You have a number of options to choose from when you decide to take money from your AVC pot, which you can currently do from age 55 (57 from 6 April 2028, unless you have a protected pension age), or possibly earlier if you're in ill health. These options give you greater choice and control over how and when you retire. You don't need to take your NHS pension benefits at the same time.
You can do this by moving your money into a drawdown plan. In most cases you can take up to 25% of your money tax-free, you’ll need to do this at the start. You can then dip in and out when you like or take a regular income. This may be subject to income tax.
You can buy an annuity – it pays you an income (a bit like a salary) and is guaranteed for life. These payments may be subject to income tax. In most cases you can take 25% of the money in cash, tax-free. You’ll need to do this at the start and take the rest as income. You can get a guaranteed income for life either at the same time you draw your NHS pension scheme benefits, or at a later date.
You can take your AVC pot as a single lump sum. Normally the first 25% is tax-free but the rest may be subject to income tax.
You can leave the money in your AVC pot and take out cash lump sums whenever you need to – until it’s all gone or you decide to do something else. You decide when and how much to take out. Every time you take money from your AVC pot, the first 25% is usually tax-free and the rest may be subject to income tax.
You don’t normally have to start taking money from your AVC pot when you turn 55 (57 from 6 April 2028, unless you have a protected pension age). It’s not a deadline to act.
You don’t have to choose one option – you can take a combination of some or all of them over time.
You might be able to take your benefits earlier than age 55 if you’re in ill health.
Regardless of your age, if you have a life expectancy of less than one year due to ill health, you may be able to take your pension pot tax-free.
For more information, please contact us.
Pension Wise is a free, impartial guidance service available to those aged 50 and over. It's offered by the Government to help you understand your options at retirement. Find out more from the Pension Wise website moneyhelper.org.uk/pensionwise or by calling 0800 280 8880 to book a phone or face-to-face appointment. We recommend that you use this service to help you understand your options.
Here's a reminder of how AVCs work, so you can decide if changing your AVC contributions is right for you.
One reason you might choose to save for your retirement with AVCs, alongside your main scheme pension, is the tax savings they offer.
Life isn’t always as simple as we'd like it to be. Some things take us by surprise and those surprises can cost money.
There’s no need to feel overwhelmed, when it comes to reviewing your AVC pot.
Prudential is an international financial services company, and long established provider of life insurance and pensions in the UK.