Transferring Crystallised AVC Funds Query

Balderdosh · 18 May 2018 at 10:24AM

Hi,

I'm having trouble with getting consistent information from a pension administrator (who will remain nameless, at least for the time being).

Can someone possibly clarify the following for me?

In a nutshell: despite the new pension freedoms, are there still circumstances where I am obliged to buy an Annuity with AVCs, and denied the option of transferring to a provider offering Drawdown?

I will supply the precise context depending on the responses.

Many thanks in anticipation.

cloud_dog · 18 May 2018 at 11:08AM

The problem is that if you cannot give specifics people on here can only talk in general terms, which isn't going to help you one bit.

Generally, I believe you are correct but, this answer is meaningless without context.

dunstonh · 18 May 2018 at 11:26AM

despite the new pension freedoms, are there still circumstances where I am obliged to buy an Annuity with AVCs, and denied the option of transferring to a provider offering Drawdown?

AVCs are a product that was only available in-house. In 2006, they largely became obsolete (a few exceptions. Perhaps niche would be a better word than obsolete). Rule changes that year said employers no longer had to offer them and retail individual schemes were getting cheaper and more advanced in features. So, development of AVCs largely ended in 2006.

The pension freedom options extended options that already existed. It actually didn't create much that was new. For example, drawdown has been available for over 20 years. So, if you knew you wanted drawdown, you should have been in an option that offered it.

The changes in 2015 amended the existing rules but did not force a provider to offer those options. If you want the new options then transfer it to a plan that offers them.

However, in your case, you have added a twist. When did you crystalise the AVC and what did you do to crystalise it? Crystallised plans can be transferred but AVCs rarely have any flexible options and can only be crystallised by purchasing an annuity or being linked in with the main scheme to provide benefits.

Balderdosh · 18 May 2018 at 3:35PM

Hi,

Thanks for your comments so far.

The context of my situation is as follows:

I was a Deferred member of a DB company pension scheme, to which I had also made AVCs. The AVCs are held in Blackrock pension funds.
I obtained illustrations of my options to take the pension early (at age 58).
I was given 3 options:
a) Take a full scheme pension (no TFLS)
b) Take a reduced scheme pension with a scheme-only TFLS
c) Take a full scheme pension with a TFLS funded by the AVCs.

NB. The AVC fund value is higher than the max 25% TFLS allowed.

Regarding the AVCs, the options available were a Lifetime Annuity or an Uncrystallised Funds Pension Lump Sum (taxable).
Options explicitly not offered were Scheme pension, Small Pot Lump Sum and 'Flexi Access Drawdown.

However it stated that I have the option to transfer out "to one or more different pension providers...[who] will offer different options from the Plan in relation to how you can access your pot"

I took this to mean I could transfer out to a provider who can offer a Drawdown facility.

I duly exercised option c) since it seemed to me to have the advantage of maintaining a maximium index linked DB pension and give me the freedom to seek a Drawdown
arrangement for the remaining AVCs with another provider once transferred out.

The scheme pension is now in payment, I've received my max 25% TFLS and a transfer pack for the residual AVC funds.

My understanding is that the residual AVC funds are now considered to be 'crystallised' since I have taken the TFLS from them, and as such there are restrictions on where the residual funds can be transferred.
I'm told I cannot simply transfer them to an existing Stakeholder pension scheme I have with another provider, which I accept would mix non-crystallised and crystallised funds.
After some research I had found a suitable provider who has confirmed that the proposed policy will take crystallised funds and would allow me to enter into a future Drawdown arrangement.
I presume this would be set up to prevent any further TFLSs since I have already taken the max 25%.

Via an IFA, I am now advised that the source administrator is now saying:
"as Mr XXXXXX elected to crystallise all funds (in order to receive the maximum Pension Commencement Lump Sum (PCLS)), he now is only eligible to transfer his
residual Additional Voluntary Contributions (AVCs) value to his chosen annuity provider for the provision of a lifetime income".

They go on to say "Due to the nature of the Plan this is a highly rare circumstance, and as such the transfer pack in place for the Plan does not cater for this scenario.
We are currently working with our Technical department to agree the content for a revised pack which we will issue to you ASAP."

Can anyone make sense of this?

I assume this situation cannot be due to a DB pension scheme rule/limitation, as the AVCs are held outside the scheme and as such are 'Freestanding'.
Even if the scheme considers the AVCs not freestanding, why would they limit my choice to an annuity ex transfer?

Many thanks for any help anyone can provide.

greenglide · 19 May 2018 at 10:54AM

My scheme had a specific warning about having a small amount left over in these specific circumstances which would result in a trivial amount left in an annuity.

Fortunately they offered an additional offer of a UFPLS of the remainder but this, presumably, was only available at the point the AVC was taken, once it was crystallised it would have been too late.

zagfles · 19 May 2018 at 11:30AM

It sounds like they don't know what they're talking about. Plenty of providers (eg HL) will accept crystallised funds. I guess they haven't come across this "rare case" before, as the vast majority will have AVCs within the 25% limit and those who are a bit above usually take a UFPLS for the rest.

Brynsam · 19 May 2018 at 2:20PM

Balderdosh wrote: »

Via an IFA, I am now advised that the source administrator is now saying:
"as Mr XXXXXX elected to crystallise all funds (in order to receive the maximum Pension Commencement Lump Sum (PCLS)), he now is only eligible to transfer his
residual Additional Voluntary Contributions (AVCs) value to his chosen annuity provider for the provision of a lifetime income".

They go on to say "Due to the nature of the Plan this is a highly rare circumstance, and as such the transfer pack in place for the Plan does not cater for this scenario.
We are currently working with our Technical department to agree the content for a revised pack which we will issue to you ASAP."

Can anyone make sense of this?

I would hope your IFA can!

Peter_LA · 21 March 2019 at 12:48AM

Hi Balderdosh. Interested to learn of your pension predicament. I find myself in a similar situation. Did you manage to find a solution ? or were you forced down the Annuity route ?Out of interest is the scheme administrator Willis Towers ? Thanks

Madeinireland · 7 May 2019 at 5:14PM

Hi - I’m also interested in the outcome of this one as the situation is the same for me. I’ve not yet taken my pension but currently asking the company (BT) which they mean by “purchase an annuity”. At the moment over the phone (I’m waiting for it in writing) they are saying I can transfer the residual AVC’s but they would be as a “crystallised fund”. I’m not sure who as a provider will accept this sort of transfer so that I can effectively use drawdown.

Thanks...

shinytop · 7 May 2019 at 8:16PM

My pension scheme told me if I took the max PCLS (which would include 25% of my AVC) then with the remainder of the AVC I had to either (1) take it all in one go as taxable income or (2) buy an annuity. The other option was to transfer the whole AVC to another provider who can do drawdown. That's what I'm now doing.

Madeinireland · 8 May 2019 at 5:55AM

Hi Shinytop - but by doing so your forgo a large tax free lump sum for a smaller one as no longer linked to your DB pension???

I’m trying to effectively move to drawdown without having to do that

Transferring Crystallised AVC Funds Query

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