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AVC question

Discussion in 'Retirement' started by littlevanner, Aug 11, 2019.

  1. littlevanner

    littlevanner New commenter

    I have now decided I am definitely going next Summer. I have a reasonable TP pot but also about £60 k in AVC
    I am retiring in July next year so don’t want to access the AVC money until I am in a different tax year to avoid paying higher rate tax. Am I able to take the whole amount split over two financial years ie £30 k in 2021/22 and the reamainder in 22/23 ? I don’t really want to invest any of it for the proposed pension of £1500 a year .
    Any thoughts appreciated.
     
  2. Marshall

    Marshall Lead commenter

    I have an AVC of a similar amount. I saw an adviser through Pensionwise - free and recommended by my provider.
    You can take an initial 25% tax free - in whatever year.

    The options are wide and varied and your provider will refer you to get advice if you want to take the whole pot without putting it into an annuity.
     
    eljefeb90 likes this.
  3. eljefeb90

    eljefeb90 Senior commenter

    Usual disclaimer that I am not an expert, but I too had an AVC pot. Its purpose was to supplement my pension between the ages of 57 , when I retired, and my SPA of 66. As I understand it, you have 3 options:
    A. Take out the 25% tax free and put the 75% into another investment vehicle.
    B. Leave it where it is (or transfer it into another fund) and take out chunks , 25% of which will be tax free. This is what I do but you have to be careful that you don't end up paying higher rate tax.
    C. Take out an annuity. As you say, annuity returns are low so this wasn't an option for me.
    The fund is not so readily accessible as you appear to think and is hemmed around with safeguards for your own protection. If you need £60K in cash, use the tax free lump sum from the TPS and top it up with a chunk of the AVC.
     
    Marshall likes this.
  4. eljefeb90

    eljefeb90 Senior commenter

    More importantly, seek some professional advice from either a financial advisor, from Pension Wise or your AVC provider.
     
    littlevanner and Marshall like this.
  5. Marshall

    Marshall Lead commenter

    It's my understanding that you can take the whole lot provided you have taken advice (Pensionwise) but this will incur tax on the 75%.
    Your AVC provider will not give advice - they make this clear at the very beginning.
     
  6. Marshall

    Marshall Lead commenter

    Also - Pension wise don't give advice, they just tell you your options.
     
  7. harpplayer

    harpplayer New commenter

    You have more or less complete flexibility with an AVC. You can take it all out in one go, or in blocks of any amount you like. 25% is tax free. You will also typically pay a fee to make a withdrawal so it is best to make one withdrawal a year rather than 12 monthly withdrawals. If you are retiring early at e.g. 55, then it might be worth thinking about not taking your teacher's pension until you are 60, and withdrawing £12500 a year until you are 60, so you don't pay tax on any of it (because you pay tax on the total of all income over this amount) and your teacher's pension increases. Be aware that AVC's are run by companies, and each company has its own rules. You need to check with whoever you are with what they will and won't let you do and their charges, but you can of course transfer your AVC to a company that will let you do what you want to do easily.
     
    eljefeb90 likes this.
  8. diddydave

    diddydave Occasional commenter

    Yes.
    On your figures and using the current tax situation (which will undoubtedly change by then) you'd get 25% of each withdrawal tax free and pay tax on the rest, so presuming you don't have any other income its:
    £7,500 with no tax. (25% tax-free)
    A further £12,500 with no tax (personal allowance)
    Pay tax on the remaining £10,000 @ 20% (£2,000)

    So out of the £30,000 you'd receive £28,000
     
  9. littlevanner

    littlevanner New commenter

    Thank you
    This is what I was hoping to do as most of my TP lump sum is going on paying off the mortgage so I’d like it as a rainy day fund until the state pension kicks in
    Is it ok to leave it in the AVC pot for a couple of years after retirement before you take it all out?
     
  10. littlevanner

    littlevanner New commenter

    Thank you
    I’m assuming it will be added to my pension though so after the first 25% I’m guessing I’ll be paying 20% tax on the whole ?
     
  11. diddydave

    diddydave Occasional commenter

    Of course you could also consider putting in virtually all of your salary from April - August so that when you take it out in September you'll get the bonus of the 25% tax-free and then pay the tax you would have paid on the rest.
     
  12. diddydave

    diddydave Occasional commenter

    Yes you only get one personal allowance ;)
    So you'd get £25,500 out of the £30k.

    Tax @20% on £22,500 = £4,500 (So long as your pension and other income is less than £27,500 which would put you over £50k in total and into the higher tax bracket)
     
  13. littlevanner

    littlevanner New commenter

    it’s a thought though I’m massively overpaying the mortgage at the minute I’ll have to do the numbers and see if it works out more cost effective
    Thank you !
     
  14. diddydave

    diddydave Occasional commenter

    Note you'll need to check if this is still possible with everyone concerned but If you have a flexible mortgage then the Prudential will let you pay in a lump sum, I did mine by cheque, and you could do that in August and then have it back out a few weeks later!

    I don't think mortgage interest rates are anywhere near the 20% you'd get...BUT a word of warning - money put into the AVCs is not (I believe) guaranteed to hold its value because of its exposure to the stock market.
     
  15. nomad

    nomad Star commenter

    All the main Teachers' unions have pensions advisers. Use yours.
     
    eljefeb90 and Marshall like this.
  16. littlevanner

    littlevanner New commenter

    Thanks I will
     
    nomad likes this.
  17. littlevanner

    littlevanner New commenter

    A major worry with Brexit looming too !
     
  18. nomad

    nomad Star commenter

    It should be a free service (other than the fact that you have already paid for it through subscriptions). My union (NAHT) also offered a preparing-to-retire full day course, again without additional cost.
     
  19. littlevanner

    littlevanner New commenter

    I will contact NAHT and ask if they still offer it - haven’t seen it advertised at all , only the ones that cost £250 and are run on a Saturday by a private company!
     

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