BT avc in excess of 25%

robin61

madeinireland wrote: »

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.

Yes that's what I'm doing as well as maxing out on the AVC but if you can only manage to do one or the other it makes sense to do the AVC, get tax and NI relief and then you can transfer the whole lot to a SIPP and use it to retire early if you don't get an early leaver scheme.
Of course you then miss out on the larger PCLS. So ideally do both if you can.

Kingb4

Thanks all - I will follow your example Robin. I will start AVCs now, via the BT linked scheme. Then when the time comes I can transfer the AVC element to a SIPP and start drawing down. Hopefully can then leave the BT pension untouched till 60.

madeinireland_2

Just hold on a moment - if you transfer the AVC to a SIPP you will lose the very valuable opportunity to withdraw a significant sum (if not all) of the AVC tax free at BT pension time as it would have been linked to your main BT pension.

It's up to you of course but not sure I understand the logic of that approach. You may be able to access the fund earlier but at the expense of many thousands of pounds.

By way of illustration...Assume BT pension of £20k and AVC of £70k

Option 1...do as you plan.

BT pension unchanged and AVC transferred to SIPP.

Tax free from SIPP = £17.5k Taxable amount remaining in SIPP = £52.5k

Assuming you are taxed at 20% on the remaining SIPP that will cost you about £10k.


Option 2...don't transfer and take AVC as tax free sum when you take pension

Max tax free sum = ((20x20)+60+70) / 4 = £132.5k

So you can withdraw your lump sum of £60k and the £70k of AVC completely tax free with your pension remaining unchanged at £20k

What i am suggesting is that you continue to fill up the AVC to the point where you are about to exceed the max tax free cash and then give up the NI savings to save your money from then on directly in a SIPP to give you some funds to access from a separate source from 55 onwards so that you can continue to let the BT pension grow before you take it.

Hope this makes sense...

robin61

[QUOTE=madeinireland;72763068

What i am suggesting is that you continue to fill up the AVC to the point where you are about to exceed the max tax free cash and then give up the NI savings to save your money from then on directly in a SIPP to give you some funds to access from a separate source from 55 onwards so that you can continue to let the BT pension grow before you take it.

Hope this makes sense...[/QUOTE]

I agree that's the ideal thing to do and it's what I have done myself.
But for somebody who can't manage to put that much away and maybe has limited other funds available transfering the AVC to a SIPP might be a decent option.
So for example if your AVC is worth say £30k you could retire at 58 and take 15k out in year one and another £15k out in year 2. That would all be tax free if you had no other income. You've then achieved the objective of getting all of your money out tax free and have avoided the actuarial reduction on the pre 2009 element of your BT pension. You've also had both tax and NI relief whereas if you had just invested in a SIPP directly all you have had is tax relief.

It's all down to individual circumstances really but definitely go for the AVC now and then you have options later.

Kingb4

Thanks again MadeinIreland and Robin.
MiI - you are correct, in an ideal world, I wouldnt move it so i can release it all in a lump tax-free. Reading online, i understand its a rarity to have a scheme that allows this.

However, as Robin says, I will need the money to live on, between retiring and taking my Bt pension. So will take the first lump from the SIPP tax-free. Then each year, take out my living costs - paying the prevailing income tax.....which will probably cost a couple £k per year.

I cant see that I would ever save enough to max out my tax free AVC position......will just about scrape enough together to see me through from 55 to 60....

robin61

Kingb4 wrote: »

Thanks again MadeinIreland and Robin.
MiI - you are correct, in an ideal world, I wouldnt move it so i can release it all in a lump tax-free. Reading online, i understand its a rarity to have a scheme that allows this.

However, as Robin says, I will need the money to live on, between retiring and taking my Bt pension. So will take the first lump from the SIPP tax-free. Then each year, take out my living costs - paying the prevailing income tax.....which will probably cost a couple £k per year.

I cant see that I would ever save enough to max out my tax free AVC position......will just about scrape enough together to see me through from 55 to 60....

Just keep your eye on any changes coming up from BT. See my post #17 on this thread. It won't be good news if they close the BT Pension Scheme but it might provide you with another option. In the meantime paying into the AVC is a good move.