Nhs avc

LinBWales

I am still working but planning on retiring on my NHS pension in the next couple of years. But am doing some home improvements and need a new boiler this year. I am over 55. I also have an NHS AVC with Standard Life which I have not paid into for many years worth about £8,500. I understand that I can take 25% of this tax free this year and leave the rest where it is with a view to taking another 25% tax free next year. My question is whether anything I do relating to the NHS AVC (which is with Standard Life) will affect my NHS Pension when I claim it in the next couple of years, specifically if it will affect the tax free lump sum? Any advice welcome as I can't really find anything on line suggesting it would, but it has struck me that it is a possibility?

LinBWales

Supplementary question to the above as this is all a bit new to me! When I spoke briefly to Standard Life about this, the woman on the phone mentioned something about taking 25% tax free now, and then the rest could be turned into a different pension that I could take later. Having read the information on the forum, I think what I would rather do is actually keep it in a crystallised pension pot. But if I took 25% now, would I have the option to move the remainder into an investment I already have £3,000 in, which is Fundsmith Equity. I am unclear of the difference between all the various funds? Would Fundsmith be considered a suitable alternative for my AVC pot?

AlanP_2

First point you can only take ONE 25% Tax Free Lump Sum not one this year and one next as you say in your first post.

I think SL are saying that once you take your 25% the fund will be crystallised so no additional 25% tax free can be taken. Anything taken in future would be subject to income tax at your marginal rate.

Ignore Fundsmith for a minute. If you want to leave your fund inside a pension wrapper, which I think you do, then it can only be invested in funds offered by that provider.

I doubt if the SL NHS AVC offers Fundsmith as AVCs typically have a limited fund range. There should be a list available somewhere.

Why do you want to move it to a different fund than it is in now?

NOTE - If you take anything above the 25% tax free amount you will be limited by Money Purchase Annual Allowance (MPAA) rules on what you can subsequently pay in to an AVC / DC pension. I think it is £4k per annum.

Can the AVC be taken entirely tax free as part of your main NHS scheme when you "retire"? If you start on it early you would lose that benefit.

LinBWales

Thanks AlanP. I do need to find out more about the Money Purchase Annual Allowance rules as this is the first time I am hearing about them. I don't think it affects my NHS pension which is DB. But if I get another part time job out side the NHS when I start taking my NHS pension, it could impact. I don't want to give up work altogether, just go part time doing something completely different in my 60s :-)

xylophone

You say that you need money now for home improvements.

I wonder whether it would be possible to take the AVC now as a "small pot" or whether this is not permitted under the rules that apply to your arrangement?

http://adviser.royallondon.com/news/pensions/2017/april/what-triggers-the-mpaa/

https://www.pensionsadvisoryservice.org.uk/about-pensions/retirement-choices/the-right-choice-for-me/taking-a-small-pension-as-a-cash-lump-sum

You would get 25% tax free with the balance taxed as income in the year that you take it.

If possible and doing this would not push you into a higher tax band, might it be worth considering?

highet

are you certain you can crystallse your NHS AVC with Standard Life separately from taking your NHS pension?? - as far as i was aware benefits from an NHS linked AVC with Standard Life could only be taken at the same time as your NHS pension - only a free standing AVC (which didnt benefit from the reduced charges Standard Life offered on the linked AVC) could be taken separately !!

LinBWales

The woman at Standard Life that I spoke to today didn't say there would be any problem! She said the two pensions were entirely separate, but now you have worried me!

xylophone

Did you ask whether you could access the AVC now as a "small pot" under £10,000 which would not trigger the MPAA?

You should ask for an answer in writing.

highet

Quote from the Standard Life NHS Group AVC plan booklet below

''When can I take
the proceeds?
You will normally take the
proceeds of your Group AVC Plan
when you take your pension from
your NHS Pension Scheme.
You may be able to take your
benefits earlier if you are at
least 55 (or 50 for members who
joined a NHS Pension Scheme
before 6 April 2006) but in some
circumstances, you may need
your employer’s consent. You
may also take them earlier if you
have retired due to ill health.''