AVC`s and lump sums.

[Brainache]

Does there come a point when you can put too much into an AVC that it starts to reduce the lump sum you are allowed from the pension scheme ? I might be able to retire in about 5 years so if I piled money in now it would effectively be a 5 year tax free saving plan with a tax free payout.
Are the normal tax free lump sum and maximum tax free lump sum,allowed in the RM rules, a set proportion of your pension plans value ? If it was, then maybe I could work out how much is too much to put in an AVC.
Technical stuff I know but worth getting a headache over.

[RobertT]

Does there come a point when you can put too much into an AVC that it starts to reduce the lump sum you are allowed from the pension scheme ?

No it's the opposite, the more you put in the better.

Both your main scheme benefits and your AVC have a 'cash' value which you can add together and then take 25% of the total.

So for example, if your main scheme benefits add up to £75,000 and your AVC is £25,000, you can take the whole AVC fund as a lump sum, therefore preserving your maximum amount of index linked pension.

You would have to get in touch with the pensions service centre for an exact amount but, as a rough guide to finding out what your main scheme benefits are worth just multiply your expected pension by 20. So a £5,000 per year pension would make a value of £100,000.

I might be able to retire in about 5 years so if I piled money in now it would effectively be a 5 year tax free saving plan with a tax free payout.

And you get tax relief, so every £100 you put in you only actually costs you £80.

Are the normal tax free lump sum and maximum tax free lump sum,allowed in the RM rules, a set proportion of your pension plans value ? If it was, then maybe I could work out how much is too much to put in an AVC.

You can take any sized lump sum you want from 0% to 25 %.

[Brainache]

Thanks for the reply Robert T. Working out the value - Do you multiply the yearly pension by 20 and then add the lump sum or not ?

[RobertT]

Thanks for the reply Robert T. Working out the value - Do you multiply the yearly pension by 20 and then add the lump sum or not ?

It depends on which section you're in, as a section C'er I'm no expert on A or B, but I think:

Section A/B - includes the lump sum as standard but if you take less tax free cash you will get more pension, so add the lump sum after multiplying by 20.
Section C - doesn't include a lump sum as standard, so just multiply yearly pension by 20.