BT avc in excess of 25%

66gaza

Hi, long term reader and have finally decided to ask a question. I know there are some ex BT employees on these boards.and lots of pension experts. I would like to know if anyone knows more about the following statement from the BT AVC booklet. Has anyone done it?
Note that members who have AVCs, the total value of which is in excess of 25% of
the capital value of their BTPS benefits, they may have the option to take their 25%
tax free cash as a lump sum from their AVC fund and take any excess as a lump sum
taxed at the member’s marginal rate. If you think this may apply to you and you may
wish to take this option, please contact Peopleline for further details.
Why does it say may? If you had the 25% avc but left early and deferred your pension and at 60 when you wanted to take your pension you had less than the 25% because the pension had increased at a faster rate than the avc would you be allowed to top up?
BTW I have asked this question to accenture and as yet have not had a call back, but from past experience there answers are not always accurate.
Thanks in advance for any replies.

Gaza

madeinireland_2

Right I'm not sure what your question really is to be honest but happy to try and help.

First I think you need to take your AVC at the same time as your pension. If your AVC is worth more than 25% of your total pension value and you are a member of the B scheme then you can convert your normal lump sum (or at least the portion earned up till 2009) into more pension in order to increase the amount of AVC you can take tax free.

Let me know if you have any specific questions but I think the statement your are quoting simply means you can take 25% out of your pension tax free and the remainder would be taxed. I don't think there is anything special being said - unless I am not understanding your point.

66gaza

Hi madeinireland, thanks for replying and sorry for my question being a bit vague.
My questions really are why is it you may be allowed? does it depend on how well the pension scheme is doing at the time? I understand that I would be financing my own lump sum via avc's . Currently my commutation rate is 19.5:1 so if I did this would every £19500 of lump sum translate into £1k of annual pension? My other question is if I took an early leaver scheme say at 55 and at that time I had 25% of my pension in avc's and deferred my pension at the age of 60 when I want to take my pension the pension had grown more than the avc's so that the avc's were now less than 25% would I be allowed to top up the avc's to make them equal to 25% of the pension? I ask this question because if I am not allowed to top up if necessary then I would probably transfer avc's into a sipp and access them from 55.

Gaza

molerat

The term "will" implies a contractual obligation whereas "may" would mean in accordance scheme and legal regulations applicable at the time.

robin61

This is my understanding of the rules.

If after taking the maximum tax free lump sum you have a residual amount in your AVC.
1) If it is under £5K they buy extra pension in the BT Scheme for you
2) If it is more than £5K you can buy an annuity on the open market. Or providing you tell Accenture you want to do it in advance you can have an Uncrystalised funds pension lump sum (UFPLS) but you will pay tax on this at your marginal rate.
3) As Madeinireland said you can buy extra pension with some of your standard lump sum and then use the AVC to kind of back-fill so you still get the maximum lump sum without reducing the pension.
4) You can transfer the whole AVC to a SIPP but you are not allo0wed to transfer a residual AVC amount to a SIPP. (I have a letter from the trustees telling me this)

In terms of how much pension you can buy per thousand with your standard lump sum. You need to ask Accenture for a quotation. It depends on your age and whether you want joint lives or not. They can't tell you now what it will be in the future so you have to ask for a quotation when you want to do it.

Interesting question about whether you can contribute towards the AVC once you leave BT and defer the pension. I suspect not but I am sure Accenture would be able to tell you. The other option is to make sure you have enough in the AVC before you leave to still be able to get the max 25% on a larger pension. That is what I will probably do.

If you want you can shoot me a PM and I will give you my work number if you want any help.

66gaza

Thanks again for the replies. It was always my understanding that with a section B pension a lumpsum was compulsary either 3x annual pension (minimum) or 25% of pension pot (max) but I know that you can also put a lump sum in somewhere between the 2 on the pension planner. As i will have approx 25% of my pot in avc's sometime next year and just recently finding out that I can self finance my own lump sum via avc's has kind of thrown my plans. Dont like the idea of waiting till 60 to find out what this option would be incase taking avc's via a sipp at 55 would have been better as by then it will be too late. Robin61 I'm guessing by your name you are 2 years older than me. Are you considering this option?. I had a plan but cant decide if this is better or not.
BTW I wasnt born in 66

Gaza

madeinireland_2

66gaza wrote: »

Thanks again for the replies. It was always my understanding that with a section B pension a lumpsum was compulsary either 3x annual pension (minimum) or 25% of pension pot (max) but I know that you can also put a lump sum in somewhere between the 2 on the pension planner. As i will have approx 25% of my pot in avc's sometime next year and just recently finding out that I can self finance my own lump sum via avc's has kind of thrown my plans. Dont like the idea of waiting till 60 to find out what this option would be incase taking avc's via a sipp at 55 would have been better as by then it will be too late. Robin61 I'm guessing by your name you are 2 years older than me. Are you considering this option?. I had a plan but cant decide if this is better or not.
BTW I wasnt born in 66

Gaza

Hi - a few comments to hopefully help.

1. I don't think you can take you AVC and pension at different times. I believe you need to take them at the same time. Happy to be corrected if anyone things I am wrong - so your question regarding the pension growing so that it's it exceeds the 25% again will not occur.

2. You can convert lump sum into more pension it's not mandatory that you take it as a lump sum - check out the rules of the pension and be aware that BT does not present all options open to you on the planner - probably the ones that they would prefer you take as they would rather you took more lump sum so as to reduce their future liability.

3. As Robin says the conversion depends on your age and other factors. They are reluctant to give you an idea on that but if you push them hard enough they will. For me at 60 they gave me the view that my lump sum would convert as (lump sum * 41) / 1000 but a few years ago that 41 was 49 so it changes.

Hope this helps...

madeinireland_2

Also just be aware if there is an option to take the AVC before your main pension then the 25% would only relate to the total value of your AVC not your whole pension as they would be treated separately.

You would be giving up the option of getting a large lump sum without reducing the value of your main pension - hence the need to take them together even if it's not a rule.

It's for this reason that I have separate personal SIPP that I will be using (along with the payoff of course) to fund the period between retirement and taking my main pension

robin61

Gaza,
I am 56 in January. Started work for BT well PO Telecoms to be precise aged 17. Actually my mother dug my original contract from 1978 up recently. Interesting to look back at.
Here is my strategy.
I put enough into my AVC per month to make sure I don' t pay any 40% tax. My ideal retirement date will be 1 April 2018 if i can get an early retirement deal. By then I will have enough in the AVC to get the maximum lump sum with a combination of the standard lump sum and the AVC without having to sacrifice any pension to do it. In fact I will most likely defer to age 60 and there is still enough in the AVC to do this and still get the max lump sum even with a bigger pension pot.
I am likely to have a small residual AVC fund and if that's under £5k BT will buy extra pension with it. If it is a bit more I will probably buy a bit of extra pension with my standard lump sum and back- fill with the AVC residual so that I still get the Max lump sum.
Does that make sense ?
Like Madeinireland I am also gradually transferring some savings into both my SIPP and my wife, s SIPP and getting 20% tax relief ( only 20% as the 40% is going to the AVC). This is going to provide the means to help front run my BT pension and help me to retire early along with the redundancy money. It will also provide s bit of extra retirement income when I take the BT pension and it will also be IHT friendly.
Just remember if you do transfer your whole AVC to a SiPP only 25% is then tax free and the rest is taxed at your marginal rate. Fair enough you have a personal allowance of £11k per annum but just be careful you don't t end up paying tax on something which you could have got out tax free when you take the BT pension. However it can provide a means of deferring if you don't t have other savings to live on.

robin61

madeinireland wrote: »

Hi - a few comments to hopefully help.

1. I don't think you can take you AVC and pension at different times. I believe you need to take them at the same time. Happy to be corrected if anyone things I am wrong - so your question regarding the pension growing so that it's it exceeds the 25% again will not occur.
.

I think you can transfer the entire AVC to another pension scheme like a SIPP. As long as it's the whole lot. You could then defer the pension and use the SIPP to live off. Might end up paying tax though if you take too much out per year. But yes apart from doing it like that you have to take the AVC and pension at the same time.

66gaza

madeinireland wrote: »

Hi - a few comments to hopefully help.

1. I don't think you can take you AVC and pension at different times. I believe you need to take them at the same time. Happy to be corrected if anyone things I am wrong - so your question regarding the pension growing so that it's it exceeds the 25% again will not occur.

I am absolutely certain that you can transfer it to another pension provider i.e hargreaves lansdowne SIPP. , if you do it whilst still working I think it stops your ability to make anymore avc's.

2. You can convert lump sum into more pension it's not mandatory that you take it as a lump sum - check out the rules of the pension and be aware that BT does not present all options open to you on the planner - probably the ones that they would prefer you take as they would rather you took more lump sum so as to reduce their future liability.

I was not aware that you could choose to not take any lump sum as a scheme B, I thought that option was only available to scheme C pensioners. I will ask accenture this question. This would be my preferred option if true.

3. As Robin says the conversion depends on your age and other factors. They are reluctant to give you an idea on that but if you push them hard enough they will. For me at 60 they gave me the view that my lump sum would convert as (lump sum * 41) / 1000 but a few years ago that 41 was 49 so it changes.

Hope this helps...

Thanks for the replies

Gaza