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AVC into SIPP?

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dippenhall1dippenhall1 Forumite
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Hi,

I posted a couple of days ago and had some great ideas from this forum which I’ve discussed with my company pension people but have come up against an issue.

I’m 50, have a DB pension. I’d like to retire early at say 55. I could afford to start paying AVCs for the next 5 years with my company AVC scheme with the plan that is retire when I am 55, defer taking my DB pension until 60 & use my AVCs as a tax free lump sum to live off for 5 years.

However my employer say that my AVCs would be linked to my company pension so I can’t do this (take part now & defer the rest) I would have to transfer the AVC to a SIPP provider closer to retirement if I wanted to do this.

I haven’t made many further enquires, but wonder about the following

1. Can you transfer an AVC to a SIPP provider and then a month later for example say you want to take all the money out as a TFLS? Is there a minimum period you have to stay with SIPP providers?

2. If I’m lucky the AVC could be worth up to £50000 if I’m transferring it to a SIPP (in order to withdraw it) will it fall under the needing to get financial advice as it’s over 30k?

Anything else I’m overlooking?!

The reason I like the idea of an AVC via my company as opposed to just setting up a SIPP is that because I’m a 40% tax payer I would have to reclaim the tax back rather than have it done automatically from my salary. Paying into a SIPP directly would probably mean I’d end up contributing less as I would only get my overpaid tax back at the end of the year.

Any thoughts would be great. Thanks everyone

Dippenhall
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Replies

  • MarconMarcon Forumite
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    You can't take your AVC as a tax free lump sum without drawing your DB pension at the same time if the AVC is still within the scheme. That's how DB schemes work.

    Only 25% of the cash from a SIPP is tax free, whatever its source. If you withdraw all the cash in your SIPP, you'll pay tax on 75% of it at your marginal rate - and sounds as if doing so would tip you into the higher rate tax bracket.
  • Marcon wrote: »
    Only 25% of the cash from a SIPP is tax free, whatever its source. If you withdraw all the cash in your SIPP, you'll pay tax on 75% of it at your marginal rate - and sounds as if doing so would tip you into the higher rate tax bracket.

    That’s interesting, I didn’t realise that. So it’s 25% tax free from each pension you have, rather than an ability to take 25% of your all of your pensions from 1 particular pension?

    Thanks
  • dunstonhdunstonh Forumite
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    That’s interesting, I didn’t realise that. So it’s 25% tax free from each pension you have, rather than an ability to take 25% of your all of your pensions from 1 particular pension?

    Thanks

    Some AVCs have the facility to have the main scheme tax free cash taken from them. Most don't but its always worth a check.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • AlbermarleAlbermarle Forumite
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    So it’s 25% tax free from each pension you have, rather than an ability to take 25% of your all of your pensions from 1 particular pension?
    Normally that is the case .
  • edited 16 May 2019 at 4:50PM
    jaybeetoojaybeetoo Forumite
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    edited 16 May 2019 at 4:50PM
    When I retired, I had the option to take 25% from the total of my DB and AVC with all the cash coming from the AVC. Any money left over in the AVC would have to have been used to buy an annuity.

    The other option I had was take take my DB pension and transfer the AVC to a SIPP. I could take up to 25% of my DB pension as a tax free sum and up to 25% of my SIPP as a tax free sum - they are treated as separate pension pots.

    I could not touch my AVC until I took my DB pension.

    It sounds like your pension scheme has the same options.

    If you take all of the money out of your SIPP within a year, some SIPP providers will charge an extra admin fee (and there are the tax issues already mentioned by others).
  • xylophonexylophone Forumite
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    1. Can you transfer an AVC to a SIPP provider and then a month later for example say you want to take all the money out as a TFLS? Is there a minimum period you have to stay with SIPP providers?

    2. If I’m lucky the AVC could be worth up to £50000 if I’m transferring it to a SIPP (in order to withdraw it) will it fall under the needing to get financial advice as it’s over 30k?

    An AVC would not be a safeguarded benefit so you could transfer out to a personal pension without advice.

    You could then take a 25% tax free lump sum but the balance would be taxable as income in the tax year of receipt.

    You could spread out the withdrawals over a few tax years so as to remain within your personal allowance (s) and not pay tax.
  • cloud_dogcloud_dog Forumite
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    Dippenhall1, I've just posted my comments on your other thread.

    From what you say above, the scheme administrators have already confirmed you can transfer the AVC in to another pension / SIPP. I also asked my scheme administrators to confirm that I could undertake partial transfers, i.e. every couple of years transfer out £xxxxx, whilst continuing to make AVC contributions. The reason for this is that my AVCs are with Prudential and I have a limited number of funds I can choose from. Additionally the charges, whilst not extortionate, can be beaten elsewhere.

    I'm still a little unsure of my exact draw-down plan atm, as I am unsure if it will be beneficial to utilise the UFPLS method or simply take the 25% TFLS and then further taxed amount each year. TBC.
    Personal Responsibility - Sad but True :D

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  • xylophone wrote: »
    An AVC would not be a safeguarded benefit so you could transfer out to a personal pension without advice.
    .

    Just to note that I’ve been in touch with Fidelity and Hargreaves Landsdowne and both have said I couldn’t transfer an AVC which has any links with my DB pension without first getting ‘advice’ from in IFA!

    Even if I’ve set up the AVC for the sole purpose of transferring it to a SIPP. Something more to think about...
  • edited 20 May 2019 at 4:48PM
    jaybeetoojaybeetoo Forumite
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    edited 20 May 2019 at 4:48PM
    Just to note that I’ve been in touch with Fidelity and Hargreaves Landsdowne and both have said I couldn’t transfer an AVC which has any links with my DB pension without first getting ‘advice’ from in IFA!

    Even if I’ve set up the AVC for the sole purpose of transferring it to a SIPP. Something more to think about...

    Once you take your DB pension you can transfer the AVC to a SIPP without IFA advice providing there are no guaranteed benefits.
  • edited 20 May 2019 at 3:42PM
    cloud_dogcloud_dog Forumite
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    edited 20 May 2019 at 3:42PM
    Just to note that I’ve been in touch with Fidelity and Hargreaves Landsdowne and both have said I couldn’t transfer an AVC which has any links with my DB pension without first getting ‘advice’ from in IFA!
    Have you contacted your scheme administrators to confirm if there are any protected/guaranteed benefits associated with your AVC 'pot'?

    A number of pension providers are naturally cautious when it comes to touching anything DB scheme related but, if you have obtained confirmation from your scheme administrators and there are no guaranteed benefits associated with an AVC account then you may want to try AJ Bell/YouInvest SIPP.

    This is what I am planning on doing and have recently contacted AJ Bell to discuss my situation. They have confirmed that if the scheme administrators confirm no associated guarantees (which I have already obtained in writing) then they will be happy to accept the transfer.
    Personal Responsibility - Sad but True :D

    Sometimes.... I am like a dog with a bone
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