AVC lump sum tax

C

confused87

Registered User
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35
Hi,
Have tried to find exact answer on many threads but could not. Lots of colleagues have different opinions on this. Essentially i have db pension and dc scheme where i and company contribute avcs. So say i have salary of 150k and dc pension fund of 500k. I don't want to take from my db fund. Am i entitled to higher of 25% of the 500k in dc fund or 1.5times my salary which would be 225k. So i think i am entitled to 200k lump sum tax free from my dc pot and pay 20% on remaining 25k. That's all fine but what way is the other 275k in my dc fund taxed at if i didn't put it into arf or annuity? Thanks for any info.
 
S class said:
Do you have two separate employments ?
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No i have db care scheme and dc fund from 1 employment that i make avcs along with small contributions from company into dc fund. We were always told use our avc fund to take our lump sum to keep db weekly pension at max. So if i was taking my lump sum from 500k avc pot at 150k salary are my calcs right, 200k tax free and 25k @ 20%. Is the other 275k taxed at marginal rate then?
 
confused87 said:
No i have db care scheme and dc fund from 1 employment
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I don't know what a DB care scheme is.

Normally if you have a DB pension scheme from an employment, any AVCs from that employment must be subject to the rules of the DB pension scheme. That means that your maximum tax free lump sum would be 1.5 times final salary up to 200k and the extra amount at 20,%

Any extra drawdowns from your AVCs would be taxed at your marginal rate.

You can only take benefits from your AVCs when you start your DB pension. So you would be basically taking your tax free lump sum from the DB scheme.
 
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Care is career average revalued defined benefit. As I thought so, you would be surprised at the amount of who thought 200k tax free and 20% up to 500k not understanding that you have to qualify for a lump sum and your account pot is not the lump sum. It is quite confusing though, I initially thought the same.
 
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I had something similar at a previous employment - company DB scheme, but if I made AVCs it went into a DC scheme. Both tied together in terms of timing/retirement age, lump sum etc.
First- do you have your last annual pension fund statement? This will tell you what you have built up in terms of lump sum and pension benefits so far.
Secondly it’s not as simple as 1.5times current or final salary - especially if it’s a Care scheme, as by definition it’s a career average calculation, not your final salary that counts; and also the 1.5times assumes a full 40years at that company (I think the real formula for lump sum is tenure*3/80*care salary)
 
If the poster has been in this employment for at least 20 years, the revenue allowable tax free lump sum would be 1.5 times final salary. Any shortfall from this amount from the DB scheme could be made up from the AVCs. There are a few different methods of calculating final salary and the most beneficial method can be used.
 
Yes i will be in this employment hopefully 39 years before i retire. According to everybody i talk to here, you use 1.5times salary of average of best 3years from last 10 for lump sum. The career average relates to pensionable salary to the db weekly pension, its worked out on 1/60ths per year. I get 2 statements one with dc avcs and other db which does give option of weekly pension or lumpsum and reduced weekly pension. Its why people here do avcs so you use that as your cash lump sum and leave db at its max weekly payout.
 
confused87 said:
Its why people here do avcs so you use that as your cash lump sum and leave db at its max weekly payout.
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Is that a good idea ?

Suppose you die shortly after starting your DB pension. Your larger monthly pension would be cut in half as a spouses pension.

Would you not be better off to take maximum tax free lump sum from the DB pension and then use the AVCs to make up any extra tax free lump sum available and then set up an ARF with the remainder of the AVCs to supplement your lower DB monthly pension payments.
 
The pension person here suggest using avcs as lump sum, don't think you can really plan for death too much. My avcs will have maximum tax free lump sum in it anyway . Remainder in avcs will go arf then and ill keep db pension at max weekly sum that's guaranteed.
 
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