AVCs Attached to a Final Salary Pension: keep as is or move to main pension pot?

big_leon

Hi all,

I (M43) have just obtained an illustration of benefits for a final salary pension and a small amount of AVCs.

Summary if taken at age 55:

AVCs: £6832

DB pension circa £4688 per annum.

I’ve been given various options at retirement to use the AVCs including taking tax free cash, converting AVCs to a small annual pension and a couple of other options.

Returning to my actual question, in general terms, how do you determine whether it’s worth keeping the AVCs in their current format or whether I transfer them into my primary pension (Aviva - accessible at 55).

Thanks for any thoughts!

Marcon

What are your objectives? Those will determine the more suitable route for you - there's no 'one size fits all' answer, handy as that would be!

big_leon

https://forums.moneysavingexpert.com/discussion/comment/82044667#Comment_82044667

Hi Marion, appreciate the very prompt reply. In summary, I’m looking to be Financially Independent (the FI in FIRE) as early as possible. My primary reason for the question was really around ease / simplicity in terms of consolidating the pensions into the primary. I wanted to check I’m not missing any major benefits before I did so.

Happy to answer more questions if it helps frame this discussion!

DRS1

I guess that with the change to the normal minimum pension age that is coming you have checked the accessible at age 55 point?

Is the DB pension the LGPS? If so I think there may be an advantage to keeping the AVCs where they are (and boosting them). All to do with how you are able to take the tax free lump sum under LGPS.

Marcon

https://forums.moneysavingexpert.com/discussion/comment/82044684#Comment_82044684

Thank you - that helps!

Does the DB scheme have a protected pension age? If not, the earliest you'll be able to access it is age 57 - possibly older, given you are only 43 now. The fact you've been given a quote at age 55 doesn't mean you can actually take the money then (plenty of systems are still working on current legislation, which doesn't change the minimum age until 2028) - nor is it necessarily a good idea to do so, as you are likely to have a hefty reduction factor applied for taking your benefits before the scheme's Normal Retirement Age.

The big attraction of being able to use your AVCs to 'buy' extra scheme pension is that there isn't a commercial mark up for doing so. Transfer and try to use your AVCs elsewhere (ie in a personal pension arrangement of some sort) and the provider will be operating on commercial terms. Much depends on the terms available - and whether you want extra scheme pension, which almost invariably has to be in the same format as the rest of your scheme pension - not especially useful to those who don't want provision for a spouse's pension.

Something which is worth checking now is where your AVCs are invested. Do you have a choice of funds and if so, are you in the one which is likely to align most closely with your long term goals?

Although the AVC funds might prospectively be accessible tax free, legislation can change…and if you have really substantial pension funds elsewhere, those might eat up the whole of the Lump Sum Allowance.

Farside71

The benefit you might be missing, is that depending on what scheme you are in, you may be able to take 100% of your avc as tax free cash without needing to take anything from the DB itself. With such a relatively small amount it might not be a huge benefit but it is a prviivilege not available to many people.

daveyjp

You determine it by deciding what you want out of it, you have 12 years so no rush!

As you have a primary pension running moving it to that may make sense, you then decide the investment strategy.

One other option you need to look into is whether you can buy additional DB pension with it. It may only be a few hundred extra a year, but it may attract DB benefits. Annual guaranteed increases, spouses pension etc.

Marcon

One other option you need to look into is whether you can buy additional DB pension with it. It may only be a few hundred extra a year, but it may attract DB benefits. Annual guaranteed increases, spouses pension etc.

OP's opening post confirmed that.

Brie

Is transferring them out an option?

big_leon

https://forums.moneysavingexpert.com/discussion/comment/82044700#Comment_82044700

No, not with local government. It’s from an old aerospace company.

Good comment re protected 55 age. I’ll check that out (my Aviva one does have it)

big_leon

https://forums.moneysavingexpert.com/discussion/comment/82044730#Comment_82044730

That is something I missed, thank you. So instead of the normal 25% tax free, you can take 100% tax free?