Trf a £10k Pru AVC With Profits to SIPP?

[Deleted User]

Afternoon all

I have just turned 54.  I am a deferred member of the LandRover DB pension scheme with a pot of £295k which I have no plans to touch at 55 years/forseeable future.  At some point during my 12 years at LR/Rover Group I must have started a small AVC and this is with the PRU in a with profits fund - valued today at £9.9k inc end bonus.

I also have a SIPP with II (all invested in Vanguard Life Strategy 60% Equity) which as of last Friday was £235k.  (I also have my £170k SS Isa with II:   I moved away from a Wealth Mgmt Company (following excellent advice from this  forum - the advice being for me to go and do better/more homework on fees, funds etc) to II.  My total with II is circa £450k and I certainly feel that the £20 a month platform fee inc SIPP & 2 free trades per month is excellent value. Vanguard has also outperformed the Wealth Mgmt Company's efforts over previous last 5 years.

So at last the question:......................having looked at The Pru AVC this morning and the annual AVC fees + fund fees ...........would it just be simpler/better to trf it to II?  I understand that as the value is under £25k that there will be no MVR and nor will I need a FA.  I would trf the pension as a non in-specie and just add it to the Vanguard LS 60% equity for time being).  I would still retain my LR DB pension intact.

Thanks Ellie

Dazed_and_C0nfused

I am a deferred member of the LandRover DB pension scheme with a pot of £295k which I have no plans to touch at 55 years/forseeable future

That is unlikely to be correct.

Do you have a DB pension or a pot?

Albermarle

As above, DB pension schemes mean you have the rights to a guaranteed annual income when you retire .

MX5huggy

Is the AVC linked to your DB in a way that means you can take the whole of the AVC as tax free cash? 

Secret2ndAccount

I am going to assume you are right in saying this is a DB pension. In that case, what MX5huggy is saying is important.
When you access your SIPP, you can take 25% of your pot tax free. With a DB pension, there are rules, specific to the pension, about the Tax Free Lump Sum. It is likely to be less than 25% of the value of that pension, so you are missing out on the opportunity to dodge tax. Maybe they have a further rule that lets you give up annual pension in exchange for a bigger TFLS. However, the rate at which you give up annual pension is often poor value, so not wise to do it. The best plan at that point is to use the AVC part of the pension to pay you cash up to the full 25%, leaving as much as possible in the DB fund to pay you an annual pension for life.
So, in summary, if the AVC and DB are linked, leave the 10k in, and you can probably get it all out tax free.

[Deleted User]

Thanks all.

Sorry I was not clear re my LandRover DB pension - it is a DB scheme and I have calculated the £285k based on multiplying the current guaranteed annual pension by 20 (JLT/Mercer confirmed tat was correct ............well on the 4th time of asking but that is another story............the worst pension admin compaby ever).

I will check but it appears the Pru AVC is still linked to the LRover DB scheme as the expression of wish form I completed for LRDB scheme auto applies to the Pru AVC.  Also when I asked the Pru about transferring out my AVC, they referred my question to the LR Pension Administrators (JLT/Mercer).  The latter confirmed that I could trf it out to my SIPP and that I would not be subject to a MVR and I would not have to consult an FA.

MX5huggy wrote:  Is the (PRU) AVC linked to your DB in a way that means you can take the whole of the AVC as tax free cash? 

>Have I understood you correctly please:  Are you suggesting that as long as the LRDB & Pru AVC pensions are linked (Is there a specific description I can quote?) that  when I hit 55, I could withdraw all of AVC pot tax free? 

>So (just using todays values to keep it simple for me, lol) my combined LRDB and PRU AVC = £295k, At the point at which I want to take a tax free lump sum (post 55) I would tell LRDB & Pru that I will take the £10k tax free from the AVC and then calculate what is the max residue tax free sum I could take from the LR DB?

Thanks again Ells

Dazed_and_C0nfused

I would not be subject to a MVR and I would not have to consult an FA

The informed opinion in here is that there is never any need to consult a FA.  Consulting an IFA can be sensible/necessary sometimes but not a FA.

>So (just using todays values to keep it simple for me, lol) my combined LRDB and PRU AVC = £295k, At the point at which I want to take a tax free lump sum (post 55) I would tell LRDB & Pru that I will take the £10k tax free from the AVC and then calculate what is the max residue tax free sum I could take from the LR DB?

DB pensions don't have a TFLS in the same way a DC pension does.  There may well be a PCLS (which is not taxable) but it is set by the scheme rules, so unlikely to be 25% of any particular value.  

Difficult to find any details of this scheme online so these are 100% made up figures as an example,

You might have a default option of,

Annual pension of £8,000 and no PCLS.  

Or a pension of £5,000 and PCLS £80,000 

Or a pension anywhere between £5,000 and £8,000 and corresponding PCLS

You need to check the scheme rules to get a better understanding of this.

MX5huggy

Yes you need to speak to LRDB and/or the Pru to see if they are linked as described. Pru are currently a nightmare on the phone expect a 90 minute wait (have a book handy). Here is the line from the Local Government Pension Scheme Pru AVC literature. 

Take your whole AVC pot as a 100% tax-free lump sum
You can take your whole AVC pot as a 100% tax-free lump sum. This is only possible if you take your main LGPS benefits at the same time. The total tax-free lump sum you take cannot be more than 25% of the total value of the LGPS benefits you take at that time. This includes any LGPS lump sum and your AVC pot and is subject to overall HM Revenue & Customs limits. Your LGPS scheme administrator will help you work out what you can take at the time.

In LGPS the value of scheme is calculated as 20 times annual pension, and you can take lump sum from the main benefit cost you £1 for every £12 you opt for. 

Albermarle

Sorry I was not clear re my LandRover DB pension - it is a DB scheme and I have calculated the £285k based on multiplying the current guaranteed annual pension by 20 (JLT/Mercer confirmed tat was correct ............well on the 4th time of asking but that is another story............the worst pension admin compaby ever).

The 20X multiple is an arbitrary figure that is used to calculate the % contribution that the pension would give to your LTA ( LIfetime Allowance ) . This is most likely not relevant to you as the current Lifetime Allowance  is set at over One Million Pounds. There is no actual pot as such anyway.

It is widely recognised that this 20X significantly undervalues the real value of a DB pension. A more realistic figure would be something around 30X , although that would depend on the terms and conditions of the specific DB scheme ( how is it linked to inflation for example). In any case the exact figure is not really that important.

By the way regarding JLT/Mercer, yes they are useless/slow.

Secret2ndAccount

Hypotheticals based on the assumption the accounts are linked, and some guesstimated values:
At the time you retire, or decide to take your LR pension:
The notional value of your pension 'pot' is 300k. HMRC would let you take 25% of that - 75k - tax free.
However, the pension scheme offers you a lump sum of 60k. You go back to them and ask them to throw in the AVC's with the lump sum, boosting the lump sum to, say 72k.
You get the whole AVC out tax free, and you don't have to commute any annual pension into lump sum. You have used up virtually all of the permitted tax free amount.
As stated above, you can only do this when you start to draw the pension.
For a lot of people in DB schemes, this is the best/only reason to pay AVC's

[Deleted User]

Thanks everyone.

So theupshot is leave the £10k in the AVC whilst I research the following:

I am emailing Mercer re LRDB & PRu re AVC now to check all the rules and to understand what lump sum they offer currently (alhough I don't expect to be accessing any of my pensions (DB/AVC, Current Employer DC & SIPP for at least 4 years). 

To my shock (nice) I have just realised that my current combined pensions pot is £728k and if I were to continue with my current level of hefty pension contributions (salary sacrifice:  8% £270 me, 12% £400 employer  plus salary sacrifice AVCs: £1.6k & c£7k annual bonus plus End of year top up, to use last of tax relief, to SIPP ) I will hit 93% of the LTA in May 2025 (based on 3% annual growth to SIPP & DC and only 1.9% to LRDB).  I am going to create a new post on this because I think I will need to reduce/redirect my pension contributions elsewhere and I assume £20k to SS ISA is first stop, then what?

Anyway, as I say, I do feel fortunate to be in this position but (one vintage Chanel bag aside) I have been very sensible (PS The Chanel bag has outperformed all my pensions and could be sold tomorrow for a 4fold increase on what I paid 2 yrs ago)

Thanks again!!!