Cash balance scheme

[Rapido123]

Hi, thinking of taking all of my benefits at the age of 60 except for the new collective scheme. I am thinking of maximising my income and not taking a lump sum from my pensions by providing the lump sum from an AVC and the cash balance scheme. By my calculations for my pension so far the cash balance scheme and my AVC added together would not be 25% of my total pension benefits so would be under the maximum allowed lump sum, my question is I know you can have the AVC tax-free but can you have the whole of the cash balance scheme as a tax free lump sum, thank you

[SeanMc]

No you can't get it tax free. You can get it as a UFPLS ie 25% tax free.

[RobertT]

Hi, thinking of taking all of my benefits at the age of 60 except for the new collective scheme. I am thinking of maximising my income and not taking a lump sum from my pensions by providing the lump sum from an AVC and the cash balance scheme. By my calculations for my pension so far the cash balance scheme and my AVC added together would not be 25% of my total pension benefits so would be under the maximum allowed lump sum, my question is I know you can have the AVC tax-free but can you have the whole of the cash balance scheme as a tax free lump sum, thank you

It sounds like you're in section C?

The Cash Balance(DBCBS) is specifically attached to your RMPP benefits, which includes Age65 from 2012-2018 and possibly a small amount of Age60, as the RMPP are responsible for some inflationary increases to those benefits.
It can't be used to fund any lump sum attached to RMSPS benefits, so that's the vast majority of your Age60(up to 2010) and the first two years of Age65(2010-2012).

Therefore when working out how much tax free cash you can take from AVC's and DBCBS, you need to work out Age60 and Age65 separately, while also splitting Age65 into RMSPS and RMPP. So you've got 3 different sums to work out.

The easiest way of calculating out how much tax free cash can be taken is to assume your pension equals 75% of each element by using the usual 20x multiple, therefore the maximum tax free lump sum from AVC's/DBCBS is the other 25%.

For example:
Age60 pension = £9,000 x 20 = £180,000
If that is 75% the other 25% = £60,000 & can be from AVC's tax free.
As I said above a small amount of DBCBS may also be taken , but you'll be told how much at the time of choosing your options.

RMPP Age65 pension £3,000 x 20 = £60,000
If that is 75% the other 25% = £20,000, & can be taken tax free from your DBCBS.

RMSPS Age65 pension = £600 x 20 = £12,000
If that is 75% the other 25% = £4,000 tax free from AVC's.

In the above example and based on taking all benefits at 60, a maximum total of £84k(£64k+£20k) can be taken tax free from AVC's and the DBCBS, with any remainder being paid out as a UFPLS(1st 25% of that is also tax free).

[Rapido123]

Thank you very much

[RobertT]

I should add the method used above only really applies to section C members who don't want to commute any pension to create their tax free cash, and want to use their AVC's and DBCBS for that purpose instead.

For any section C'er who wants to take the maximum lump sum possible, the 25% tax free cash will be made up completely from commuted pension, and therefore all AVC's and DBCBS will be paid as a UFPLS.

Section A/B members get a lump sum as standard, so that will automatically use up some of the 25% tax free cash, which can then be topped up either by commuting pension or by using AVC's and DBCBS, with any excess paid as a UFPLS.

[Hyrrokkin]

My head hurts just reading all that

As always RobertT great advice



But what a load of confusing convoluted rubbish our pensions are !