AVC

[foxyjarvis]

I started a Flexiplan AVC 3 weeks ago, after telling the pensions center at Chesterfield I wanted to contribute the maximum amount I could. It's up and running now and I've noticed my NIC contributions have gone up. The RMPP C EE payment has been moved from the left hand side of the payslip to the right, which means my gross pay has gone up.
I spoke to them today, and they said the figure quoted at the outset was the most I could contribute, but not necessarily the most efficient amount, which non plussed me.
Getting a figure on what that number might be proved elusive as did any lump sum quote for this tax year. So, I guess my options are to try and work it out for myself, as they inferred or seek some independent advice. Any suggestions would be appreciated.

[RobertT]

You have presumably elected to put so much into your AVC that your assessable pay is now below £10,000 per year / £192 per week, and therefore you no longer qualify for PSE. Hence why your NIC’s have gone up and your RMPP C EE amount has moved to the right hand side of your pay slip.
I refer you to your PSE booklet for further info. If you don’t still have your paper copy, take a look here: https://www.myroyalmail.com/node/6791" onclick="window.open(this.href);return false;

In simple terms if you’re participating in PSE each £1.00 going into your pension(main scheme & AVC’s) only actually costs you £0.68, with the government paying the rest. However, if opt out of PSE which you have effectively done, each £1.00 contribution costs you £0.80 and the government £0.20. So it always pays to be part of PSE.

I suspect the reason you can’t get a figure for a lump sum amount is because we’re only half way through the tax year and so they’ll be second guessing how much you’re going to earn. If you ask in February/ March you’ll probably get a better response.

[foxyjarvis]

RobertT, thanks for your reply. My weekly take home is, as you say below £192p/w, but I did not start the payments until week 25 of this tax yr and my earnings to date are over the 10k threshold for PSE to take effect, which is what surprised me about the higher NIC's. If I tweak my AVC's to take my weekly pay over £192, I take it that solves the problem. Would my extra AVC payment also qualify for NIC relief? Many thanks.

[RobertT]

RobertT, thanks for your reply. My weekly take home is, as you say below £192p/w, but I did not start the payments until week 25 of this tax yr and my earnings to date are over the 10k threshold for PSE to take effect, which is what surprised me about the higher NIC's. If I tweak my AVC's to take my weekly pay over £192, I take it that solves the problem.

Yes it should do.

Would my extra AVC payment also qualify for NIC relief? Many thanks.

All pension contributions qualify for tax relief, while NIC relief via PSE applies as long as your earnings are over that £192 per week threshold. So a £1.00 gross contribution means that you effectively only pay £0.68, because the amount you pay in income tax gets reduced by £0.20 and your NI is reduced by £0.12.

[nataddick]

As Robert mentions, the most effective way to contribute to your AVC is through PSE for the reasons given.

However, once you have determined the weekly contribution that will take you back into the PSE scheme, there is nothing to stop you making additional lump sum contributions into your AVC although you will not get the extra N.I. relief of 12%. I spoke to the Pensions team about my own Flexiplan and they advised me that I could pay up to £2,140 as a lump sum into it for the current tax year, in addition to my weekly contribution of £130.

So, if you are able to contribute more than the PSE scheme will allow you could save the excess up for several months and then make a lump sum payment and then repeat it when it suits. This is the funding method I have chosen.

The HR Service Centre are unable to provide tax relief through pay for lump sums but they should provide you with a tax certificate that would enable you to claim relief via you tax office.

[foxyjarvis]

Thanks RobertT and nataddick. I tried to resolve this over the phone today but it's going to require more form filling. It's been a bit frustrating dealing with the people at Chesterfield. I said I wanted to lower my AVC's to the point where PSE comes back into play. This was construed as asking for financial advice and they were unable to do that. They managed to stop my PSE without my asking, so it all seems rather petty. There is an AVC team there but you can't speak to them, you have to go through the person who takes your call. I mentioned this forum, but they said there was a block put on it where they work. They could do with unblocking it, and getting a bit more proactive.

[nataddick]

foxy - the experience you have had with the Pensions Helpline is so typical of my own and that of others which is why the help provided by Robert T, in particular, is so valuable. Robert aims to help and inform in a clear and concise mannner and provides useful additional sources of reference for forum users to explore. Sadly, most of the Pensions Helpline staff are very reluctant to provide any information that can be construed as having given financial advice.

You may have already worked it out by now, but if not, work on the basis that your net pay will go up by 68% of every £1 you pay into your AVC you won't be far out. So, a reduction in your AVC of say £50 will see your net pay go up by £34. I would aim to get my net pay over £200 p.w.

Don't know if the AVC team told you but it can take a couple of weeks to change a) your weekly contribution and b) a fund switch or percentage change. In the meantime, all is not lost as you are still getting 20% tax relief on all of your weekly contribution and are only losing the 12% extra on the amount that would fall within the PSE contribution limit.

[Hawkey99]

Just wondered can you take your AVCs at 55 and leave both NRA 60 and NRA 65 until they are due.

Thanks

[RobertT]

Just wondered can you take your AVCs at 55 and leave both NRA 60 and NRA 65 until they are due.

Thanks

Yes you can, it's covered in the 'new pensions flexibility' sticky here: http://www.royalmailchat.co.uk/communit ... 27&t=69013" onclick="window.open(this.href);return false;

[Hawkey99]

Hi Robert,

Probably me but I can't find it on the sticky. ??

Thanks

[RobertT]

What are ‘money purchase’ benefits?
This is where your pension contributions are saved and invested in an account (or pension ‘pot’ as the media calls it) The amount in your pot when you retire is based on how much has been paid in and how well the investments have performed. If you pay into to one of the Plan’s Additional Voluntary Contribution (AVC) schemes, like Flexiplan or Bonusplan, then these are money purchase benefits. Please note that Addplan contributions buy additional service (benefits) in the main Plan. They aren’t money purchase benefits, so aren’t affected by these changes.

At the moment, when you take your main Plan benefits, you can already choose to use your AVC pot as part of the maximum amount of tax-free cash you can take. Or you can use your AVC pot to buy a pension (also called an annuity). An annuity is simply retirement income that is paid to you regularly, usually for life.

Am I affected?
From April 2015, if you have money purchase benefits (such as AVCs) you won’t have to buy an annuity and you can take your pot at any time from age 55.

[westy23]

I keep reading that you can take 25% of your avc as tax free cash, what is it 25% of?

[RobertT]

I keep reading that you can take 25% of your avc as tax free cash, what is it 25% of?

Some employers only allow you to take 25% of the value of your AVC pot tax free, but RM let us take 25% of the total value of our main RMPP benefits plus our AVC’s combined.

An easy way of working out the total value of your RMPP pensions is:

Section A/B – multiply the ‘total pension’ amount on your annual statement by 20, then add on both the lump sum and the value of your AVC’s.

Section C - multiply the ‘total pension’ amount on your annual statement by 20 and then add on the value of your AVC’s.

In both cases 25% of the total is the maximum you can take as a tax free lump sum.

There is more detail in the link I provided a couple of posts ago.

* However if you choose to take your AVC’s separately, only the first 25% would be guaranteed to be tax free with the rest being treated as income.

[Hawkey99]

Hi Robert,

Cant find anywhere on my benefit that it says "total pension".

Is it the Estimated benefit at 60 plus the estimated benefit at 65 x 20 plus any AVC and then divide by 4 to get your total tax free lump sum.

Also would you add your pension supplement into each of these figures.

Thanks

[RobertT]

Hi Robert,

Cant find anywhere on my benefit that it says "total pension".

Is it the Estimated benefit at 60 plus the estimated benefit at 65 x 20 plus any AVC and then divide by 4 to get your total tax free lump sum.

No it’s the total pension figure on page 4 – it relates to your final salary pension up to 2008 and your CSDB pension from then to 2016 added together. This is the amount you’d get if you could take all of your pension unreduced as of 31 March 2016. Therefore it is the current actual value of your RM pension as a whole.

The estimated figures at 65 are now largely irrelevant because of the expected closure of the RMPP, unless of course you expect to reach 65 before then.

Also would you add your pension supplement into each of these figures.
Thanks

Yes.

Let’s say your total pension is £5,000 and as a section C member you also have a £1,000 supplement, plus £20,000 in AVC’s. That would give a total ‘pot’ of £140,000, giving you a max tax free lump sum of £35k.

And before anyone asks, no you can’t take it all as cash!