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AVCs & 25% tax free Lump Sum...

11 Aug 2019, 10:07

Hi all,

Im very confused about how how I can take my AVCs and the impact of tax if over 25% of the total pension pot.

Im sure there was a post which said if you took your NRA 60 you could take either your bonus plan or Flexiplan but you could not part part of either and defer the rest to your NRA 65.

Please see below an email I have received from the pension dept which is at odds with this.



email....
"I have been advised that due to the large amount of AVC’s you have invested in both the Flexiplan and Bonusplan schemes.
There is a possibility that you will be able to take the majority of your AVC with your NRA 60 benefits, however their most probably will be an excess of the AVC fund. Which will need to be carried forward to when you take your NRA 65 benefits."


Any thoughts ??

AVCs & 25% tax free Lump Sum...

11 Aug 2019, 10:53

Sounds like you can split your AVCs, and take some when you reach 65. If so, then that is good news you me as I'm hammering the AVCs at the moment. The pension department don't help themselves very much. There isn't enough information on the website, Q & As etc. Also, in this day and age, you should be able to view your pension value online. Even if it is about 3 months behind. That would give people some idea how they were doing with pension planning. A private pension would enable you to view this, usually only 24 hrs behind. Strange how RM don't.

AVCs & 25% tax free Lump Sum...

11 Aug 2019, 11:49

Hawkey99 wrote:Hi all,

Im very confused about how how I can take my AVCs and the impact of tax if over 25% of the total pension pot.

Im sure there was a post which said if you took your NRA 60 you could take either your bonus plan or Flexiplan but you could not part part of either and defer the rest to your NRA 65.

Please see below an email I have received from the pension dept which is at odds with this.



email....
"I have been advised that due to the large amount of AVC’s you have invested in both the Flexiplan and Bonusplan schemes.
There is a possibility that you will be able to take the majority of your AVC with your NRA 60 benefits, however their most probably will be an excess of the AVC fund. Which will need to be carried forward to when you take your NRA 65 benefits."


Any thoughts ??

My understanding(no personal experience) of this is that you can't take part balances of either Bonusplan or Flexiplan – you have to take the whole balance at the time of taking your benefits, or transferring. But you can then restart from £0 if you want to and assuming your still employed by RM.

So presumably the PSC mean in practice, you can take your Flexiplan with your NRA60 and leave your Bonusplan for when you take your NRA65? Or vice or versa.

If you still have excess left over in your AVC's once you've taken the 25% tax free amount, then you can either take that as:

Taxable cash paid under normal PAYE rules.
Annuity purchase if excess amount is over £1,000; or
commuted to more pension if under £1,000.

*Your DBCBS pot will also have to be factored in.

AVCs & 25% tax free Lump Sum...

11 Aug 2019, 11:50

Spot on Heapy.

Agree 100%.

Not only is it is run in a chaotic and shambolic way its also light years behind most others.....

AVCs & 25% tax free Lump Sum...

11 Aug 2019, 11:51

heapsy wrote:Sounds like you can split your AVCs, and take some when you reach 65. If so, then that is good news you me as I'm hammering the AVCs at the moment. The pension department don't help themselves very much. There isn't enough information on the website, Q & As etc. Also, in this day and age, you should be able to view your pension value online. Even if it is about 3 months behind. That would give people some idea how they were doing with pension planning. A private pension would enable you to view this, usually only 24 hrs behind. Strange how RM don't.

I'm not too sure how many DB schemes allow their members to view the value of their pensions online, I suspect not many. But as RM employees we do get an annual paper statement, which is not even a legal requirement for DB pensions!

RM's DC pension offerings – AVC's and the RMDCP, obviously do offer online access.

Personally I think there's quite a lot of info on the RMPP website, but it's too generalised, doesn't go into enough detail and is not written as well as it could be.

AVCs & 25% tax free Lump Sum...

11 Aug 2019, 13:58

Hi Robert,

Your reply seems to be different to what their actual email states ??

AVCs & 25% tax free Lump Sum...

11 Aug 2019, 14:47

The email you quote doesn't seem to differentiate between Bonusplan & Flexiplan when it comes to taking the money, it just says AVC!

Perhaps clarification from the PSC is needed on whether you can carry forward part balances of Bonusplan &/or Flexiplan or not.

Please post the reply here.

AVCs & 25% tax free Lump Sum...

11 Aug 2019, 14:55

Thanks Robert,

If things go to plan I will receive my NRA 60 and AVC at end of October. When I know more Ill defiantly post on the board.

One other thing I know we have corresponded about when you are over 25% which I may now be.

With the PSE savings even if you pay tax when you take your AVC out surely you will be 12% up on the amount you get ?

Thanks

AVCs & 25% tax free Lump Sum...

11 Aug 2019, 16:43

The downside of having an excess amount in AVC's is you may have to pay income tax on it, but there are ways that can lessen the impact:

1. As you mention, you will have received the benefit of PSE and that extra 12% contribution from the government. Although PSE has only been around for about 4 years.
2. Your money will have grown that little bit more with the help of that 12%.
3. As any excess is taxed using usual PAYE principles, how much income tax you actually pay may depend on how much other income you earn in that particular financial year.
4. You can invest the excess amount to try and recoup what you lose in tax.
5. You could put it back into a pension arrangement and get tax relief on it. But beware of recycling rules, money purchase annual allowance rules and paying tax again on the way out.
6. Buying an annuity might reduce the tax payable, but offers poor returns.

Personally I also stand to have an excess amount once I've taken the 25% tax free, although it's still a few years away for me.
I've looked at the possibility of an annuity and I probably wouldn't pay much tax on it up to state pension age(67), but as annuity rates are so low it would take a long time to get back the net amount, let alone the gross.

So I will probably transfer my Bonusplan into my personal pension to help fund early retirement aswell as avoiding some tax. And just take the excess from my Flexiplan as a taxed lump sum and as I'm expecting my income in that particular year to be below the personal tax allowance, I won't lose 20% of the whole amount!

It's not ideal from a tax point of view, but it is what it is and I see it as an extra amount I wouldn't have got if I'd been on exactly 25% or less.

AVCs & 25% tax free Lump Sum...

13 Aug 2019, 12:44

Thanks Robert,

Great ideas as always.

I still cannot believe that given the complete minefield that pension are and the fact that we have 3 Royal Mail completely ignore what I consider to be their responsibility and offer no classes, help or support of any kind in this area.

Very disappointing....

Just on another note, the financial advice support they did offer was just for DCpensions wasn't it ??

AVCs & 25% tax free Lump Sum...

13 Aug 2019, 13:21

Hawkey99 wrote:Thanks Robert,

Great ideas as always.

I still cannot believe that given the complete minefield that pension are and the fact that we have 3 Royal Mail completely ignore what I consider to be their responsibility and offer no classes, help or support of any kind in this area.

Very disappointing....

Just on another note, the financial advice support they did offer was just for DCpensions wasn't it ??


Legally speaking, employers and unions are not allowed to give financial advice. Unfortunately this is used by both of the above to hide away from the issues of retirement planning. They could do much more, such as pointing people in the right direction in order to get good impartial advice. They cannot for example, say you should put your money into the Growth fund in AVCs. There is no guarantee that this fund would perform better than the Balanced fund. However, it is clear to me, and I'm sure Robert will agree, that people need to engage with pensions and seek advice if they need help. I think one issue is the bad press that pensions have had in the last twenty years or so. Poor returns, dodgy sales advice, and stock market uncertainty have lead to apathy. Moving the goal posts on retirement age isn't helping. How do you plan for an uncertain retirement age? Better to take control and make your own plan, decide when YOU want to retire and plan around that. Not always easy I know.

AVCs & 25% tax free Lump Sum...

13 Aug 2019, 15:29

Part of the 4 Pillars agreement on pensions was for a scheme to be set up to provide help for those taking their NRA65 benefits, with the idea that would be in place for when the CDC plan comes in.

Until CDC is set up, transitional support arrangements exist in the form of a taxable sum of £750 to get financial advice independently. However based on posts on these forums, getting that payment is like getting water out of a stone! And info on it is nowhere to be seen on the RMPP website!
I wouldn't be surprised if that's another thing Rico wants to stop, assuming he hasn't already?

I agree with heapsy that apathy is a big problem with regards to pensions, and they have had a bad press over the years. But there's a big lack of understanding too, like investing in equities is much better than cash over the long term for example. Too many are scared to dip their toes in the water and are missing out on good long term gains as a result. Instead they're getting interest rates on their savings lower than inflation, meaning their cash is going down in value.

Personally I think many people have seen some of these scams where life savings have been lost to con artists offering unrealistic returns, and got the wrong impression of pensions to some degree.
Those things are obviously too good to be true and should ring alarm bells with everyone.
The start early / steady Eddie approach, taking advantage of 'free money' from the taxman and employers, is the only real choice in my opinion!

And then there's the attitude many people have of 'I'll think about my pension when I'm old', which is totally missing the point as far as I'm concerned.
I remember telling a colleague of mine of the same age, about 20 years ago that I was paying AVC's with the intention of retiring early and he just looked at me blankly as if to say WTF.

I recently had another conversation with him where I told him I was planning on retiring at 55 and could probably go earlier if I really wanted to. His reaction was that I must have won the lottery and not told anyone, or else I'm going to live on bread and water for the rest of my life.

Neither is true, as I've put myself in the situation I'm in by thinking about retirement early, saving hard, investing reasonably well and taking advantage of the free money along the way.

It's not an easy thing to do especially when you've got a mortgage and kids to feed etc. But you don't necessarily have to save big to make a difference, as squirrelling away a few small acorns along the way, can mean ending up with an oak or two when you're older.

Perhaps RM and other employers should provide some kind of education in pensions, but even if RM were willing to spend the money, I don't really think it would prevent the apathetic taking no notice.
Ultimately it's always going to be down to the individual to take an interest themselves.

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