AVC Wise Shared Scheme

Maria2512 · 4 February 2023 at 8:23AM

My LC has introduced the Shared AVC Wise scheme this month.

I have a couple of AVC seminars to attend this week. If there are any questions you would like me to ask that is is not covered on their website or your Pensions team, let me know and I will ask them.

Thanks

SarahB16 · 4 February 2023 at 2:20PM

That is very kind of you to ask us if we have any questions and I do have two separate questions please. I would be very grateful if you could ask the following question please.

I am already aware that there is a limit as to the maximum AVC pot that you can take as tax free cash (i.e. 25% of the total of the 20 x LGPS pension + the AVC pot).

My question is that if you were in the situation that your AVC pot did exceed the maximum amount that you could take as tax free cash then what is the typical amount of pension that you could get with the remaining cash which is in the AVC pot?

To help explain my question:

20 x £26k (pension) + AVC pot of £270k = £790k

Maximum amount that can be taken as tax free cash from the AVC pot is £197,500 (i.e. 25% of the £790k)

There remains in the AVC pot £72,500. (£270,000 less £197,500)

What amount of LGPS pension would, in this example, the £72,500 provide in terms of a pension?

I am sure they will say this depends on different factors, e.g. the age when taking this pension therefore could they run the scenario for you at different ages then. For example, at ages of 62, 64 and 66 please.

A slightly different question I have is whether there is a limit on how much pension you can purchase this way?

For example, if you had built up a sizeable AVC pot and after taking the maximum tax free cash there remained £200k however whereas £100k may purchase £4k of pension at the age of say 64 and you may think £200k would purchase £8k of pension at the age of 64 but if there a cap as to the maximum amount of additional pension that can be purchased with the remaining cash left in the AVC pot?

If there is a cap then that would be helpful to know what that cap is please.

For the avoidance of doubt my questions are focused on taking the maximum amount of tax free cash from the AVC pot first but if that limit is exceeded what is the typical amount of pension that the excess cash would be converted to and is there a limit on the amount of pension that can be purchased after the maximum tax free cash has first been taken?

Thank you again for kindly offering to ask questions on our behalf.

phynix_uk · 4 February 2023 at 2:34PM

Hi Sarah,

I doubt they'll be able to answer your questions at the seminar but I think I can.

Regarding the AVC excess:
First of all, your calculation is slightly out, you need to add the automatic TFC to the overall pot before you calculate the 25%. This won't make a big difference but it's more accurate.
In reference to the 'excess', you either need to draw this as a lump sum (25% TFC, 75% taxable income) or purchase an annuity. Unless you have Lifetime Allowance protection, the maximum TFC you can draw from all schemes is 25% of the current LTA (£1,073,100/4 = £268,275). As you correctly state, if you want to purchase an income with the 'excess' AVC then you're purchasing an annuity. Your AVC provider will clearly quote for this but you can also do this from the open market (All other annuity providers). The income will be based on a number of factors, age, health interest rates.

Regarding the second question, is there a cap? Simply put, no. BUT, you should be mindful of the LTA.

SarahB16 · 4 February 2023 at 2:46PM

phynix_uk said:

First of all, your calculation is slightly out, you need to add the automatic TFC to the overall pot before you calculate the 25%. This won't make a big difference but it's more accurate.

Using my figures in my question which I have copied below please can you correct my calculation as I had added the tax free cash:

(20 x £26k (pension)) + (AVC pot of £270k) = £790k

Maximum amount that can be taken as tax free cash from the AVC pot is £197,500 (i.e. 25% of the £790k)

collins74 · 4 February 2023 at 3:05PM

Not sure if this helps @SarahB16 but I was told by a colleague that the way you can work out the max lump sum you could build up in an AVC to take as a TFLS so you don’t over do it so to speak is as follows:

Projected annual pension at retirement date x 20/3 - automatic lump sum = max possible AVC back as a TFLS.

can anyone confirm this calculation is right or not?

SarahB16 · 7 February 2023 at 7:23PM

@Maria2512 I'm not sure on what day(s) your AVC seminars are this week however I would be very grateful if you could ask my questions above if you got chance please.

In addition there would appear to be some confusion as to how much you can take as tax free cash from an AVC. I was always under the impression it was calculated as follows:

25% x ((20 x LGPS pension) + (AVC pot)) = amount that can be taken as tax free cash from the AVC pot.

Thank you

sg1000 · 7 February 2023 at 8:44PM

From my particular LPGS scheme. The calculation for how much can be taken, including AVC funds is 25% of (20x yearly pension + lump sum payment + AVCs). For example...(30k pension x 20 = 600K) + (Lump sum 30k) + (AVC 150K). So in this example, 30k (lump sum) + 150k (AVC) = 180k could be taken as tax free as the total available would be 25% of 780k = 195K. You can use the extra 15K in a number of ways

SarahB16 · 7 February 2023 at 9:44PM

@sg1000 Thank you for your post. I however have no desire to take a tax free lump sum payment from my pension and only wish to take the tax free cash from my AVC. Your reply does confirm my original calculation was correct so thank you as some other posters were confused as to how it is calculated.

My questions to Maria if she is able to ask these on the seminars she is going to are as follows: