How to convert an AVC fund to an annuity?

peterfleet

I have an AVC fund that I wish to have converted soon, using the Open Market Option, to a joint life annuity. I currently don't have an up-to-date fund value statement.

What is the usual procedure to make the conversion happen and how long does this take? For instance do I have to instruct my former employer whose AVC fund arrangements were used when I paid contributions? Do I get to choose which insurer I use for the annuity? Does anyone get paid commission or fees for setting the annuity up if I choose the provider and the annuity type?

Is there a better and a more money efficient way of achieving the result?

Thank you to anyone who can enlighten me.

dunstonh

If you intend to excercise the open market option, the quickest and easiest option is to use an IFA.

You can choose to pay the IFA fees or let them take commission. Commission is quite low on compulsary purchase annuities and there is quite a lot of work involved with some so the fee may be higher than the commission if you do go down that route.

The FSA has a guide to annuity providers. However, i find the information there is usually out of date and missing a number of providers who often come out best. In addition, many providers of annuities will not deal direct with the public.

So, you can muddle through it yourself or you can see an IFA. In most cases the amount you get will be the same whether you use an IFA or do get it yourself (assuming you both pick the top provider).

Debt_Free_Chick

I assume you're taking the main pension from the company scheme too?

You can't just take the AVC alone - you must take all your benefits from that pension scheme at the same time.

Pal

That isn't necessarily the case. It is possible, if the scheme rules allow, for members to defer the payment of the AVCs. The Inland Revenue rules were changes to allow this a few years ago, at the same time they introduced flexibility to allow income drawdown from AVC funds.

Debt_Free_Chick

That isn't necessarily the case.  It is possible, if the scheme rules allow, for members to defer the payment of the AVCs.  The Inland Revenue rules were changes to allow this a few years ago, at the same time they introduced flexibility to allow income drawdown from AVC funds.

Fair point - assuming he has taken the scheme pension and previously deferred the AVC

And the rules are so horrendously complex that there doesn't seem to be a scheme in the country that's taken "advantage" of this "benefit"

Pal

I sincerely hope you are not accusing this Government of wasting its time and taxpayers money introducing pointless legislation!!

peterfleet

Thanks DD. So an IFA is the way to go. What interaction, if any, would the IFA have with my former employer's pension administration? Given this is an AVC fund I would have thought that the pension admin unit would insist in being involved in some way. If so, what are the steps in the conversion process?

dunstonh

Its an open market discharge form that is normally required from the scheme. The IFA gets that filled in and sends it to the annuity provider and they in fill in their bit and send their form onto the scheme who eventually send in the money.

Have you confirmed that open market option is available to you with the in house AVC?

Debt_Free_Chick

I sincerely hope you are not accusing this Government of wasting its time and taxpayers money introducing pointless legislation!!

Guilty, m'lud

Debt_Free_Chick

Thanks DD. So an IFA is the way to go. What interaction, if any, would the IFA have with my former employer's pension administration? Given this is an AVC fund I would have thought that the pension admin unit would insist in being involved in some way. If so, what are the steps in the conversion process?

Your IFA should ask you to sign a letter of authority. This is a letter addressed to the pension scheme administrators in which you give them your permission to deal with your IFA.

Your IFA will then do the work for you, make a recommendation and get your agreement to proceed. He/she(!) will then go back to the pension scheme administrators and get the AVC funds needed to buy the annuity.

Only the pension scheme administrators can authorise release of the AVC funds. The AVC provider is authorised only to accept instructions from the pension scheme administrators i.e. they cannot act on instructions from you and/or your IFA.

Remember - the AVC is part of the main pension scheme. The trustees - and the administrators, on behalf of the trustees - legally "control" the AVC.

HTH

peterfleet

The AVC has an open market option.

Thanks Debt_Free_Chick for the clearly explained steps in the process.