Lump sum drawdown from 2 pensions

Mish_Mash

Hi

I have 2 pension vehicles with the same company whom I still work for. 

I have a final salary pension (DB) which is still active albeit capped to my salary in 2019, and a contributory pension (DC). 

I anticipate being able to take an annual income from my DB pension of between £35-40k a year when I get to 60. I don’t want to take a lump sum from my DB pension pot as this would impact the annual income mentioned above. 

Instead I have been making AVC’s (which I am hoping to take as my 25% tax free lump sum). As the AVC’s are limited to 15% of my total earnings in the DB scheme, I  have also opted to put additional AVC’s into my companies DC scheme. 

The intention is to take these AVC’s as a lump sum of between 100-200k when I retire.


Current pension status is:
DB scheme will pay approx 35k a year, which equates to approx 700k of a pension fund. I currently have 33k of AVC's in the DB scheme. i will build this by approx 6-10k a year going forward. 

In my DC scheme I have 30k of AVC’s which I will build by approx 30k a year. 

I have chosen not to invest more in my DB AVCs as I have no control over the investment strategy. My money is put into a vehicle that levels off growth and dips providing an average fund return. It provides an annual payment and a final payment when the product is taken. I have no real idea of the performance of my money in this fund which makes me uncomfortable. Also, if I were to choose to buy more pension under the DB scheme using the AVC’s, the pensionable amount taken would not be increased by RPI or CPI but would remain static. 

The DC scheme allows me to invest across a range of global and uk funds instead offering balance to my portfolio. 

My plan is to withdraw all of my AVCs as my 25% tax free lump sum. However I am concerned that I will be limited to taking only 25% of each pension vehicle. This is fine for the DB Scheme but wouldn’t work for me for my DC scheme. I would like to withdraw all my DC AVC’s. 

Would appreciate any advice on what would be allowed. 

If I would not be able to withdraw the full amount of AVCs from my DC scheme then I’ll have to rethink my pensions plan. And am not sure what I would do. 

squirrelpie

Each pension has its own 25% tax free. You can't mix them together. See https://community.hmrc.gov.uk/customerforums/pt/0ac4a027-af20-ee11-a81c-000d3a0d1621

Mish_Mash

Would they be considered different pensions even though they are from the same employer over a continuous period of employment?

dunstonh

My plan is to withdraw all of my AVCs as my 25% tax free lump sum. However I am concerned that I will be limited to taking only 25% of each pension vehicle. This is fine for the DB Scheme but wouldn’t work for me for my DC scheme. I would like to withdraw all my DC AVC’s. 

Most people will look to consolidate their DC pensions into one.    You don't have to but its often worth it unless there is a contractual reason or benefit that is worth keeping.

Most AVCs are old fashioned and not very good compared to modern options.   There are still the odd gem worth having (such as those that allow the PCLS from the main scheme to be diverted to the AVC).   However, if there is no benefit of an AVC over a retail pension, you are often best using a retail pension instead.

Marcon

squirrelpie said:

Each pension has its own 25% tax free. You can't mix them together. See https://community.hmrc.gov.uk/customerforums/pt/0ac4a027-af20-ee11-a81c-000d3a0d1621

Looking at OP's post, this could be one occupational scheme set up under one trust - the fact they can still contribute to their DB AVCs strongly suggests that's the case:

Mish_Mash said:

Current pension status is:
DB scheme will pay approx 35k a year, which equates to approx 700k of a pension fund. I currently have 33k of AVC's in the DB scheme. i will build this by approx 6-10k a year going forward. 

In my DC scheme I have 30k of AVC’s which I will build by approx 30k a year. 

OP - is that the case, or is the DC provider wholly different from the DB provider?

Mish_Mash said:

Would they be considered different pensions even though they are from the same employer over a continuous period of employment?

If they are different pension providers, yes.

Mish_Mash

Marcon said:

squirrelpie said:

Each pension has its own 25% tax free. You can't mix them together. See https://community.hmrc.gov.uk/customerforums/pt/0ac4a027-af20-ee11-a81c-000d3a0d1621

Looking at OP's post, this could be one occupational scheme set up under one trust - the fact they can still contribute to their DB AVCs strongly suggests that's the case:

Mish_Mash said:

Current pension status is:
DB scheme will pay approx 35k a year, which equates to approx 700k of a pension fund. I currently have 33k of AVC's in the DB scheme. i will build this by approx 6-10k a year going forward. 

In my DC scheme I have 30k of AVC’s which I will build by approx 30k a year. 

OP - is that the case, or is the DC provider wholly different from the DB provider?

I work for a pensions company who provide both pensions. They are invested through my companies investment funds/vehicles. That said,  the DB element of the pension is administered by XPS group (as it is being wound up). The DC pension remains under management by my company. 

Somebody

dunstonh said:

Most AVCs are old fashioned and not very good compared to modern options.   There are still the odd gem worth having (such as those that allow the PCLS from the main scheme to be diverted to the AVC).   However, if there is no benefit of an AVC over a retail pension, you are often best using a retail pension instead.

Most DB AVCs allows you to take it all as a tax free lump sum, on top of the PCLS, no?

squirrelpie

Why not ask your company?

Marcon

Somebody said:

dunstonh said:

Most AVCs are old fashioned and not very good compared to modern options.   There are still the odd gem worth having (such as those that allow the PCLS from the main scheme to be diverted to the AVC).   However, if there is no benefit of an AVC over a retail pension, you are often best using a retail pension instead.

Most DB AVCs allows you to take it all as a tax free lump sum, on top of the PCLS, no?

No, not if you'd exceed the maximum allowed by the scheme's rules/HMRC.

Marcon

Mish_Mash said:

Marcon said:

squirrelpie said:

Each pension has its own 25% tax free. You can't mix them together. See https://community.hmrc.gov.uk/customerforums/pt/0ac4a027-af20-ee11-a81c-000d3a0d1621

Looking at OP's post, this could be one occupational scheme set up under one trust - the fact they can still contribute to their DB AVCs strongly suggests that's the case:

Mish_Mash said:

Current pension status is:
DB scheme will pay approx 35k a year, which equates to approx 700k of a pension fund. I currently have 33k of AVC's in the DB scheme. i will build this by approx 6-10k a year going forward. 

In my DC scheme I have 30k of AVC’s which I will build by approx 30k a year. 

OP - is that the case, or is the DC provider wholly different from the DB provider?

I work for a pensions company who provide both pensions. They are invested through my companies investment funds/vehicles. That said,  the DB element of the pension is administered by XPS group (as it is being wound up). The DC pension remains under management by my company. 

If it's being wound up, how can you continue to add to your DB AVC '...at £6-£10K a year going forward'?

Doesn't sound as if the DB and DC pensions are under the same trust, but asking your employer is likely to give you the most accurate answer.

Mish_Mash

By wound up, I mean they aren’t adding any new members. They have implemented a salary cap at 2019 salary levels with no inflation protection. They have capped AVC’s at 15%.   So it’s slowly but surely being wound down as employees
leave and die off. 

I will ask xps group as the pension portal administration sits with them. However the last time I raised a query it took nearly 2 months to get a response. I believe it’s because the knowledge of the final salary scheme has been eroded to a point there are very few people who can handle queries raised. 

So thought I’d post to see if I could get some clarity quickly. 

In terms of why I opt for AVC’s to my company scheme. It’s simple as it’s straight from salary, I get 6.9% uplift and I don’t get charged one off or ongoing fees.