Potential to do AVCs to boost tax-free lump-sum in PS with long service?

C

Cantillon

Registered User
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Hello,
  • Currently age 47, started work at age 23.5, public service
  • In the post April 1995 DB scheme, before 2004
  • Pensionable from age 25.5
  • After 40 years working, will be age 63.5
  • At age 65, will have worked for 41.5 years with same PS employer
  • Current salary = 80k

At age 60, will have 34.5 years approx in pension scheme
At age 65, will have 39.5 years approx in pension scheme

I don't expect to retire at 60, but I don't want to go 65 either.

Let's say retire at age 63, with 37.5 years pensionable service, so missing 2.5 years

I am trying to calculate max AVC that I could build up to turn into a tax-free lump-sum:

(80k)(3/80)(2.5) = 7,500

Is that correct? It looks low?

Any AVC beyond that would have to be transferred into an ARF?

Thanks.
 
Cantillon said:
Hello,
  • Currently age 47, started work at age 23.5, public service
  • In the post April 1995 DB scheme, before 2004
  • Pensionable from age 25.5
  • After 40 years working, will be age 63.5
  • At age 65, will have worked for 41.5 years with same PS employer
  • Current salary = 80k

At age 60, will have 34.5 years approx in pension scheme
At age 65, will have 39.5 years approx in pension scheme

I don't expect to retire at 60, but I don't want to go 65 either.

Let's say retire at age 63, with 37.5 years pensionable service, so missing 2.5 years

I am trying to calculate max AVC that I could build up to turn into a tax-free lump-sum:

(80k)(3/80)(2.5) = 7,500

Is that correct? It looks low?

Any AVC beyond that would have to be transferred into an ARF?

Thanks.
Click to expand...
I was searching for answers to a similar questions last year: https://www.askaboutmoney.com/threa...ace-state-pension-without-overfunding.224835/

I found these two threads useful:

AVCs with full service

Hi, Public Sector Pensions seem to be a minefield. A point was made in another thread which it would be good to see clarified. If someone has full (i.e. 40 years’) service, am I right in saying that they can build an AVC pot equal to the amount that would be required to fund the State Pension...
www.askaboutmoney.com

Over-Contribute to Pension; Compounding Benefit?

Hopefully someone can clear up something for me … I am 41, so I can contribute 25% of my gross salary to a pension and get tax relief on it. This tax relief will be at my marginal rate, i.e. 40%. The general advice would be that maximising one’s tax relief allowances is very tax-efficient so I...
www.askaboutmoney.com
 
Cantillon said:
80k)(3/80)(2.5) = 7,500

Is that correct? It looks low?

Any AVC beyond that would have to be transferred into an ARF?
Click to expand...

That figure is correct, and that brings you to your tax-free max. Beyond that you are in ARF territory. If you just want the lump sum top up then a "last minute AVC" may be the way to go.

However, you indicate that you started in the PS at 23.5 years and only became pensionable at 25.5 years. You should be able to buy back" those two years for pension purposes. This is not the same as purchasing "notional service".They are often confused but buying back actual service (if you have it) is much cheaper that NS and is good value. This would give you almost the maximum tax free figure at 63.5 years, plus topping up your annual pension to 39.5/80. I suggest you get a quote for this from your HR.
 
Early Riser said:
That figure is correct, and that brings you to your tax-free max. Beyond that you are in ARF territory. If you just want the lump sum top up then a "last minute AVC" may be the way to go.

However, you indicate that you started in the PS at 23.5 years and only became pensionable at 25.5 years. You should be able to buy back" those two years for pension purposes. This is not the same as purchasing "notional service".They are often confused but buying back actual service (if you have it) is much cheaper that NS and is good value. This would give you almost the maximum tax free figure at 63.5 years, plus topping up your annual pension to 39.5/80. I suggest you get a quote for this from your HR.
Click to expand...
Yes, there was a time when temporary staff didn't contribute to the scheme, maybe that's the reason.

It's actually mandatory so the poster needs to make sure he has paid it and if not start. Contact the local pension department.
 
I understand what you mean by buying Actual Service vs Notional Service.

For the first eight years in the job, I had four 2yr contracts, and I was not in the pension scheme.

In year 9, I got a permanent contract, and I started paying superannuation contributions into the pension scheme.

I think my pay lifted in year 9.

I am now being credited with years 3-8 in the pension scheme, I don't know why. I presume it's related to being paid on a lower scale in years 1-8.
 
Cantillon said:
I understand what you mean by buying Actual Service vs Notional Service.

For the first eight years in the job, I had four 2yr contracts, and I was not in the pension scheme.

In year 9, I got a permanent contract, and I started paying superannuation contributions into the pension scheme.

I think my pay lifted in year 9.

I am now being credited with years 3-8 in the pension scheme, I don't know why. I presume it's related to being paid on a lower scale in years 1-8.
Click to expand...
OK. I'm not familiar with the Civil Service scheme. In the HSE temp staff did not pay into the scheme but once they became permanent they have to pay for all service.
 
becky said:
In the HSE temp staff did not pay into the scheme but once they became permanent they have to pay for all service.
Click to expand...

It is not unusal to come across situations in which people have service which was not made pensionable. Maybe it is more unusual nowadays, I dk.
People may accrue service in different PS departments/areas before securing a pensionable position. With the passage of time the difficulty can become one of getting these non-pensioned periods of service verified. The earlier it is done the less likely this is to arise. Pension departments are supposed to check with applicants for notional service about any prior non-pensioned service but I don't know if it is always done. And most people don't appply for notional service.
I had two years to have verified (it was several years earlier in a different section of the PS with different administration) and it took a lot of persistence. There was no question about this when I joined the pension scheme originally and no indication that I needed to, or could, pay for prior service. If I hadn't initiated the pursuit it would not have happened.
 
Early Riser said:
It is not unusal to come across situations in which people have service which was not made pensionable. Maybe it is more unusual nowadays, I dk.
People may accrue service in different PS departments/areas before securing a pensionable position. With the passage of time the difficulty can become one of getting these non-pensioned periods of service verified. The earlier it is done the less likely this is to arise. Pension departments are supposed to check with applicants for notional service about any prior non-pensioned service but I don't know if it is always done. And most people don't appply for notional service.
I had two years to have verified (it was several years earlier in a different section of the PS with different administration) and it took a lot of persistence. There was no question about this when I joined the pension scheme originally and no indication that I needed to, or could, pay for prior service. If I hadn't initiated the pursuit it would not have happened.
Click to expand...
Is all non-pensionable service "available" to buy?

I held temporary and hourly paid positions for a few years before my official pension join date.

I am buying notional service and was never made aware of the possibility of buying actual service.

I have already asked HR.
 
iamaspinner said:
Is all non-pensionable service "available" to buy?
Click to expand...

Generally all temporary wholetime service is pensionable. Part-time service may be pensionable.

Chapter 8 of The Superannuation Handbook gives an outline of what type of service is "reckonable" for the purposes of the Pension Scheme. See especially 8.2 and 8.3. If your service is "reckonable" then it should be possible to make it pensionable now (or before retirement) by paying the appropriate contributions. The service has to be verified (officially confirmed). I don't know about the Single Scheme - they may not have this facility.


(Although this is "Civil Service" the terms are generally similar throughout the PS).
 
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