AVC's

Moby

Red52....... Im in a similar position to you.....Im contributing to the AVC to increase the tax free lump sum on retirement and smooth out the actuarial reduction if I take my pension early.....but Im also contributing to a SIPP. Im intending to retire at about 57.....then live off the SIPP and other savings before accessing the final sal pension once the SIPP funds have run down. What about doing that + retiring earlier still?

robin61

Red. Also have a look at how much of your £40K you used up in 13/14 and 14/15 as well as 15/16. That will tell you how much carry forward you have available. You most likely get or can get a pension statement every year which should hopefully give you this information.

robin61

Moby wrote: »

Red52....... Im in a similar position to you.....Im contributing to the AVC to increase the tax free lump sum on retirement and smooth out the actuarial reduction if I take my pension early.....but Im also contributing to a SIPP. Im intending to retire at about 57.....then live off the SIPP and other savings before accessing the final sal pension once the SIPP funds have run down. What about doing that + retiring earlier still?

Snap. I also want to go at about 57 and I'm doing exactly this at the moment and am utilising unused allowance from previous years. Hopefully I have only a year or two to go so I am trying to move money around to best advantage. I only contribute enough into the AVC to take my P60 and P11D totals to just under £43K. If I put more than that into the AVC it will take me over the top as regards the max TFLS and there are limitations to how I can take the residual AVC money after that. It's a shame really as you also get the NI relief with salary sacrifice.
You are right the SIPP also gives you some flexibility in that you can if you want take it before the DB scheme and if you decide to not use it all up then its Inheritance Tax friendly. Which is now starting to be a concern for me.
Whether to use the SIPP to defer the DB pension is one I am still wrestling with. I know if you live long enough it makes sense to defer a DB scheme on the other hand I think cash flow is also an important factor and I know that at 67 we have 2 x State pensions which will give us around £16K per annum and we will be well into ouy 70's before we make a profit from differing. Difficult decision but I guess in some respects a good problem to have.
Also the gross SIPP payments can be deducted as regards working out household income for tax credits which might help some people.

Moby

You may have seen Ermine's great 'Simple Living in Suffolk' blog. Great post on there re. using a SIPP to act as a bridge until you access your defined benefit pension. The personal allowance is now 11k.......divide this by three and then multiply by four gives you £14 666 that you could potentially extract from a SIPP every year tax free as a cash lump sum, (because 25% of that £14 666 is tax free anyway.....assuming you haven't used up any of your personal allowance that year of course).

robin61

Moby wrote: »

You may have seen Ermine's great 'Simple Living in Suffolk' blog. Great post on there re. using a SIPP to act as a bridge until you access your defined benefit pension. The personal allowance is now 11k.......divide this by three and then multiply by four gives you £14 666 that you could potentially extract from a SIPP every year tax free as a cash lump sum, (because 25% of that £14 666 is tax free anyway.....assuming you haven't used up any of your personal allowance that year of course).

I haven' t seen that but I will have a look. But yes this is one of the advantages of having a separate scheme. Another way of achieving this would be to pay into the AVC thus getting tax and NI relief and then transfer the whole AVC into s SIPP. I know our AVC scheme allows this but only if you transfer it all. Of course you don' t then get the larger PCLS but this might work for those who would rather defer and you get the NI relief as well so can build up a bigger fund.

PensionTech

The question is, should I simply pay in what I can afford each month or borrow money to live on and pay in £32K / annum, which is everything I pay 20% tax on?

Would this take you to below the minimum wage? If so, then you won't be able to do it through salary sacrifice.

robin61

PensionTech wrote: »

Would this take you to below the minimum wage? If so, then you won't be able to do it through salary sacrifice.

Good point I think the OP was looking to reduce his pay down to £11k so I think that is going to be a bit below minimum wage. Is it about £7.20 an hour now ?

Red52

As far as I can gather from your replies, the answer to my question about how much I should pay into an AVC to maximise my money is, as much as I can with the following considerations:
1. 40K max/annum
2. Keep earnings above the minimum wage
3. Making sure my AVC's are safe

I understand the SIPP reply but I feel I would simply like to maximise the end salary scheme I have by using AVC's.

I will be 59 in July and started paying 2k per month into AVC's in Nov 2015. My plan is to continue paying the 2k/month (and live off my savings) until my savings run out. Then in in the New year consider where to access more cash, possibly the bank.

Thanks for all of your replies.

bigadaj

Red52 wrote: »

As far as I can gather from your replies, the answer to my question about how much I should pay into an AVC to maximise my money is, as much as I can with the following considerations:
1. 40K max/annum
2. Keep earnings above the minimum wage
3. Making sure my AVC's are safe

I understand the SIPP reply but I feel I would simply like to maximise the end salary scheme I have by using AVC's.

I will be 59 in July and started paying 2k per month into AVC's in Nov 2015. My plan is to continue paying the 2k/month (and live off my savings) until my savings run out. Then in in the New year consider where to access more cash, possibly the bank.

Thanks for all of your replies.

Yes but 1. Is a bit more complicated.

Your defined benefit pension obviously contributes to the annual allowance, you need to contact your scheme or payroll to confirm how much this will be in oractice but assuming 1/60 accrual then this is likely to take up £10-£15k of your annual allowance. So this sum needs to be deducted from the £40k, however you do have three years of carry back whereby you can use up the difference between £40k and what you have contributed, this normally works by taking current years contribution and once this is used up then taking the allowance form the earliest if the qualifying years you have spare allowance for.

atush

I will be 59 in July and started paying 2k per month into AVC's in Nov 2015. My plan is to continue paying the 2k/month (and live off my savings) until my savings run out. Then in in the New year consider where to access more cash, possibly the bank.

Do you mean borrowing to live on? How long will your savings last at this rate?