pensions. I did some AVCs which now amount to about £50k, and just happen to be worth a bit over 25% of the total value. The rules permit me to take 25% PCLS entirely from the AVCs.

The only slightly frustrating part for me is that the bit left over has to be annuitised, I can't do a partial transfer of the surplus to my SIPP.

A similar situation will apply to my other DB pension which was closed to further DB accruals in 2012. For the next two years my and the employer contributions went into the DC section, which I will be able to take all of as PCLS leaving the defined benefits untouched.

Just double check that you can take all the PCLS from the AVCs, and it isn't capped as Atush says.