BT avc in excess of 25%

66gaza

robin61 wrote: »

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.

Hi Robin, as I thought a couple of years before me. It was the GPO when I started too.
I already have a residual avc amount. Your plan sounds good to me. I am aware of the tax and withdrawal from a SIPP, I dont want to be working after 55 and reckon that 80k would be about max avc to transfer to a SIPP and get it all out tax free. Do you know anything about not taking any lump sum the way madeinireland described it avc's dont come into the equation.
I hope its true.

Gaza

madeinireland_2

66gaza wrote: »

Hi Robin, as I thought a couple of years before me. It was the GPO when I started too.
I already have a residual avc amount. Your plan sounds good to me. I am aware of the tax and withdrawal from a SIPP, I dont want to be working after 55 and reckon that 80k would be about max avc to transfer to a SIPP and get it all out tax free. Do you know anything about not taking any lump sum the way madeinireland described it avc's dont come into the equation.
I hope its true.

Gaza

It seems that Robin is saying you can remove the AVC but only the whole sum so only taking your £80k won't work (assuming you have more). I think taking the whole AVC out is a bad move unless you have special circumstances as it will reduce your potential for getting a large sum tax free.

On the conversion of lump sum to more pension if you are in section B it's a definite that you can do this as it's written in the rules and I have confirmed this twice with the pension department - but it's not an option on the retirement planner - but I won't be using the retirement planner when I take my pension as by then I won't be a BT employee. You can only convert the part of your lump sum that relates to pension earned before 2009.

robin61

madeinireland wrote: »

It seems that Robin is saying you can remove the AVC but only the whole sum so only taking your £80k won't work (assuming you have more). I think taking the whole AVC out is a bad move unless you have special circumstances as it will reduce your potential for getting a large sum tax free.

On the conversion of lump sum to more pension if you are in section B it's a definite that you can do this as it's written in the rules and I have confirmed this twice with the pension department - but it's not an option on the retirement planner - but I won't be using the retirement planner when I take my pension as by then I won't be a BT employee. You can only convert the part of your lump sum that relates to pension earned before 2009.

Yes that's s right you can't t transfer only some of the AVC out. It is all or nothing.

So if you are predicting a large residual AVC when you take the pension you need to be happy with the options you will have to get at the money which if it is over £5k will be.
Annuity
UFPLS
Or as Madeinireland is saying buy some extra BT pension with the standard lump sum you have built up with your pre 2009 pension. Then use the AVC to help fund the max lump sum. In my opinion that is likely to be a better option than an Annuity as it is index linked and can be on joint lives. So will almost certainly be better value than you can get with an Annuity. But do get some quotations and compare if you go down this route.

If none of this appeals (a huge residual fund did not appeal to me otherwise I would have put more into the AVC) you may want to consider putting less into the AVC and start running a SIPP alongside it. The disadvantage being is that you can' t use salary sacrifice so will not save the NI but it could help you to fund deferring the BT pension.

Kingb4

All,
Apologies for jumping onto an existing thread. I work for Bt (Section C) and am trying to plan my pension to leave early (ideally in 14 yrs time at 54).
Am trying to work out if I can pay into AVCs, then at 54, take the money out to fund my living costs till my main pension kicks in (I don't want to take it before 60, due to the actuarial reductions).

Seems I cant take the AVC lump-sum till I take the pension...
Robin, am wondering if I can move the AVC pot to a SIPP and somehow get at the money that way.....

Any thoughts/advice welcome.

Cheers

Linton

Kingb4 wrote: »

All,
Apologies for jumping onto an existing thread. I work for Bt (Section C) and am trying to plan my pension to leave early (ideally in 14 yrs time at 54).
Am trying to work out if I can pay into AVCs, then at 54, take the money out to fund my living costs till my main pension kicks in (I don't want to take it before 60, due to the actuarial reductions).

Seems I cant take the AVC lump-sum till I take the pension...
Robin, am wondering if I can move the AVC pot to a SIPP and somehow get at the money that way.....

Any thoughts/advice welcome.

Cheers

You cant take a pension before 55 unless you satisfy one of a very short list of special circumstances.

robin61

Kingb4 wrote: »

All,
Apologies for jumping onto an existing thread. I work for Bt (Section C) and am trying to plan my pension to leave early (ideally in 14 yrs time at 54).
Am trying to work out if I can pay into AVCs, then at 54, take the money out to fund my living costs till my main pension kicks in (I don't want to take it before 60, due to the actuarial reductions).

Seems I cant take the AVC lump-sum till I take the pension...
Robin, am wondering if I can move the AVC pot to a SIPP and somehow get at the money that way.....

Any thoughts/advice welcome.

Cheers

Yes you have a option to transfer the AVC to a personal pension such as a SIPP. It needs to be the whole AVC and after that you can't carry on contribution to the AVC.

As Linton says you can't normally access a personal pension until you are 55. You will be liable to pay tax on any taxable income over your personal allowance. So you would need to be careful about how much you draw out in any one tax year.

Just to complicate matters as you probably know BT are talking to the Unions about changes to the BT Pension Scheme. There has been speculation in the press that this may mean closing the Defined Benefit Scheme. Let's hope not but if the worst happens I would have thought that as the AVC is linked to the DB scheme you probably won't be able to put more into the AVC.

However if they end up putting us all into the BTRSS (the DC scheme) you would end up being a deferred member of the DB scheme and also the owner of a DC pot. You could then avoid taking your DB too early and use the money in the DC scheme to fund your early retirement

It's all up in the air at the moment.

Kingb4

Thanks Linton and Robin - thats really helpful.
Robin, as you say, hopefully the DB scheme survives the review.
I will do some further digging on SIPP draw-downs - to fund from the years from 55 to 60.

robin61

Kingb4 wrote: »

Thanks Linton and Robin - thats really helpful.
Robin, as you say, hopefully the DB scheme survives the review.
I will do some further digging on SIPP draw-downs - to fund from the years from 55 to 60.

If the pension scheme survives then the AVC is a very good option even for that. Remember by paying into it monthly through Smart AVC you are saving on both the tax and National Insurance. If you wanted to for example retire at at 56 you could transfer the whole AVC to a SIPP or similar scheme which allows drawdown when you are ready to retire early. So that's a better bet than a stand alone SIPP because you only get the tax relief.

If I was you I'd go for the AVC now and keep your fingers crossed it lasts. If it doesn't and they put us in the BTRSS or similar anything you put in there still get tax and NI relief plus of course the employer contribution. So not a bad option that will help you avoid taking your DB scheme before you are 60.

madeinireland_2

The advantage of the standalone SIPP is that you can take it Independant to the BT pension meaning you can start to take it and live off it while your BT pension continues to grow.

That's the trade off for losing the NI savings.

madeinireland_2

But you ideally should fill up the BT linked AVC first of course before going for the standalone SIPP