new pension

[dodger71]

hi with the new scheme starting in october we are all being put in i have opted in for the additional 1% which will be matched by royal mail

on the options for the new avc contribution scheme (gives you the choice of a fixed amount or percentage) i have a few questions?

when is this money accessible ?
is this avc 100% tax free when available to take or just tax free for the first 25%?
cheers

[RobertT]

Any time after the legal minimum age access age for pensions, which is currently 55 but due to rise to 57 in 2028.

The RMCPP AVC's can be taken with the main scheme benefits or transferred out to a personal pension. More details on the RMCPP website.

The first 25% of any pension pot is usually tax free, with the remainder being classed as income and coming under normal PAYE tax rules. How much tax you pay will depend on how much income you have in any financial year.
Basically anything over the personal tax allowance(currently £12,570) is taxed!

[TrickyTreeshill11]

Hi all,
Regarding the new avc ,is it worth doing ,as there's a lump sum element attached to the new pension scheme.
I'm looking at retiring in 6/7 years time.Im in section c.Im planning on doing the 1% booster,but I have around £35 a month left over.Cant decide where to put it?
All replies much appreciated.
TrickyTreeshill

[SMS1969]

Hi all,
Regarding the new avc ,is it worth doing ,as there's a lump sum element attached to the new pension scheme.
I'm looking at retiring in 6/7 years time.Im in section c.Im planning on doing the 1% booster,but I have around £35 a month left over.Cant decide where to put it?
All replies much appreciated.
TrickyTreeshill

You can easily put the £35 into an AVC via the app,as you can state the actual amount that you want to invest. Worth doing, anything that you can put away for retirement certainly is.

[heapsy]

For those who posted above, both the AVCs and the Lump Sum booster will almost certainly be taxed. Neither of them seem to replace the existing lump sum already built in to the scheme. If you read up about the scheme, it doesn't make this clear one bit.

[RobertT]

My personal opinion is the standard lump sum of 3/80ths of pensionable pay will probably form less than 25% of the overall pot.
The addition of the extra 2% booster will increase it to around the 25% mark.

Because of the nature of the scheme there will be no definitive way to work out the value of everyone's individual pension as there is with a DB scheme, which uses a multiple of 20.
So in practice, it's a difficult thing to predict with any degree of certainty.

If there's an excess after the 25% tax free lump sum has been paid, then I assume that would be paid as an UFPLS, meaning 25% of that excess is also tax free. Which is what happens with the current AVC's and DBCBS.

The potential of paying tax is outweighed by the additional cash from RM and the taxman. Assuming a basic rate taxpayer, most will still keep 85% of any excess.

AVC's will almost certainly take the overall lump sum over 25%, particularly for those who pay in a healthy amount and for a decent length of time. Which is where the flexibility of transferring to take advantage of pension freedoms, comes into it's own!
Or else any excess over 25% will be paid as above.

[heapsy]

Do you think it worth while paying AVCs for less than 3 years, if I don't take the pension early?

[RobertT]

Do you think it worth while paying AVCs for less than 3 years, if I don't take the pension early?

I have the same opinion as I did last week: viewtopic.php?p=1098312#p1098312

[Postie Malone]

Do you think it worth while paying AVCs for less than 3 years, if I don't take the pension early?

It depends.

If (using round figures) you put £10,000 into the AVC over those 3 years through PSE then it would only actually cost you £7,200.

Presuming that when you come to take it whichever fund you have invested in is still worth £10K then you would get £2500 back tax free and would pay tax on the rest. If you pay basic rate tax that would be £1500 and you would have turned your £7200 into £8500. If you have any of your tax allowance unused then you may pay less tax. If you jump into the 40% bracket then you will pay more.

Of course the value of your investments could go up or down, but if you can afford to pay into an AVC then the odds are in your favour to come out ahead.