Taking second AVC

fkeegan

I work in local government and when I turned 58 I started to pay quite large monthly sums into a cash AVC. At 60 I took flexible retirement, took my pension, and 100% of my AVC as a tax fee lump sum. I continued working ( part time) and rejoined the LGPS, and started a new AVC, into which I pay most of my new part-time salary. I will fully retire when I am nearly 63, and I understand I can only take 25% of my new AVC as a tax free lump sum ? That's fine, as I can then take out a bridging annuity ( until my state pension starts), but I just want to be sure that the 25% limit applies to me, and why?

Thank you.

hyubh

https://forums.moneysavingexpert.com/discussion/6656330/taking-second-avc

The 25% limit applied to you three years ago too. Both then and now, your active AVC was linked to your main scheme benefits in that the 25% max lump sum was/is 25% the total value of your main scheme benefits and AVC considered together, ignoring anything you've taken already.

Just under three years ago your main scheme benefits would have been worth much more than your old AVC pot (which you'd only started a few years before), ergo 25% of your total benefits was probably well north the value of your AVC alone. For your second bite of the cherry however, the proportion of DB to DC is much much less, even allowing for the CARE LGPS' exceedingly generous terms. Ergo it could well be the case that your AVC alone is much more than 25% the total value of your remaining LGPS pension and current AVC.

Silvertabby

Some schemes are using a more convoluted calculation, but the old calculation will be close enough for you to do a quick check...

20 X annual pension plus 1 X AVC

25% of this sum is your maximum tax free cash. This time, your AVC fund will be over that limit by itself. You have a couple of other options, but the majority of people in this situation use their surplus AVCs to buy additional index linked benefits in the LGPS. Or you can transfer the surplus out to a private scheme, but that is likely to be a long winded faff (in my experience).

fkeegan

Update:

Last week I decided to retire now at age 62, giving my employer three months notice. I then contacted a pension broker to get up to date quotes for a fixed term annuity using (either all or 75% of) the £33000 built up in my new/second LGPS AVC.

My employer says that I can use the second AVC pot to buy a short term annuity, to breach the gap between now and my state pension age (67).

But the broker says that as the AVC is linked to my main LGPS scheme, my employer will need to pay the tax-free cash and that will leave an amount to buy an Annuity. It will leave a crystalised fund but I "can only buy a Fixed Term Annuity with a crystalise fund if the fund is already in Drawdown which this type of policy generally will not do. A Fixed Term Annuity comes under flex access Drawdown rules and although it is an Annuity, the transfer is done in a separate way to a Lifetime Annuity".

This is news to my employer.

But basically I am being told that I cannot use my second AVC to buy a fixed term "annuity" which was my plan.

Any thoughts, please?

dunstonh

But the broker says that as the AVC is linked to my main LGPS scheme, my employer will need to pay the tax-free cash and that will leave an amount to buy an Annuity. It will leave a crystalised fund but I "can only buy a Fixed Term Annuity with a crystalise fund if the fund is already in Drawdown which this type of policy generally will not do. A Fixed Term Annuity comes under flex access Drawdown rules and although it is an Annuity, the transfer is done in a separate way to a Lifetime Annuity".

Fixed-term annuities and lifetime annuities can use the same transfer methods. Either open market option or transfer. The choice there is to either to have the existing scheme pay the tax-free cash or the receiving scheme (the FTA) to pay it. With FTAs, there is no requirement for the existing scheme to pay the tax-free cash.

Indeed, where someone has multiple pensions, having the annuity provider pay the tax-free cash is the norm.

Any thoughts, please?

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