PCLS - Should you always take it?

Parking_Trouble

So 6 months away from NRD my main pension scheme have sent a pension statement. asking me to choose my retirement option.

I have been paying a lot into salary sacrifice AVCs recently and assumed I could just take those back out tax free and not reduce my pension.

That doesn't appear to be an option.

Option 1 is
Take full pension, no reduction, plus 25% of AVCs tax free and the other 75% taxed at marginal rate. Far too much tax!
There are different sub-options regarding AVCs to convert to pension, transfer out or buy an annuity.

Option 2 is
Take 25% tax free lump sum of whole pension, made up of the AVCs (48% of the 25%) and the other 52% results in reduction in pension payment at rate of 17-1

The sub options here involve involve a bigger loss (£4k less) in pension in payment and taxing 75% of AVCs at marginal rate. They look like bad options. More tax, less pension.

There is no option to take 100% of the AVCs tax free and leave pension payment untouched.

This is not what I was expecting or led to believe.

Option 2 is not the end of the world and looks best but does that sound right?

It mentions that when I reach GMP age at 65 part of the scheme pension will be replaced by GMP. I assume that does not affect the net figure?

AlanP_2

What does the Scheme Rules booklet say about the AVCs and how they can be used at retirement?

I am in the LGPS and you can take the AVC tax free up to an overall limit of 25% of ((16 * Annual Pension) + AVC / Lump Sum) but not all schemes work this way.

kidmugsy

Parking_Trouble wrote: »

It mentions that when I reach GMP age at 65 part of the scheme pension will be replaced by GMP. I assume that does not affect the net figure?

Given that your other assumption turns out to be wrong, I'd be disinclined to make that new assumption. Get it in writing.

17:1 doesn't sound to be the end of the world given that it's 40% tax you'll be avoiding.

Parking_Trouble wrote: »

There are different sub-options regarding AVCs to convert to pension, transfer out or buy an annuity.

Would you avoid 40% tax if (i) you transferred the AVCs to a personal pension and then cashed in under your own control, and (ii) drew maximum DB pension from this principal scheme, and (iii) took the CETV for your lesser pension?

Can you tell us the effect of these potential manoeuvres on your widow's pension from your principal scheme ?

ukdw

If you are only £2k to £3k into HRT then this part of the budget may be relevant. Looks like it is going up by £5k by 2020 which would hopefully cover your excess at least for a few years.

"3.5 Personal allowance and higher rate threshold – The government is committed to raising the PA to £12,500 and the HRT to £50,000 by 2020 "

https://www.gov.uk/government/publications/autumn-budget-2017-documents

Parking_Trouble

AlanP wrote: »

What does the Scheme Rules booklet say about the AVCs and how they can be used at retirement?

I am in the LGPS and you can take the AVC tax free up to an overall limit of 25% of ((16 * Annual Pension) + AVC / Lump Sum) but not all schemes work this way.

I have an earlier statement from 2014 that does suggest this is possible and we used to have a modeller that showed exactly how it would work by taking cash from AVCs first, then commuting pension into cash.

Since WTW took over management it all seems to have gone to pot. Modellers and quotes seem focused on DC scheme.

It seems very wrong to me if it is available and WTW have not offered it to me. I am supposed to use these forms to make a choice.

I will need to read the scheme rules in more detail.

Parking_Trouble

kidmugsy wrote: »

Given that your other assumption turns out to be wrong, I'd be disinclined to make that new assumption. Get it in writing.

17:1 doesn't sound to be the end of the world given that it's 40% tax you'll be avoiding.


Would you avoid 40% tax if (i) you transferred the AVCs to a personal pension and then cashed in under your own control, and (ii) drew maximum DB pension from this principal scheme, and (iii) took the CETV for your lesser pension?

Can you tell us the effect of these potential manoeuvres on your widow's pension from your principal scheme ?

Good advice to remove assumptions.
17-1 is probably OK. After 75, if I make it, my spending should drop so better to take it now.

I would have to look into (i)

My plans were to do (ii) and (iii) but expected to get the AVCs free of tax.
I really think WTW have misinformed me of the options to take AVCs in cash as a lower then 25% portion.

I always thought it was "up to 2.5%" based on pre-WTW modeller and statements.

Sterlingtimes

I recently took the 25% tax-free from my the AVCs linked to my DB pension, otherwise, I did not take the 25% tax-free portion.

My logic was that the DB pension could be more valuable to me than to other members. I am 61 and my wife is 50. Surely, members with younger spouses potentially get a much better deal from the pension. If my wife had been 72 (eleven years older than me) then the pension might be far less favourable.

kidmugsy

Sterlingtimes wrote: »

I recently took the 25% tax-free from my the AVCs linked to my DB pension, otherwise, I did not take the 25% tax-free portion.

My logic was that the DB pension could be more valuable to me than to other members. I am 61 and my wife is 50. Surely, members with younger spouses potentially get a much better deal from the pension. If my wife had been 72 (eleven years older than me) then the pension might be far less favourable.

On my principal DB scheme my taking maximum pension would not have increased my widow's pension. Nor did my taking maximum lump sum decrease it. If I'd had a much younger wife it would probably have been sensible for me to take the max TFLS and invest it for her old age.

Parking_Trouble

My spouse will get 50% pension regardless of option chosen. She is 5 years younger then me.

If I die within 5 years of retiring she'll get a lump sum equal to the unpaid pension installments for this period.

kidmugsy

Parking_Trouble wrote: »

My spouse will get 50% pension regardless of option chosen. She is 5 years younger then me.

Is she well pensioned? If not a good use of a lump sum might be to increase her provision.