Cashing in FSAVC at 55

uclown2002

I have a frozen/dormant FSAVC with a transfer value of about 26K, which appears that I can cash in on my 55th birthday in a few weeks time.

I am still employed and contributing to a civil service final salary(DB?) scheme and am not looking to retire for another 5 years.

Given my employment can I still cash the AVC in or do I need to retire first? I assume the former but would like confirmation.

I understand only 25% will be tax free and the remainder will be taxed at my usual 40% rate. If I provide the pension provider with a current tax code will the appropriate tax be deducted before payment or do they tax at basic rate tax?

dunstonh

I have a frozen FSAVC with a transfer value of about 26K, which appears that I can cash in on my 55th birthday in a few weeks time.

It wont be frozen and it wont be an FSAVC

FSAVCs were abolished in 2006 and reclassified as personal pensions. And neither AVCs or PPPs can be frozen (that has a specific meaning)

Just because you can access the pension at 55 does not mean you should.

Given my employment can I still cash the AVC in or do I need to retire first? I assume the former but would like confirmation.

You can. Although it has the consequence of lowering your annual allowance to just £4000 a year. That can be catastrophic for some people in their last years of working life and/or those in decent schemes in a half decent salary.

I understand only 25% will be tax free and the remainder will be taxed at my usual 40% rate.

Yes. Indicating it would likely be totally daft thing to do. You should be adding to your pensions. Not taking it out.

If I provide the pension provider with a current tax code will the appropriate tax be deducted before payment or do they tax at basic rate tax?

If you are really considering this madness, then you will be taxed on month 1 basis. The pension company doenst use your PAYE code. You would also need to tell your employer you have done this and you may have to opt out of the workplace pension losing that valuable pension too.

What madness is behind your decision to do this?

Brynsam

dunstonh wrote: »

You can. Although it has the consequence of lowering your annual allowance to just £4000 a year. That can be catastrophic for some people in their last years of working life and/or those in decent schemes in a half decent salary.

Don't forget it is the Money Purchase Annual Allowance - if someone is in a final salary scheme, as here, they can go on building up defined benefits in the main scheme even if they have triggered the MPAA.

uclown2002

Thanks guys.
I'm a bit confused about this annual allowance you refer to?
26K lump sum with 75% taxed is still best part of 19K, which I could use to pay off some cards and reduce mortgage so I can retire at 60. I'm not looking to add to my main pension pot as I'm happy with how that is looking when I retire..

Paul_Herring

uclown2002 wrote: »

I'm a bit confused about this annual allowance you refer to?

The MPAA: https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/money-purchase-annual-allowance-mpaa/

Briefly, without going into corner-cases or numerous exceptions...

Normally you can contribute up to £40,000 (gross salary permitting) per tax year to a pension.

If you take any more than the TFLS out of any of your defined contribution pensions such that the withdrawal is subject to taxation (regardless of whether it is actually taxed or not) then that £40,000 limit is reduced to £4,000. Permanently.

Defined benefit schemes leave the limit unaffected.

uclown2002

Paul_Herring wrote: »

The MPAA: https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/money-purchase-annual-allowance-mpaa/

Briefly, without going into corner-cases or numerous exceptions...

Normally you can contribute up to £40,000 (gross salary permitting) per tax year to a pension.

If you take any more than the TFLS out of any of your defined contribution pensions such that the withdrawal is subject to taxation (regardless of whether it is actually taxed or not) then that £40,000 limit is reduced to £4,000. Permanently.

Defined benefit schemes leave the limit unaffected.

So I can safely ignore this as I'm contributing to what appears to be a DB scheme? Regardless, I expect I'm contributing 4% or so of my 50K wages to a final salary scheme. I'm being forced onto a difference pension in 2019 which is not based on final salary.

If I need to opt out of my workplace pension as suggested upthread then that is obviously a non-starter. I couldn't even if I wanted to.

Brynsam

uclown2002 wrote: »

So I can safely ignore this as I'm contributing to what appears to be a DB scheme? Regardless, I expect I'm contributing 4% or so of my 50K wages to a final salary scheme. I'm being forced onto a difference pension in 2019 which is not based on final salary.

If I need to opt out of my workplace pension as suggested upthread then that is obviously a non-starter. I couldn't even if I wanted to.

If you are going to be joining a DC (defined contribution, aka money purchase) scheme in 2019 then yes, you would be affected if you'd triggered the MPAA.

You can always opt out of a workplace pension scheme - although it is frequently a daft thing to do! Employers lost the right to make scheme membership compulsory back in 1988.

dunstonh

So I can safely ignore this as I'm contributing to what appears to be a DB scheme?

A lot of people in their 50s ramp up their contributions into the pension knowing that it is the last chance saloon. Especially when they are higher rate taxpayers. Remember with higher rate tax, you are getting 40% of it paid for by the Govt.

I'm being forced onto a difference pension in 2019 which is not based on final salary.

That will mean only £4000 a year can go into a pension (including employer contribution).

Perhaps you should let us know why you want the money. I expect most contributors on this board will think you are nuts to draw out and lose so much in tax (although as fellow taxpayers, they may thank you for being so generous to the treasury).

So, what is that is so desperate that you are willing to give up at £8k or more in tax to access £18k? There may be better ways to raise capital.

uclown2002

dunstonh wrote: »

A lot of people in their 50s ramp up their contributions into the pension knowing that it is the last chance saloon. Especially when they are higher rate taxpayers. Remember with higher rate tax, you are getting 40% of it paid for by the Govt.



That will mean only £4000 a year can go into a pension (including employer contribution).

Perhaps you should let us know why you want the money. I expect most contributors on this board will think you are nuts to draw out and lose so much in tax (although as fellow taxpayers, they may thank you for being so generous to the treasury).

So, what is that is so desperate that you are willing to give up at £8k or more in tax to access £18k? There may be better ways to raise capital.

I've not paid anything into to this, what was previously known as a FSAVC for many many years, so had almost forgotten about it. I assumed I was only able to draw a small annuity(?) of I think 400-500 per year from it once I retire, so was pleasantly surprised at the opportunity to get a lump sum when I turn 55, despite tax implications.

Obviously I have not given this a great deal of thought, but I thought I could reduce my mortgage to an extent where I can retire perhaps a year or 2 earlier than I would otherwise have to. Some of it would pay some outstanding balances on credit cards.

I'm currently on a civil service classic final salary (1/80th) pension until April 2019 then I move onto their Alpha - a Career Average pension scheme. I'll have 33 years in the classic next year so that should provide a lump sum of ~£64K and an annual pension of £21K when I retire sometime after I'm 60. I can increase the lump sum and sacrifice some of the annual pension should I wish. The last statement suggested a pension valuation of £450K so adding 26K from 'FSAVC' (if it can be done) doesn't make much difference.
If I do go at 60 I'll have 4.5 years of contributions into the alpha scheme. This has a normal pension age that is the same as the state pension age so don't think I can get my hands on to it for some time. As things stand my mortgage will probably run for another 9 years so thought this 26K (~19K after tax) offered an opportunity to pay some off.

I still like idea of cashing in now.
What are my other options?

mgdavid

what interest rate is your mortgage ?

uclown2002

mgdavid wrote: »

what interest rate is your mortgage ?

2% tied until 31/12/18

£100K outstanding balance as of today.

Have 12K on 0% interest cards which I rotate as and when. But paying £200 pm minimum payment which I was planning on overpaying mortgage if I paid these off.

£270 pm car loan for another 6 months at ~3-4% if I recall which I could pay off early too.

Have 3K in premium bonds.