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More relaxed tax laws introduced in April 2006 allow you to draw up to 25% (a quarter) of your total ‘pensions pot’ as a tax free lump sum. So this allows you to add the total value of your AVCs to the total value of your main Fund benefits and take a quarter of the total amount.
So especially if your AVC pot is small compared to the value of your main benefits, you may be able to take all of this as a lump sum.
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Working out how much scope you have is fairly complex, especially if you also wish to convert some of your ordinary Fund pension into lump sum. We will be able to explain your own position close to the time you retire, but this example gives you the basic idea: |
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Brenda’s main Fund pension is £8000. Suppose she also has an AVC worth £20,000, this is how the taxman will value her ‘total pensions pot’.
| HMRC valuation of benefits: |
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| Fund benefits: |
£160,000 |
| AVC: |
£20,000 |
| Total pensions pot: |
£180,000 |
Tax limits allow Brenda to take up to 25% of her ‘total pension pot’ as tax free cash, in other words £45,000. So she can take all of her AVC as cash as it is well within the limit. In fact she would also have some scope to turn pension into lump sum too. |
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 More about drawing your AVCs as a pension
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