AVC tax-free cash curbed under LGPS regulations

The rules - part of the LGPS 2014 regulations - will apply to workers who joined AVC schemes from 1 April, who will be limited to taking 25% of this pot as tax-free cash.

Historically, tax-free cash was calculated using a combination of the main scheme and the AVC, and LGPS members could choose where to take their at-retirement lump sum from.

Prudential head of corporate pensions Russell Warwick explained: "The intent of the rules from the 1 April will be that effectively they will take the cash they're entitled to from the main scheme and up to 25% from the AVC but they'll be calculated as two separate items."

The changes formed part of a wider public sector reform package, with the governance of funds set to be overseen by local boards under the remit of The Pensions Regulator (TPR) (PP Online, 21 May 2013).

Warwick said the change to AVCs put them on a par with other pension arrangements, although they retained an extra level of flexibility in how they could be used at retirement.

"It brings parity to the way in which a member could choose to make an alternative pension arrangement. AVCs are still a very valuable approach for members to enhance their pension benefits," he said.

Warwick also pointed out that the changes to AVCs could be subject to further alterations considering the raft of reforms announced by Chancellor George Osborne in last month's Budget.

He added: "The exact basis on which that will work and how that will apply to AVCs clearly at this early stage is still not known, but that's no different to all other pension arrangements.

"There's an added complication that obviously something additional has come along and as yet, until that's all worked through the processes, we won't know the answer to exactly how that will work post that situation."

• Tweet  
• Facebook  
• LinkedIn  
• Send to  

• Topics
• Industry
• LGPS 2014
• AVCs