Thailand1 wrote:Sorry this one may be off topic but would like to ask Robert T a question.
I could be over the 25% tax free pension lump sum on my NRA 65 with my AVC contributions.....what are the negatives with this?
Could I not just put the excess into the remainder of the fund for a bigger monthly pension?
Thanks in advance.
I will have AVC's of over 25% myself and have looked into what my options are, although being in my early 50's I've still got a way to go before I actually make my decision.
The reply I got from the PSC said I could:
1. Commute any excess into more pension, but only if the excess amount is less than £1,000; or
2. Transfer out the excess if over £1,000 and purchase an annuity; or
3. Take a taxable lump sum, taxed under normal PAYE principles.
There is no option to transfer out any excess for drawdown.
For me, an annuity doesn't really float my boat. It would give me a guaranteed income for life, but not a very big one!
If I had an excess AVC amount of £10,000 for example and wanted an annuity that pays out a single life/level pension, I'd get about £500 gross per year at 65. Less if I wanted death benefits and/or inflationary increases.
Once the state pension kicks in I'd definitely be paying tax on that(maybe not beforehand?).
The lump sum option would mean paying the tax upfront but would give me flexibility as to where I put it and when I can access it.
Overall, I would say that having more than 25% isn't ideal from a tax point of view. But personally I see it as having an extra lump sum that I wouldn't have had otherwise. And if I'd have put my money into other investments such as ISA's, etc, I'd have paid tax on it in other ways instead.