Contributing more than 150% to AVC for 40% tax payer

Discussion in 'Pensions' started by Logo, 14 Feb 2019.

  1. Logo

    Logo Frequent Poster

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    Last edited: 14 Feb 2019
    Retirement is within the next five years with a DB pension, 20+ years of service and having contributed AVCs to allow a retirement lump sum of 150% of revenue max limit and in 40% tax bracket. I'm wondering if there is any financial benefit in continued investment in AVCs? Just matching company 4% at the minute.
    Thanks in advance.
     
    Last edited: 14 Feb 2019
  2. Conan

    Conan Frequent Poster

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    The max retirement lump sum is 150% of Final Salary (inclusive of any BIK, bonuses etc) provided you have at least 20 years service. So using an AVC pot to top up what the scheme provides to the 150% figure makes sense, very tax-effective.
     
  3. Logo

    Logo Frequent Poster

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    Last edited: 14 Feb 2019
    Thanks for your prompt reply Conan. I assume that the Final Salary figure from the P60 (gross pay less any superannuation contributions allowable for income tax purposes) will include declared BIK, bonuses etc. So there is no financial benefit in my continued AVC payments to match the employers 4%?
     
    Last edited: 14 Feb 2019
  4. Conan

    Conan Frequent Poster

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    Certainly investing AVCs to maximize the retirement lump sum is very tax effective. I am not clear on the 4%+4%. If you are in a DB scheme are you saying that the Employer will match your 4% AVC as an additional contribution to a DC scheme? This seems unusual.
    Whilst it is arguable that you should contribute AVCs to fund additional Pension income (as opposed to only contributing to maximize the lump sum) if that additional pension income is going to be taxed at 40% + 4% USC, if you are saying that the Employer WILL match that 4% into an additional DC scheme, then it may be worthwhile investing the 4% AVC in order to get the additional 4% from the Employer.
    But you need to clarify whether the potential 4% from the Employer is in addition to what it contributes to the DB scheme?
     
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  5. Logo

    Logo Frequent Poster

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    Thanks Conan for the reply. I will have to check that out.
     
  6. Chancer

    Chancer Frequent Poster

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    Not sure if this the right thread or whatever to ask in but;
    I'm in an occupational DB scheme and I've worked up the maximum 40 years service which entitles me to 1.5xfinal salary (about 90K). I've also got about 100K in AVCs.
    1) Can I take the full AVC balance tax free in a lump when I retire as the total lump sum will be less than 200K?
    Or
    2) Is the AVC fund like a separate DC fund and I can only take 25% of its value as a tax free lump sum?
    Or
    3) Can I only take 1.5x final salary as a tax free lump sum?

    I've been able to find revenue stuff about "Excess lump sums" where lump sum taken is > 200K, but I cant find anything about "excess lump sums" where the lump sum is > 1.5xannual salary but less than 200k. It certainly seems that an occup pens scheme has to give lump sums <=1.5 final salary for the scheme to remain revenue-approved, but it's not clear that the total amount an individual in an occupational scheme can get in total pension lumps is 1.5xfinal salary or 200k whichever is the lesser.
    What if I left my current employment and started a 3rd fund, and ended up retiring for some reason, at half my current annual pay, (say 30K) would my tax free lump sum from all 3 pensions be restricted to 1.5x30k = 45K? Doesn't seem likely????

    Basically what Im asking is; Is the max tax free lump sum 200K plain and simple, or could it be less depending on exactly what your final salary, or years at work, were?