AVCs - Past, Present, and Future Options for Retirement Savings

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AVCs
“The Past, the Present
 and the Future”
 
Northamptonshire Pension Fund Employer Forum
October 2014
Robert Stormonth, National Account Manager
 / telephone  01236 763486
Robert.stormonth@prudential.co.uk
 
 
2
 
Key dates
 
The Past
 1988 – AVCs introduced for all 
occupational
 pension schemes
 2006 – “A” Day – pension simplification !!
 2008 – New LGPS – no automatic lump sum accrual
The Present
 2014 – New LGPS – changes to AVC rules
The Future
 2015 – Freedom and Choice in Pensions – 
expected
 flexibility for AVC members
 
 
 
AVCs - The Past
 
Flexible method of saving extra for retirement
Start/stop/increase/decrease
Investment choice and control – attitude to risk/time to retirement
Tax efficiency
Tax relief on contributions
Largely tax free growth
Pre 31.3.2014 
AVC plans 
– up to 100%  tax-free cash sum
Scheme summary at 30 June 2014
574 active members
£688k annual “voluntary” contributions / £2.7m funds invested
42 retirees in past 12 months – average AVC pot of £10k
 
 
3
 
AVCs - The Present
 
2014 New LGPS
Intention to restrict tax free cash to 25%
Funds > tax free cash taken 
used to purchase scheme pension or annuity
Post 
31
st
 March 2014 AVC plans 
only
Regulation amendments awaited to reflect above
Still tax efficient method of saving for retirement
Budget – March 2014
Freedom and Choice in Pensions
“Pensioners will have complete freedom to draw down as much or as little
of their pension pot as they want, anytime they want. No caps, no
drawdown limits”
Effective from April 2015
Money purchase arrangements including AVCs in scope
 
 
4
 
AVCs - The Future
 
April 2015 – new “Freedom” flexibility for AVCs
Pre 
1
st
 April 2014 
AVC 
plans
 – still up to 100% tax-free
Intention is for new flexibility to be allowed for LGPS members
 
What does this mean?
AVCs will remain a very flexible and tax efficient way of saving for
retirement
Greater expected
  flexibility as to when and how 
benefits are accessed
More flexibility = More options = More complex??
Communication will become even more important
 
 
5
 
So what are the options from April 2015
 
Accessing your AVC fund
From age 55
From 57 with effect from 2028 (linked to SPA – 10 years behind)
Options
Depend on what DCLG permits/Prudential proposition.  Some or all of:
Cash withdrawal(s) direct from LGAVC (25% of each withdrawal tax-free)
Flexi-access drawdown – one or more lump sums/income (no restrictions)
Scheme Pension
Annuity – restrictions on annuities being lifted from April 2015
Pre 31
st
 March 2014 AVC 
plans
 – 100% tax-free still available subject to
overall HMRC 
limits
 
 
6
 
Some new pension terms!
 
Uncrystallised Fund Pension Lump Sum
UFPLS for short!
Where 
part or all of AVC is encashed from age 55
Can be accessed 
over time 
with 25% of each payment tax-free and
remainder taxed
 
at the member’s marginal rate
 May not want to access all at same time for tax reasons
Flexi-Access Drawdown
FAD for short!
Member can 
designate funds 
to a FAD, access his 25% tax-free cash and
draw down phased taxable 
income
 over period of time
Money Purchase Annual Allowance
Applicable when 
member accesses pension savings flexibly including:
UFPLS & taking funds from a FAD
 
 
 
 
7
 
Budget 2014 – Guidance Guarantee
 
To be delivered by independent delivery partners
 
Pensions Advisory Service
 
Money Advice Service
Schemes will be under a duty to ensure signposting
FCA will set standards for guidance and will monitor compliance
Equivalent legislative requirements on trustees
Range of access methods
Not intended to replace full regulatory advice
 
 
8
 
Communication and your support will be vital
 
Prudential commitment to public sector AVCs
 
Over 60,000 LGPS AVC payers across UK
 
AVC provider to 73 out of 99 LG schemes
Communication support
Staff presentations at work locations
o
15-20 attendees / 45-60 minutes duration
o
Main scheme awareness / improving benefits
o
Emailed invite / on-line booking system (minimise employer burden)
o
Follow up survey monkey to review feedback
Website – www.pru.co.uk/localgov
Telephone support team – 0800 032 6674
 
 
9
 
Summary
 
Never a dull moment in pensions!
Changes are designed to encourage more saving for retirement
As these are being introduced by the Government the public
sector schemes are committed to introducing the greater
flexibility for their members
Although more complex overall the greater flexibility is good
news for members
Communication even more important
We are here to help!
 
 
10
10
 
Important Information
 
Where this presentation contains some forward thinking
Where this presentation contains some forward thinking
statements, these should not be taken as fact.
statements, these should not be taken as fact.
Where applicable, the information given is based on our current
Where applicable, the information given is based on our current
understanding, as at  September 2014, of LGPS Scheme
understanding, as at  September 2014, of LGPS Scheme
regulations, current taxation, legislation and HMRC practice, all of
regulations, current taxation, legislation and HMRC practice, all of
which are liable to change
which are liable to change
 
 
11
11
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Explore the evolution of Additional Voluntary Contributions (AVCs) in pension schemes from their introduction in 1988 to the latest changes and the anticipated future flexibility for members. Learn about the tax efficiency, investment choices, and options for accessing AVC funds, providing a comprehensive view of retirement planning strategies.


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  1. AVCs The Past, the Present and the Future Northamptonshire Pension Fund Employer Forum October 2014 Robert Stormonth, National Account Manager Robert.stormonth@prudential.co.uk / telephone 01236 763486

  2. Key dates The Past 1988 AVCs introduced for all occupational pension schemes 2006 A Day pension simplification !! 2008 New LGPS no automatic lump sum accrual The Present 2014 New LGPS changes to AVC rules The Future 2015 Freedom and Choice in Pensions expected flexibility for AVC members 2

  3. AVCs - The Past Flexible method of saving extra for retirement Start/stop/increase/decrease Investment choice and control attitude to risk/time to retirement Tax efficiency Tax relief on contributions Largely tax free growth Pre 31.3.2014 AVC plans up to 100% tax-free cash sum Scheme summary at 30 June 2014 574 active members 688k annual voluntary contributions / 2.7m funds invested 42 retirees in past 12 months average AVC pot of 10k 3

  4. AVCs - The Present 2014 New LGPS Intention to restrict tax free cash to 25% Funds > tax free cash taken used to purchase scheme pension or annuity Post 31st March 2014 AVC plans only Regulation amendments awaited to reflect above Still tax efficient method of saving for retirement Budget March 2014 Freedom and Choice in Pensions Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want. No caps, no drawdown limits Effective from April 2015 Money purchase arrangements including AVCs in scope 4

  5. AVCs - The Future April 2015 new Freedom flexibility for AVCs Pre 1st April 2014 AVC plans still up to 100% tax-free Intention is for new flexibility to be allowed for LGPS members What does this mean? AVCs will remain a very flexible and tax efficient way of saving for retirement Greater expected flexibility as to when and how benefits are accessed More flexibility = More options = More complex?? Communication will become even more important 5

  6. So what are the options from April 2015 Accessing your AVC fund From age 55 From 57 with effect from 2028 (linked to SPA 10 years behind) Options Depend on what DCLG permits/Prudential proposition. Some or all of: Cash withdrawal(s) direct from LGAVC (25% of each withdrawal tax-free) Flexi-access drawdown one or more lump sums/income (no restrictions) Scheme Pension Annuity restrictions on annuities being lifted from April 2015 Pre 31st March 2014 AVC plans 100% tax-free still available subject to overall HMRC limits 6

  7. Some new pension terms! Uncrystallised Fund Pension Lump Sum UFPLS for short! Where part or all of AVC is encashed from age 55 Can be accessed over time with 25% of each payment tax-free and remainder taxed at the member s marginal rate May not want to access all at same time for tax reasons Flexi-Access Drawdown FAD for short! Member can designate funds to a FAD, access his 25% tax-free cash and draw down phased taxable income over period of time Money Purchase Annual Allowance Applicable when member accesses pension savings flexibly including: UFPLS & taking funds from a FAD 7

  8. Budget 2014 Guidance Guarantee To be delivered by independent delivery partners Pensions Advisory Service Money Advice Service Schemes will be under a duty to ensure signposting FCA will set standards for guidance and will monitor compliance Equivalent legislative requirements on trustees Range of access methods Not intended to replace full regulatory advice 8

  9. Communication and your support will be vital Prudential commitment to public sector AVCs Over 60,000 LGPS AVC payers across UK AVC provider to 73 out of 99 LG schemes Communication support Staff presentations at work locations o 15-20 attendees / 45-60 minutes duration o Main scheme awareness / improving benefits o Emailed invite / on-line booking system (minimise employer burden) o Follow up survey monkey to review feedback Website www.pru.co.uk/localgov Telephone support team 0800 032 6674 9

  10. Summary Never a dull moment in pensions! Changes are designed to encourage more saving for retirement As these are being introduced by the Government the public sector schemes are committed to introducing the greater flexibility for their members Although more complex overall the greater flexibility is good news for members Communication even more important We are here to help! 10

  11. Important Information Where this presentation contains some forward thinking statements, these should not be taken as fact. Where applicable, the information given is based on our current understanding, as at September 2014, of LGPS Scheme regulations, current taxation, legislation and HMRC practice, all of which are liable to change 11

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