Pension query, again
Discussion
Hi, Can anyone shed any light on the best way to add value to my pension using AVCs.
I currently pay into my workplace pension the full amount I can which is 5% of my basic earnings. Any on call, overtime, bonus paid is not included in that 5% so it remains a static amount throughout the year. This is the maximum the workplace pension will allow. My employer pays in 10% again, the maximum they offer.
I also pay into my own SIPP a varied amount monthly depending on what’s left after bills and savings are taken out. This is with Hargreaves Lansdown and as a result of paying into a SIPP you automcatically get back 20% of your investment and my salary is such that I can claim 40% back in total.
My question is should I pay additional AVCs with work (they will not match my additional pension deposits) or should I instead pay more money into my SIPP. I don’t know when the AVCs normally get taken out of the my wages, I assume its before tax (or is it after). Would it be better to not pay AVCs and then instead use my wages (after its been taxed) and pay into the SIPP and get the tax back?
Im not talking huge sums in terms of AVCs but just wondered if its better to do it from my salary and pay into the workplace pension or allow it to be taxed, arrive in my bank and then pay into my SIPP. Does that make sense?! Thanks
I currently pay into my workplace pension the full amount I can which is 5% of my basic earnings. Any on call, overtime, bonus paid is not included in that 5% so it remains a static amount throughout the year. This is the maximum the workplace pension will allow. My employer pays in 10% again, the maximum they offer.
I also pay into my own SIPP a varied amount monthly depending on what’s left after bills and savings are taken out. This is with Hargreaves Lansdown and as a result of paying into a SIPP you automcatically get back 20% of your investment and my salary is such that I can claim 40% back in total.
My question is should I pay additional AVCs with work (they will not match my additional pension deposits) or should I instead pay more money into my SIPP. I don’t know when the AVCs normally get taken out of the my wages, I assume its before tax (or is it after). Would it be better to not pay AVCs and then instead use my wages (after its been taxed) and pay into the SIPP and get the tax back?
Im not talking huge sums in terms of AVCs but just wondered if its better to do it from my salary and pay into the workplace pension or allow it to be taxed, arrive in my bank and then pay into my SIPP. Does that make sense?! Thanks
The two alternatives, AVC and SIPP are similar but different. As is said above, fees can affect things but I'd expect either AVC or HL SIPP to be about as low as you can go.
Paying AVCs can be useful if you want to take all your employment pension as "pension" - in which case up to 100% of the AVC fund can be taken as tax-free cash. If you had a separate SIPP then only 25% of it could be taken as tax-free cash. Essentially it all depends on how much value you attach to the solidity of your employer's "promise" to pay the pension.
An advantage of HL SIPP is they offer a massively wide range of investment choices. Almost certainly a lot wider than the AVC choices. However, there's nothing special about having 1,000 choices if 3 or 4 can cover the main ground you need.
One further point. SIPP pension benefits can be drawn any time after you reach the qualifying age (55/58). IIRC your employer may require that AVC benefits are taken at the same time as main scheme benefits.
It's a world of swings and roundabouts!
Paying AVCs can be useful if you want to take all your employment pension as "pension" - in which case up to 100% of the AVC fund can be taken as tax-free cash. If you had a separate SIPP then only 25% of it could be taken as tax-free cash. Essentially it all depends on how much value you attach to the solidity of your employer's "promise" to pay the pension.
An advantage of HL SIPP is they offer a massively wide range of investment choices. Almost certainly a lot wider than the AVC choices. However, there's nothing special about having 1,000 choices if 3 or 4 can cover the main ground you need.
One further point. SIPP pension benefits can be drawn any time after you reach the qualifying age (55/58). IIRC your employer may require that AVC benefits are taken at the same time as main scheme benefits.
It's a world of swings and roundabouts!
Timlocalad said:
Haven't the government recently changed pension laws allowing you to take the whole lot out rather than having to buy an annuity?
Yes, but only after you reach retirement age. If you need the money age 45 it's still out of reach.Whilst everyone's situation will differ, I feel ISAs can provide an accessible financial reserve with a decent level of tax relief. Apportionment of savings between pension and ISA can provide a balanced overall position.
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