AVC lump sum - taking it at 55

DannyGirl

Dear Forum

I'm new here, so forgive me if this one's been discussed to death; I hope it's a simple query to answer.

I've been in a local government pension scheme for 25 years. Some years ago, I was persuaded to start paying into an AVC fund with the Prudential, under the mistaken idea that I was buying extra years; of course this is not the case. When I discovered my mistake, I stopped paying into the AVC fund.

The value of my AVC fund as at March this year was £8407.12. I would like to draw on this fund when I turn 55 next January. In the documentation with my AVC statement, it states:

'Subject to main scheme rules, you can normally take up to 100% of your AVC plan as a tax-free lump sum, provided it isn't more than 25% of the total value of your pension benefits'.

My questions are:

Does the 'total value of your pension benefits' include my local government pension pot, rather than just the AVC pot?

and

Does this rule apply if I want to take a lump sum at 55 from my AVC? When I phoned Prudential, I was told that, at 55, I could only take 25% of the AVC fund (ie 25% of £8407.12).

Any advice gratefully received!

dunstonh

Does the 'total value of your pension benefits' include my local government pension pot, rather than just the AVC pot?

It is both

Does this rule apply if I want to take a lump sum at 55 from my AVC? When I phoned Prudential, I was told that, at 55, I could only take 25% of the AVC fund (ie 25% of £8407.12).

You can only take 25% unless you take the main scheme at the same time.

atush

While we wait- two things.

Your AVC fund is valuable, you should have kept in it. As you can take your TFLS from it (as you plan to do) instead of commuting your very valuable FS pension.

But, AFAIK, you can't take the LS now, if you don't plan on retiring now. You cant take the LS then take the pension 5-10 years later.

And if you wanted to take your pension at 55 (if you can) it would be reduced at a large amt from 25-50% depending on the retirement age of your scheme, and the % of the actuarial reduction per year you take it early. Which is usually around 5%.

DannyGirl

Dear dunstonh

Thank you for your response; so the 2 pensions (ie the AVC and my local Government pension) are treated as a single pot with regard to taking the lump sum? If I wanted to take the whole lump sum from my AVC, I would have to take it from my local government pension also?

Disappointing!

But thanks anyway...I'll just have to come up with another plan.

DannyGirl

Dear atush

thanks you for your response; unfortunately, I don't understand some of the terms you use; eg 'TFLS'; 'AFAIK'; 'the actuarial reduction'. However, I think that dunstanh has answered my question.

dunstonh

Thank you for your response; so the 2 pensions (ie the AVC and my local Government pension) are treated as a single pot with regard to taking the lump sum? If I wanted to take the whole lump sum from my AVC, I would have to take it from my local government pension also?

Yes, you would need to crystallise them at the same time.

You are lucky. Most schemes dont allow it. So, dont be too disappointed.

atush

Tax free lump sum, As Far As I Know (used all over the internet and in txt) And actuarial reduction is the amt your pension is reduced for taking it early.

And taking 100% of your lump sum from your AVC would be a great thing to do, as your pension itself is far more valuable. If you can do it or not will depend on your number of years/salary as you stopped paying in.

Drp8713

If you started the avc before November 2001 you can use it to buy added years on retirement. Your administrator should give you this option on retirement (although ask if the dont as one third party in particular dont know what they are doing). If you dont want it all as tax free cash and want to top up the pension this is the best way.