Pension Input Amount and 60% marginal tax rate

EdSwippet wrote: »

this tax liability will manifest somewhere along the line. Without AVCs you could perhaps have an initial tax-free lump sum and then lower taxed regular payments in future. With the AVCs you might take the initial tax-free lump sum from those, but the result would be higher taxed regular payments from non-AVC stuff in future.

Some pension schemes simply allow the AVC pot to be used to fund the 25% tax free lump sum on the combined value of the DB and DC portions. If there's enough DC to fund it all there's no reduction in the income from the DB portion.

LGPS is perhaps the biggest scheme with this capability and it comes up quite often here. Putting in the AVC money, getting the tax relief and NI saving then getting it out tax free, is a very useful and often important factor when responding to LGPS-related questions.

EdSwippet wrote: »

Okay, but my guess -- and personally I only have DC pensions, so take this for what it is worth -- is that this tax liability will manifest somewhere along the line. Without AVCs you could perhaps have an initial tax-free lump sum and then lower taxed regular payments in future. With the AVCs you might take the initial tax-free lump sum from those, but the result would be higher taxed regular payments from non-AVC stuff in future.

Yes, but the commutation rate on some/most DB pensions is so dire that it's usually not worth commuting pension for a TFLS even with the tax savings. So if they allow AVCs to be combined with DB and 25% of the combined pot taken as TFLS, they are effectively tax free on the way out without any loss elsewhere.