Cashing in AVC

Dafyddfon

I have an annual pension of nearly £50,000. I also have a small AVC pot of around £10,000, which, if released to buy an annuity, would provide a negligible sum annually. Since I have retired the AVC is not being added to. After April 2015, can I cash in this whole AVC fund?

mgdavid

Dafyddfon wrote: »

I have an annual pension of nearly £50,000. I also have a small AVC pot of around £10,000, which, if released to buy an annuity, would provide a negligible sum annually. Since I have retired the AVC is not being added to. After April 2015, can I cash in this whole AVC fund?

Do you mean you have a pension in payment that pays you £50,000 per year? If so, yes you will be able to take the AVC pot in its entirety - but do realise you will lose £4000 of the £10k in income tax.

kidmugsy

mgdavid wrote: »

you will be able to take the AVC pot in its entirety - but do realise you will lose £4000 of the £10k in income tax.

It might therefore be better to keep the AVC until you die and it can pass tax-efficiently to your heirs.

PensionTech

I wouldn't call it tax-efficient. If the poster is over age 75 when he dies (which is pretty likely), it will still be subject to 45% tax. Add in that it sounds as though the AVC isn't crystallised - and can therefore be taken 25% tax free, so the tax payable would be £3000, not £4000 - and it may well be a good idea to take it now (note: if your other pension is £50,000 per year, this can already be done under flexible drawdown before April if your scheme allows, or if you can transfer it to a scheme that does allow).

kidmugsy

PensionTech wrote: »

If the poster is over age 75 when he dies (which is pretty likely), it will still be subject to 45% tax.

You surprise me: I understood that the forthcoming law is that it's tax-free before 75, and that after 75 your beneficiaries get to withdraw money from the pension at their own rate of income tax.

PensionTech wrote: »

if your other pension is £50,000 per year, this can already be done under flexible drawdown before April if your scheme allows, or if you can transfer it to a scheme that does allow.

Again you surprise me. I thought that what you can do with an AVC of the sort that is associated with a final salary scheme depends on the rules of the trustees of that scheme. Has the government swept that away?

PensionTech

Well, it does depend on the trustees of the scheme, but I would be surprised if a scheme that allowed deferral of AVCs beyond retirement didn't also allow a transfer out of those AVCs. Many do that anyway. In any case, post April 2015 my understanding is that, yes, there will be overriding provisions so that schemes with a DC element (such as a DB scheme with DC AVCs) will be forced to allow the member to transfer the DC element out.

In terms of the lump sum - yes, quite right, I had forgotten about the very important option of flexi-access drawdown for nominees etc. Do please disregard my rambling there.