Pension scheme allows access at 50 ... Including AVC pot

PeacefulWaters

I'm 48. I have a defined benefit pension scheme with my employer plus an additional £20k in an AVC linked to my employer's scheme. I am entitled to draw the pension from age 50 subject to a large actuarial reduction.

The scheme administrators have informed me that while they won't allow me to draw down chunks from the AVC (I'd have to opt for 25% tax free plus annuity) I can transfer the AVC pot to another provider who will allow me to draw down.

Q1: Are there any providers who would accept my AVC pot and allow me to access the fund between age 50 and 54?

I'm also facing into possible redundancy where the settlement I receive with be c£84k in September. I earn £42k pa. my pension contributions are 12% of salary.

Q2: Assuming no budget changes, can I pay £54k into my AVC pot claiming tax relief?

jamesd

No provider can let you access any amount between age 50 and 55 because your ability to do that is based on preserved benefits in your current scheme.

Yes you can pay in £54k provided you have unused annual pension contribution allowance from the last three years that is sufficient to cover the difference between this year's £40k allowance and your total of employer and employee contributions for the year. Be sure to get a correct valuation of what was paid in to your defined benefit scheme for each year so you know what is available, this is not as simple as just amount paid in, rather it's more like increase in value. You can't pay in more than your earned income in the tax year of the contributions so if you are made redundant your possible amount will be lower. Get your employer to pay it in on your behalf instead is the workaround.

PeacefulWaters

jamesd wrote: »

No provider can let you access any amount between age 50 and 55 because your ability to do that is based on preserved benefits in your current scheme.

Thanks. I was very uneasy at that piece of information from the administrators.

Yes you can pay in £54k provided you have unused annual pension contribution allowance from the last three years that is sufficient to cover the difference between this year's £40k allowance and your total of employer and employee contributions for the year. Be sure to get a correct valuation of what was paid in to your defined benefit scheme for each year so you know what is available, this is not as simple as just amount paid in, rather it's more like increase in value. You can't pay in more than your earned income in the tax year of the contributions so if you are made redundant your possible amount will be lower. Get your employer to pay it in on your behalf instead is the workaround.

Cheers. I'd ensure the employer pays it.

Right, now to make £30k last for seven years ...

jamesd

PeacefulWaters wrote: »

Right, now to make £30k last for seven years ...

You've probably seen me mentioning remortgaging and cheap credit card details, lots of repeat offers out there for existing customers that could make things last that long for cards you have now or get while you still have a good ongoing work income.

Provided you have sufficient long term income once you have all pensions in payment you can just shift some of that to the time when you need it using borrowing, repaying over time once those pensions are all being paid. Beats scrimping now and having excess later.

zagfles

Usually with these linked DB & AVC schemes, the entire AVC can be taken as tax free cash provided it's less than 25% of the combined value, which usually means less than 6.67 times the annual DB pension. Have you checked whether that's possible with your scheme?

PeacefulWaters

zagfles wrote: »

Usually with these linked DB & AVC schemes, the entire AVC can be taken as tax free cash provided it's less than 25% of the combined value, which usually means less than 6.67 times the annual DB pension. Have you checked whether that's possible with your scheme?

Yes, it's possible.

But I'd have to draw the DB pension at the same time.

Ideally I'd avoid the cull this time and get the same opportunity at 50. The actuarial reduction is a lot more favourable if I retire in service.

kidmugsy

PeacefulWaters wrote: »

I'm also facing into possible redundancy where the settlement I receive with be c£84k in September. I earn £42k pa. my pension contributions are 12% of salary.

Q2: Assuming no budget changes, can I pay £54k into my AVC pot claiming tax relief?

Why £54k? Surely if you don't have any more income in 16/17 then your taxable income will be £54k plus around £42k/2 i.e. around £75k? The 40% band begins at £43k, so you'd want to contribute around £32k gross. Unless you want to avoid 20% tax too?

P.S. If the actuarial reduction really were actuarially neutral, you wouldn't necessarily lose by taking the pension at 50; the extra years of drawing it would cancel out the lower annual sum you receive. If, however, you got another job the taxation position might become unfavourable.

PeacefulWaters

kidmugsy wrote: »

Why £54k? Surely if you don't have any more income in 16/17 then your taxable income will be £54k plus around £42k/2 i.e. around £75k? The 40% band begins at £43k, so you'd want to contribute around £32k gross. Unless you want to avoid 20% tax too?

I could see a scenario between 50 and 55 where I draw down the personal allowance and nothing more from the AVC. Based on the earlier reply this isn't an option. Bigger lump sum and smaller pension is though.

P.S. If the actuarial reduction really were actuarially neutral, you wouldn't necessarily lose by taking the pension at 50; the extra years of drawing it would cancel out the lower annual sum you receive. If, however, you got another job the taxation position might become unfavourable.

5% a year counting back from 60. Reduced to 3% if I retire while still employed.

kidmugsy

PeacefulWaters wrote: »

I could see a scenario between 50 and 55 where I draw down the personal allowance and nothing more from the AVC. Based on the earlier reply this isn't an option. Bigger lump sum and smaller pension is though.

5% a year counting back from 60. Reduced to 3% if I retire while still employed.

You're in quite a good position, then. Either you get a redundancy pay-off, and perhaps find part-time work until you are 50, or you bash on to 50 and retire from your post with only a modest 3% annual reduction. In either case you might like to do part-time work from 50 to 55. Or even until your State Retirement Pension begins, according to your personal inclination and circumstances.

PeacefulWaters

kidmugsy wrote: »

You're in quite a good position, then. Either you get a redundancy pay-off, and perhaps find part-time work until you are 50, or you bash on to 50 and retire from your post with only a modest 3% annual reduction. In either case you might like to do part-time work from 50 to 55. Or even until your State Retirement Pension begins, according to your personal inclination and circumstances.

The ideal option is being made redundant after 50!