AVC or FSAVC queries

cyclonebri1

Hi, I am in the process of drawing most of my pension arrangements at the age of 55. Lots of usefull stuff from here has helped and my personnel pension is now sorted.

I am at present waiting to here if my application for early retirement on ill health grounds with my company pension has been successful. I am actually on the pensions consultative comittee and am in regular contact with one of the trustees and as such am advised that there is unlikely to be a problem.

I am advised though by the secretary to the trustees that I will have to take my AVC pot at the same time. Pity, as I wanted to leave that untill later, but its not a massive amount and they are still trying to clarify this issue for me.
Just to explain, the company scheme is final salary with AVC being run sort of as money purchase alongside the company scheme by Norwich Union, FSAVC's?? The company calls it group avc contributions.

The company scheme rules seem well documented but I am having great difficulties in finding out how the AVC pot will be used, it certainly can't be used to by extra years.

My AVC pot is about £33k

I picked up on this today, it's quoted from the telegraph about June 06, after A day or whatever. Can someone comment on this and give me an idea how most companies interpret what is being said? The idea of cash being removed from AVC's rather than the FS scheme seems very sensible


"Free-standing AVCs (FSAVCs) are like in-house AVCs but held independently through an external pension company.
Previously they had also been barred from paying out tax-free cash. But since the new pensions tax regime took effect two months ago, not only can you take 25 per cent of your AVC fund as a tax-free cash lump sum but you can also take cash out of your AVC fund up to a quarter of the value of your final-salary benefits, if you have any.
The reason this is such good news is that most people want to take tax-free cash. However, lump sums from final-salary schemes are often a poor deal. Some company schemes offer as little as £10,000 for every £1,000 a year of income given up, yet the cost of buying that annual income through an annuity could be as much as £20,000.
Under the new rules, however, people with AVCs can take 25 per cent of the full value of their final-salary scheme out of their AVC pot, meaning they get fair value for their tax-free cash, provided the scheme's trustees allow it.
Some schemes may not have changed their rules to allow you to do this, but they will have to do so by 2011, so ask your trustees where you stand.
For example, someone offered a £50,000 lump sum for trading in £5,000 of annual pension income would instead be able to draw more than £100,000 free of tax from a well-funded AVC pot.
Lee Smythe, an associate director of Killik & Co, the stockbroker, says: "People will be able to get more tax-free cash and preserve their retirement income by taking their money out of their AVCs rather than from their final-salary benefits.
"In fact, for somebody who hasn't yet paid into AVCs but who is on the verge of taking their tax-free cash, it would be worth paying in as much as possible now into an AVC just so you can get your cash out at fair value."
The new pension rules mean that saving alongside your occupational scheme is easier than ever, but for people who have defined-contribution pensions the benefits of staying with AVCs are less clear.
I know I will have to address this issue with my own company scheme, but not many people use the AVC facility and the company itself have little experience in the post A day in dealing with AVC payouts. I just keep being told it will be more attractive to acept what the company offers that to take the pot elsewhere which I'm sure I have every right to do so as I had this clause written into my file when I opened the AVC arrangement about 10 years ago"

I know I will have to take the issue up with my company, but not many people use the AVC facility and I don't think the company has a great deal of experience in the new rules. I think I will be the 1st to take AVC based funds since A day.

I can't even get a clear indication of how the pot will be used to provide a pension other than it cannot be used to buy extra years. They simply tell me that I will be better off with the offer I'm given than if I take the fund elsewhere, (as I'm sure I have right to as I had that listed as a condition on my file when I started the AVC pot about 10 years ago).

Any experiences in what other companies do?
:beer:

dunstonh

I know I will have to take the issue up with my company, but not many people use the AVC facility and I don't think the company has a great deal of experience in the new rules. I think I will be the 1st to take AVC based funds since A day.

One thing you need to be aware of is that the company has 10 years to implement the changes. So just because A day changed what could be allowed, it doenst mean your scheme has.

The option to enhance lump sum also doesn't apply to all schemes. Indeed, it is only a minority.

cyclonebri1

:rolleyes: Thanks, I just new the answer would be somewhere along those lines, I feel a battle coming on;) :eek:

cyclonebri1

Just thought I'd update this one as I got a call from the secretary to the trustees today.

The AVC element will be paid as a tax free lump sum.

I'd call that a result as I didn't even push for that option eventually:beer: