There are various ways in which you will be able to use your AVC fund to buy extra retirement benefits when your BTPS benefits become payable, and we strongly recommend you read the "AVC options at retirement" guide in the Useful documents section of this website.
If your AVC fund is greater than £5,000 you may either take it as a lump sum* (within HMRC limits); purchase a pension on the open market; or transfer the value of the fund to one or more alternative pension providers. If your AVC fund is less than £5,000 then in addition, you may purchase additional pension within the BT Pension Scheme. If you wish to transfer your AVC fund to an alternative pension provider then you must contact Peopleline to confirm this before selecting your retirement options through the portal or completing a Benefit Crystallisation Form.
*Note that if you have AVCs with a total value in excess of 25% of the value of your entire BTPS benefits you can take all your AVCs as cash. If you elect to do this you will be liable to pay tax (at your marginal rate) on an element of your cash sum. If you are considering this option please contact Peopleline for further details before selecting your retirement options through the portal or completing a Benefit Crystallisation Form.
HMRC allows you to take 25% of the capital value of your total BTPS benefits, including AVCs, as a tax free cash sum, capped at a quarter of the standard lifetime allowance.
If you chose to purchase a pension on the open market (ie an annuity), this is something the Trustee can arrange on your behalf if you wish.
In deciding how to use your AVC fund, we recommend you use the Government’s Pension Wise service (click Pension Wise on the left hand menu for details) and consider contacting an independent financial advisor.
There is no HMRC limit on the amount of retirement benefits (i.e. pension and lump sum) you can build up during your working life. However, if the total value of your retirement benefits from all sources (i.e. BTPS, AVCs, Freestanding AVCs, past employers’ registered pension schemes or Personal Pension arrangements) exceed the Lifetime Allowance, you will be required to pay a Lifetime Allowance charge. The Lifetime Allowance for the 2016/17 tax year is £1 million.
HMRC has introduced complex rules to prevent the systematic exploitation of the tax rules that involve members withdrawing the tax-free lump sum at retirement (known as the pension commencement lump sum) and which is then reinvested back into a registered pension scheme, automatically generating further tax relief on the amount invested. This in turn allows a further tax-free lump sum to be paid out, and is known as recycling. HMRC may treat substantial payments paid into the pension scheme before retirement as an attempt to recycle the pension commencement lump sum.
The tax payable on the amount that is deemed to have been recycled is 55% of that payment.