Pension AVCs - Worth it?
Discussion
Hi folks,
Whats the collective view on AVCs? Are they a good idea? I've got a capped final salary pension but would like a side-line top up as well as the FS pension will decrease in real-term value over the years.
My employer contributes to the AVC scheme if I go for it, but would the money be better invested elsewhere, say in a long term medium/high risk ISA type investment, rather than into a pension pot?
I'm not entirely convinced about pensions to be honest and I don't want to get to 50/60's only to find that someone has p1ssed it up the wall...
Thoughts? AVCs or something else?
Cheers!
Paul.
Whats the collective view on AVCs? Are they a good idea? I've got a capped final salary pension but would like a side-line top up as well as the FS pension will decrease in real-term value over the years.
My employer contributes to the AVC scheme if I go for it, but would the money be better invested elsewhere, say in a long term medium/high risk ISA type investment, rather than into a pension pot?
I'm not entirely convinced about pensions to be honest and I don't want to get to 50/60's only to find that someone has p1ssed it up the wall...
Thoughts? AVCs or something else?
Cheers!
Paul.
I am putting money into AVC's, but. I only have a year to go to retirement, I did read that Ed Balls has talked about taxing lump sums taken out of your pension, who knows what the future holds.... you could be lucky depending on what each government decide between now and your retirement, Governments should leave pensions alone,how can people plan for the future if they keep moving the goal posts .
An AVC will give you a guaranteed result, but not always a better result. What do you need your pension to achieve?
Have you got any other investments, or are you all in a pension? You might appreciate the liquidity of an ISA/OEIC,etc.
Look up Flexible Drawdown, could that apply and could that be any use?
Have you got a wife/husband/civil partner who might benefit from pension contributions in their name? Consider making use of their annual allowance.
http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm0910...
Have you got any other investments, or are you all in a pension? You might appreciate the liquidity of an ISA/OEIC,etc.
Look up Flexible Drawdown, could that apply and could that be any use?
Have you got a wife/husband/civil partner who might benefit from pension contributions in their name? Consider making use of their annual allowance.
http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm0910...
Not sure I'd recommend a SIPP unless you were both confident with investing and inclined to spend the time researching and managing your investments. For most people, it would probably be a mistake.
If your employer contributes to the AVC in some way (I think you hinted at this) then it is probably a better option than doing it yourself (subject to caveats that we don't have all the information).
I think you're right to be wary about focussing on pensions alone - the tax breaks are pretty good (particularly if you're a higher rate taxpayer now and are likely to be basic rate in retirement) but you are at the mercy of future governments who are itching to tax those savings.
If your employer contributes to the AVC in some way (I think you hinted at this) then it is probably a better option than doing it yourself (subject to caveats that we don't have all the information).
I think you're right to be wary about focussing on pensions alone - the tax breaks are pretty good (particularly if you're a higher rate taxpayer now and are likely to be basic rate in retirement) but you are at the mercy of future governments who are itching to tax those savings.
Assuming you're a 40% tax payer and your employer will match what you put in (only up to a point usually)
You put in £100 per month net cost to you £60
Your employer puts in £100 pm
You now have £200 invested in your pension for a cost to you of £60
Does you employer offer salary sacrifice? If so look at the potential downsides (most are manageable) but this could add up to a further £13.80 per month (if your employer is generous) and save you a further £2 through National Insurance savings.
So prospectively £213.80 invested for a cost of £58
ISA's are great but you'd start with £58 of net pay and that would have to grow to £200 to match the pension investment which it might do eventually but if it does the pension investment would have grown too.
The pension money is tied up until age 55 at the earliest (how old are you) and only the first 25% of the fund you accrue is currently tax free the rest is taxable but as has been said maybe only at the lower rate when you retire?
Lots of assumptions here sorry but if it were me I might think about saving 50% pension and 50% ISA but the AVC warrants further examination? What are the investment options, charges, employer contributions?
The contribution from your employer makes the difference!
All IMHO
You put in £100 per month net cost to you £60
Your employer puts in £100 pm
You now have £200 invested in your pension for a cost to you of £60
Does you employer offer salary sacrifice? If so look at the potential downsides (most are manageable) but this could add up to a further £13.80 per month (if your employer is generous) and save you a further £2 through National Insurance savings.
So prospectively £213.80 invested for a cost of £58
ISA's are great but you'd start with £58 of net pay and that would have to grow to £200 to match the pension investment which it might do eventually but if it does the pension investment would have grown too.
The pension money is tied up until age 55 at the earliest (how old are you) and only the first 25% of the fund you accrue is currently tax free the rest is taxable but as has been said maybe only at the lower rate when you retire?
Lots of assumptions here sorry but if it were me I might think about saving 50% pension and 50% ISA but the AVC warrants further examination? What are the investment options, charges, employer contributions?
The contribution from your employer makes the difference!
All IMHO
thanks guys, good information there.
I've got a final salary currently, but it is capped, so is rising at a lower rate than my salary.
For AVCs, my employer will contribute 50% of what I do. So for every £100 I put in, they dump £50 in too.
Seems like a good deal as suggested, as I guess that means I'm actually paying in about £48 after tax/ni benefits to net £150 worth of investment.
Not too shabby at all. I can take it all as lump sum at the end too. I guess my only concern is if the governments decide that they will control the pension pots and release dates in future and royally fek it all up. At least with ISA/investments I have a modicum of control.
I'm 36 currently. Thinking that if I dump a wedge into the AVC for 19 years, with the aim of drawing it down at 55. Can I do that, or is it stuck in there until my actual pension kicks in at 60-odd?
Thanks again - its all a grey area to me this - principally around how much control I have over when I can take the money - and how much influence goverment can have on this choice.
Cheers,
Paul.
I've got a final salary currently, but it is capped, so is rising at a lower rate than my salary.
For AVCs, my employer will contribute 50% of what I do. So for every £100 I put in, they dump £50 in too.
Seems like a good deal as suggested, as I guess that means I'm actually paying in about £48 after tax/ni benefits to net £150 worth of investment.
Not too shabby at all. I can take it all as lump sum at the end too. I guess my only concern is if the governments decide that they will control the pension pots and release dates in future and royally fek it all up. At least with ISA/investments I have a modicum of control.
I'm 36 currently. Thinking that if I dump a wedge into the AVC for 19 years, with the aim of drawing it down at 55. Can I do that, or is it stuck in there until my actual pension kicks in at 60-odd?
Thanks again - its all a grey area to me this - principally around how much control I have over when I can take the money - and how much influence goverment can have on this choice.
Cheers,
Paul.
Paul O said:
thanks guys, good information there.
I've got a final salary currently, but it is capped, so is rising at a lower rate than my salary.
For AVCs, my employer will contribute 50% of what I do. So for every £100 I put in, they dump £50 in too.
Seems like a good deal as suggested, as I guess that means I'm actually paying in about £48 after tax/ni benefits to net £150 worth of investment.
Not too shabby at all. I can take it all as lump sum at the end too. I guess my only concern is if the governments decide that they will control the pension pots and release dates in future and royally fek it all up. At least with ISA/investments I have a modicum of control.
I'm 36 currently. Thinking that if I dump a wedge into the AVC for 19 years, with the aim of drawing it down at 55. Can I do that, or is it stuck in there until my actual pension kicks in at 60-odd?
Thanks again - its all a grey area to me this - principally around how much control I have over when I can take the money - and how much influence goverment can have on this choice.
Cheers,
Paul.
AVCs are great as part of a final salary scheme as they allow you to take the AVC fund as tax free cash at retirement without commuting your main scheme pension. Depending on the rules of the particular scheme you can also transfer your AVC fund out of the scheme before retirement or keep it invested until after retirement up until age 75.I've got a final salary currently, but it is capped, so is rising at a lower rate than my salary.
For AVCs, my employer will contribute 50% of what I do. So for every £100 I put in, they dump £50 in too.
Seems like a good deal as suggested, as I guess that means I'm actually paying in about £48 after tax/ni benefits to net £150 worth of investment.
Not too shabby at all. I can take it all as lump sum at the end too. I guess my only concern is if the governments decide that they will control the pension pots and release dates in future and royally fek it all up. At least with ISA/investments I have a modicum of control.
I'm 36 currently. Thinking that if I dump a wedge into the AVC for 19 years, with the aim of drawing it down at 55. Can I do that, or is it stuck in there until my actual pension kicks in at 60-odd?
Thanks again - its all a grey area to me this - principally around how much control I have over when I can take the money - and how much influence goverment can have on this choice.
Cheers,
Paul.
However Annual Allowance limits are reducing from £50k to £40k next year meaning that the most your final salary pension benefits can increase in the year is £40k less your AVC contributions / 16 without incurring tax charges.
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