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In-house AVCs

It was compulsory to offer between 06/04/88 – 05/04/06

  1. Defined contribution basis; employers often subsidise costs but also allowed the PCLS entitlement from the DB scheme to be paid from this pot, meaning less income is commuted
  2. Added years basis; benefits provided in line with main scheme and is guaranteed as the member is buying additional years’ service in the DB scheme.

Question - Use Your Note Taker To Jot Down Ideas / Calculations

Harriet is about take the benefits from her company’s defined benefit scheme. She also has a money purchase additional voluntary contribution (AVC) fund and she has been offered the option of taking the entire AVC fund as a tax-free pension commencement lump sum (PCLS). The benefits of this course of action are that:

Select one:

a) she can still take the maximum PCLS from the defined benefit scheme as well as the entire AVC fund giving her a higher overall PCLS entitlement and she will receive a higher initial pension from the defined benefit scheme because it will be level rather than escalating.

b) she can still take the maximum PCLS from the defined benefit scheme as well as the entire AVC fund giving her a higher overall PCLS entitlement and she will receive a higher initial escalating pension from the defined benefit scheme.

c) less of the defined benefit scheme pension will need to be commuted for a PCLS and she will receive a higher initial pension from the defined benefit scheme because it will be level rather than escalating.

d) less of the defined benefit scheme pension will need to be commuted for a PCLS and she will receive a higher initial escalating pension from the defined benefit scheme.

D)

Chapter reference 4A2A

Due to Harriet being able to use the AVC pot as an immediate lump sum, she does not need to exchange more of her DB pension income for the lump sum that she is being offered.