Using your AVC to protect your loved ones Life Assurance
> Of course, none of us want to die before we get to enjoy the freedom of retirement. But what if the worst did happen? You d want your loved ones to be looked after financially and using the option of Life Assurance through your Additional Voluntary Contributions (AVCs) could give them the security they need. If you did die before retirement, the full value of your AVC account would be paid to the person you nominated such as your spouse or civil partner or to your legal representative or whoever the Trustees or Managers of the scheme advise should receive the benefits. But for just a small monthly contribution, your dependants could receive greater benefits through either a lump sum or regular income. You would receive tax relief on your contributions because the life assurance benefit is set up as part of the overall AVC facility, and is treated as part of a registered schemes for HM Revenue and Customs purposes. 02 Using your AVC
> How much does life assurance cost? Even though the government removed the limits on life cover on 6th April 2006, there may still be restrictions on your main schemes and you should consult with your pension trustees or pension manager to establish what these limits are, if any. Prudential will continue to provide a minimum cover limit of 5,000. You may be liable for a tax charge if, the total cost of your life cover, together with the cost of your pension benefits to all pension arrangements, is in excess of the Annual Allowance. In such circumstances, you will be subject to an Annual Allowance Charge of 40% on the excess amount. Also, if the lump sum paid at death, together with the value of all your pension benefits payable, is greater than the Lifetime Allowance then you will be subject to a Lifetime Allowance Charge of 55% on the excess amount (reduced to 25% if retained to provide pension income). Lump sum The cost depends on the amount of Life Assurance you need, your age, your gender and medical requirements that are outlined in the application form. Table 1 shows an example of the current monthly costs, which could change in the future. When you buy Life Assurance, your contributions are deducted from your salary until you retire, leave service or cancel the option. Please note that your cover can not be transferred or continued if you leave service, and that cover must be applied for on an annual basis if you work past normal retirement age, but this would appear on the provisions of your main scheme. Using your AVC 03
Spouse or civil partner's pension You may also be able to buy a spouse or civil partner's pension by making extra contributions, which will later be used to buy a pension at the then current pension rates. This is subject to the limits on benefits of your employer s main scheme. Table 2 shows an example of the approximate amount of Life Assurance you d need to buy in order to provide 1 per year of spouse or civil partner's pension. These rates could change in the future. Lifetime Allowance The single overall limit called the Lifetime Allowance applies to all types of pensions regardless of how many you have and was introduced on 6 April 2006. This overall Lifetime Allowance was set at 1.75m for the 2009/10 tax year (increasing the following year to 1.8m before freezing at this figure until the 2015/16 tax year). If your current normal retirement age is earlier than 50, there are special rules which mean your Lifetime Allowance may be reduced when you take your benefits (including on death). 04 Using your AVC
Annual Allowance The Government has introduced an 'Annual Allowance'. This applies to the value of your total pension contributions each year to all pension plans. This overall Annual Allowance was set at 245,000 for the 2009/10 tax year (increasing the following year to 255,000 before freezing at this figure until the 2015/16 tax year). If the total of your pension contributions is in excess of this Annual Allowance you will receive a tax charge, called the Annual Allowance charge, of 40% on the excess amount. Where you are also a member of a salary related company pension scheme, any increases in the value of your pension during the year under that scheme will also count towards the Annual Allowance. Tax relief will normally apply to your contributions up to 3,600, or 100% of your earnings, if greater. The Annual Allowance doesn t apply in the year you take all benefits. As the tax relief limits remain the same this gives you further scope to maximise contributions, tax relief and benefits in the year of retirement, although tax relief is only available up to 100% of earnings. Using your AVC 05
Table 1: Cost of life cover example Annual premium for each 1,000 of life cover Your age attained on the next Scheme anniversary Men ( ) Women ( ) Up to 36 0.96 0.96 37 39 1.08 0.96 40 42 1.56 1.08 43 45 2.28 1.56 46 48 3.24 2.28 49 51 4.56 3.24 52 54 6.48 4.56 55 57 9.12 6.48 58 60 12.60 9.12 61 63 17.28 12.60 64 65 22.20 16.32 Note: To calculate your regular premium contribution divide annual premium by your payment frequency. 06 Using your AVC
Table 2: Life cover needed to provide pension Amount of life cover needed to provide 1 per year pension Your age attained on the next Scheme anniversary Men ( ) Women ( ) Up to 44 17 16 45 51 17 15 52 54 16 15 55 61 16 14 62 64 15 13 Note: The rates in this table are estimates only. This table assumes pensions won t increase each year and is to provide a pension for one person. The amount of pension will depend on the rates available at the time your beneficiary s pension is bought, so we can t guarantee them. Using your AVC 07
> Example This is just an example designed to represent a typical situation, and does not relate to any particular individual. You should not look upon this as financial advice or a recommendation of a particular course of action. You should consider your own circumstances fully, and may wish to consult a Financial Adviser to help you make a decision. John will be 40 on the next scheme anniversary and he earns 20,000 a year. Through his main pension scheme, he has Life Assurance of two times his annual earnings, but no spouse or civil partner's pension. He d like to double his current cover (a) and provide an extra spouse or civil partner's pension of quarter of his salary (b). 08 Using your AVC
Please note that the cost of Life Assurance increases with your age and you should review your Life Assurance needs regularly as you may wish to increase or decrease your cover. You should contact your usual pensions contact if this is the case. Extra Life Assurance required: a + b = (salary of 20,000 x 2) + (1/4 of 20,000 salary x 17 ( from table 2)) = 125,000 Extra cost: 125,000 x 1.56 (from table 1) = 195 per annum or 1,000 16.25 per month Please note that the cost of Life Assurance increases with your age and you should review your Life Assurance needs regularly as you may wish to increase or decrease your cover. You should contact your usual pensions contact if this is the case. Using your AVC 09
> Apply now If you re already convinced, simply complete the enclosed application form and return it to your employer or direct to Prudential if you work for the public sector or a university. Prudential will write to you if they need any further information and will confirm the details of when your cover may start. Alternatively, ask your usual pensions contact for a quote. Prudential reserves the right to vary the terms, conditions and expense charges described in this leaflet from time to time. 10 Using your AVC
www.pru.co.uk "Prudential" is a trading name of The Prudential Assurance Company Limited, which is registered in England and Wales. This name is also used by other companies within the Prudential Group, which between them provide a range of financial products including life assurance, pensions, savings and investment products. Registered Office at Laurence Pountney Hill, London EC4R 0HH. Registered number 15454. BTBF0029 06/2009