AVCs

[garnery]

I too aim to have excess in my AVC fund after using it to maximise my tax free lump sums. My intention is to transfer the excess to another provider & draw it down pretty quickly while I am young enough to enjoy it.
I am surprised that Zurich themselves don’t offer drawdown schemes (maybe they will in the future). My partner is in a draw down scheme & has been averaging 4% growth after taking fees out, although she has only had it for two years.

[philip66]

Fair challenges.. taking each in turn, on the advice from PSC this morning they were adamant there was no variation to those options on the AVC options form so choosing 1a means you have to tick the box for XS AVC to be paid with tax deducted at your marginal tax rate (probably a mix of 20 and 40%) or alternatively tick the box to say you will use the XS to purchase an annuity.
Through the open market options you do not have to accept PSC’s ‘preferred’ provider Hargreaves Lansdown although you can agree for them to send you information. However, I spoke to their retirement desk this afternoon and they only offer a fairly limited number of products principally centred on the lifetime annuity which isn’t for me. Income draw down wasn’t mentioned.
I agree that it looks like I am simply moving the same problem between providers but I’d argue that if I can get a ‘better fit, of product to my particular circumstances then it will have been worth it. E.g HL don’t do Fixed Term Annuity plans but Legal and General and Canada Life do.
Completely agree the point on AVC transfer before benefits are taken.. but not applicable in my case and I doubt people will want to switch anyway ..perhaps better the devil you know!
Deferral of benefits.. I’ve already done this for a year and it means you have to fund your living expenses from other means and there is investment risk that your fund could go down so close to retirement so not an option for me. Clearly the size of the XS AVC is also a factor but in theory each year of deferral increases pension by say 5% and incrementally raises the tax free lump sum thereby reducing the AVC XS assuming pot values remain broadly the same. The closeness of ones age to NRA60 or NRA65 also plays a part.

[RobertT]

Philip66, you might find this thread from 3 years ago interesting, shortly after the pension flexibilities were introduced. Particularly this bit:

Removing the requirement to buy a pension at retirement has got the most publicity, but this won’t directly affect most of you.

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.

For most members with AVC pots, very little will change. Your AVC pot can still be used towards your tax-free cash from the Plan. However, some members who have particularly large pots may be affected. This is because if you have any AVC savings left after using them to fund your 25% tax-free cash from the Plan, you might be allowed to take more of your AVC pot as cash than before the changes, either from the Plan or by transferring them to another arrangement. Any cash taken above the current 25% tax-free limit would be taxed at your highest tax rate. Also, any further tax-deductible AVCs you pay would be limited to £10,000 a year.

I’ve had the need to contact the PSC on a number of occasions and consider them to be very poorly trained in the finer details of the RM pension/s.

On one particular occasion I wanted to transfer my AVC’s from one provider to another(before Zurich took them over) and they made a complete hash of it. The only way I got things sorted was to complain directly to the trustee.

Therefore I would suggest you should do the same regarding your excess AVC cash. Because in my opinion and based on the info I’ve provided, the PSC are providing you with incorrect information.

The trustee's contact details are here.

Please keep us informed.

[philip66]

Robert, firstly many thanks. I find it quite worrying that the guidance I’m getting might be inaccurate. The NRA60 and NRA 65 option forms demand that the AVC option form is completed otherwise they simply refuse to process it.choosing 1A limits you to (a) emptying your XS AVC pot under deduction of tax or (b) to use the XS to purchase an annuity. I think this might be where the confusion lies as picking (b) intuitively has to mean transferring out of Zurich e.g Cautious AVC fund to another provider. Once new provider receives the XS from Zurich , new provider will aim to sell you one of their products which might include income draw down as an alternative to buying an annuity.
I have sent PSC my choices today but caveated the basis on which I’ve made these choices predicated on PSC information given. I believe all conversations are recorded so I would point PSC back to a transcript of what they said if it is wrong.
I will happily share in good faith anything on my pensions journey that Royal Mail and Post Office colleagues might find useful.
My real disappointment is that from my thirties in RM I’ve been encouraged to save for my retirement but the team you expect to help in the final chapter appear to struggle with the detail and simply stick to a script which I can read from the forms myself. I too have found interactions frustrating like many on here. IFA’s too have an agenda and I question their true independence and ability to understand our scheme(s) although the PAS were good.
I will use the link to the Trustee if inaccurate information provided leads me down an unsuitable path.. thankyou for this.

[Neverwasadoor]

Has everyones AVC payments gone to the righthand side of wage slip?

[RobertT]

Has everyones AVC payments gone to the righthand side of wage slip?

Mine haven't.

[Neverwasadoor]

Thanks,
will have to check this out as my pension and AVC are on the left as normal then cancelled out as arrears and then put on the left side with tax and NI.

[mark.cup]

Mine have and it means you have dropped out of PSE all thanks to the pay increase that took a million years not happening when it should.....

[NWpostie]

Mine have and it means you have dropped out of PSE all thanks to the pay increase that took a million years not happening when it should.....

How much AVC are you paying to cause you to drop out of PSE ?

[heapsy]

Mine have and it means you have dropped out of PSE all thanks to the pay increase that took a million years not happening when it should.....

How much AVC are you paying to cause you to drop out of PSE ?

That wasn't the issue. I dropped out of PSE despite NOT increasing my payments from previous weeks. I seems to be linked either to the pay rise, which hasn't actually taken place yet, or maybe some sort of end of financial year accounting issue. Several people have mentioned the same issue with their pay. I'm back in PSE this week.

[mark.cup]

I pay £115 flexiplan plus bonusplan. I was paying that all of last year I've mentioned it on another thread it's because of the minimum wage going up to £7.83 and if you are seen to be earning less than this per hour after your pension contributions for your 39 hours Royal Mail drop you out of PSE

[heapsy]

I'm paying £118.88, total. A while back I increased my payments which then took me out of PSE for about 3 weeks, although not consecutively. I reduced them to the current level. If the minimum wage has increased then that should not be an issue. I fact, it means you have more money to play with, in theory at least. When you take your total contributions to AVCs away, you mustn't fall BELOW the minimum wag hourly rate, otherwise you drop out of PSE.

[mark.cup]

I'm paying £118.88, total. A while back I increased my payments which then took me out of PSE for about 3 weeks, although not consecutively. I reduced them to the current level. If the minimum wage has increased then that should not be an issue. I fact, it means you have more money to play with, in theory at least. When you take your total contributions to AVCs away, you mustn't fall BELOW the minimum wag hourly rate, otherwise you drop out of PSE.

It's the opposite if the minimum wage goes up you have to earn more after pension contributions to stay in PSE I've done the sums and I was fine all last year until the new minimum wage came into affect.

I had already sent in a form to increase mine to £125 a week expecting the pay rise to come straight in just means I will get stung on the national insurance for 5 or 6 weeks I guess