DB pension LTA & AVCs

avdb

Hi,

My partner retired in 2018 with a DB pension which he's been receiving ever since. Whilst working he had also been paying 2 sets of AVCs - one freestanding & one AVC paid via his company salary. At the time he retired he was over the LTA and had to pay LTA tax charge. He hasn't touched the money in the 2 AVCs as he hadn't needed it and he'd been given advice when he retired that if he left his AVCs untouched and in the future the LTA was abolished he then wouldn’t have to pay the LTA charge on the AVCs.

However he recently got in touch with one of the providers, now that the LTA has been reduced/abolished, to make enquiries and they say that this isn't the case and even though he hasn't taken any money out of the 2 AVC funds he will still be liable to the old LTA charge on them because he retired in 2018 and started taking his DB pension.

Fair enough if this is the case, but it’s contrary to the info received at retirement and rather annoying! Will be checking with the company pension, but just wondered if this is standard and that somewhere along the line he’s been given duff info!

Thanks for any advice or thoughts 🙂

gm0

Sounds fishy. Call centre scripts not updated?

He has paid LTA charge on DB @ 20x above the line
So all LTA exhausted to 100% (and some charges paid)

So basics for remaining general DC pensions would be this

Implication 1 - no Tax Free Cash on any DC funds (as was true before recent changes and still is)
Implication 2 - LTA charge is due this tax year upon crystallisation to access these.
(As above 100%) but luckily the LTA Charge rate was moved from 25% to the 0% rate for this tax year. Prior to it's actual abolition the following tax year.

So the scheme could say in somewhat unhelpful legalese that a charge is due (which indeed it is).
But the rate of said charge would be 0% not 25%

This assumes a standard DC treatment of the untouched, uncrystallised DC funds built up with AVC and FSAVC

Somebody with the right arcane knowledge will be along in a minute to explain the special AVC/FSAVC scrolls that muck this understanding up.

avdb

Thanks for your reply. We were hoping/thinking that it worked in the way you've written. However the company holding the AVC say that despite the fund not having been drawn on, moved or touched, it is marked as crystalised from the date he retired (2018) and so that the LTA charge due if he does withdraw any money is the LTA charge from 2018 and not todays!

We haven't had this same conversation with the 2nd FSAVC provider yet - hoping that the same rules don't apply there too.

From this company it's sounding like, despite what he was told at the time, taking a DB pension somehow crysallises the DC pension(s) too

gm0

Ah - there could be a possible explanation buried in there somewhere that these funds are indeed "accessed" but I find it difficult to understand how that can be true and at the same time the charge not be already paid.
It's crystallised. Or it's not.

Lta charges don't happen on income drawn from DC pots (FAD). They happen at crystallisation events BCE

Every day is a learning day. Let's await an expert

zagfles

AVCs linked to DB schemes are usually considered part of the same pension, so you can use the AVC to provide the tax free cash part of the pension. Were they linked? What happened when he took the DB pension, did he take tax free cash, did he get an LTA statement, what does that show crystallising? I presume it's the linked AVC ie taken from salary that they're saying is crystallised rather the free standing one, which is really like a separate pension (from the days pre 2006 when you couldn't have a private pension if you had a workplace pension).

Tommyjw

https://forums.moneysavingexpert.com/discussion/comment/80027693#Comment_80027693

If the AVC fund was not used in the calculation of the DB pension at the time in 2018 then it is not crystallised. The fact he was able to defer it shows it is a "seperate" entity and could have been used to enhance his cash option, or left alone.

I would go back and ask for clarification and get them to review their response. For me, the AVC fund is it's own BCE event and therefore seperate entirely to the DB pension. Copying some random bits..

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088200

• "..date of the BCE is the date the member acquires an actual (as opposed to a prospective) entitlement"
• "the lifetime allowance test is made on the date the member acquires an actual entitlement to the lump sum.... This ‘actual right’ has to be distinguished from their ‘prospective right’.... An ‘actual right’ is when a member has the right to a lump sum without having to fulfil any further conditions.."
• For example.. having to agree to or authorise the payment of a lump sum, or having to obtain an employer’s or scheme trustee/scheme administrator’s agreement or co-operation to a lump sum payment.

In simple terms from an administration stand point... Not disinvested this AVC fund yet of course because nobody has asked them to? Not yet an actual right. Has the member signed all forms you would need them to to action the payment? If not, yet not a right.

No 'actual right' to the avc lump sum = no LTA test = no BCE date done in 2018

avdb

Yes that's right it was the AVC linked to the DB pension with contributions paid out of salary. Yes he did get a tax free lump sum (took the maximum he could) but he didn't take the AVC as part of it/to fund the tax free lump sum as he was advised at the time that if he left the AVC untouched & in the future LTA was abolished then he would be able to avoid an LTA charge on that AVC, although now it seems that perhaps that wasn't correct!. He paid the LTA charge on the value of his DB pension pot which definitely didn't include the value of the AVC.

Will have to check if he has an LTA statement and what it says. He'll also be calling his DB pension scheme tomorrow to discuss the situation which has come as a surprise considering the advice from 2018!

deltrotter

did he get that advice in writing?