AVCs for early retirement

[RobertT]

Just wanted to ask, if I have a pension pot of 9500 section C when I am 60.
Plan to use in the region of £1500 in for a lump sum payment. do you know how lump sum I could expect ?

Is that just your Age60 pension benefits?

The commutation rate for converting pension to lump sum is around 1:20, so reducing your pension by £1,500 would produce a lump sum of around £30,000. Which using the 20x multiple to work out pot value, equates to about 15%.

If you wanted the full 25% tax free cash, that would be around £47,000 and would reduce your pension by another £800 ish.

*All figures are approximate and don't include any DBCBS, a small amount of which can often be used to fund some of the tax free cash with Age60 benefits, meaning the pension wouldn't reduce by quite as much.

[Kingy7185]

Thank you so much very helpful.

I have a AVC also so would I be able to take both TAX free ?

[RobertT]

The whole point of AVC's is to use them to fund the tax free cash when taking your benefits, so you don't have to give up as much or potentially any pension to get that lump sum.

But you do have options:

1. Take just your AVC's as tax free cash.
2. Take them plus commute as much pension as it takes to get the max 25% tax free lump sum.
3. Take full 25% tax free cash by commuting some pension, in your case around £47k and then take the AVC's as what's known as a Uncrystalised Funds Pension Lump Sum, which basically means the first 25% of that is also tax free, with the remainder being classed as income and taxed accordingly.