Prudential AVCs vs S&S ISA

jabbahut40 · 5 January 2014 at 5:07PM

Hi,

My wife works for Glasgow City Council (Education Dept), is a lower rate tax payer in her mid 40s and is a member of the final salary Strathclyde Pension Fund. As part of her retirement planning she has been offered to invest in AVCs with Prudential. We have been looking at the list of funds available and performance offered by Prudential and are not overly impressed.

http://www.pru.co.uk/retire/retirement_zone_localgov/home/funds/strathclyde/

She already has a small S&S ISA which she started a few years ago (but stopped paying into) and is comfortable making her own fund selections.

She can afford to invest approx. £100/month towards her pension and was wondering whether AVCs vs. S&S ISA would be the best way to save towards retirement.

Any thoughts would be appreciated. Thanks,

Jabba

jem16 · 5 January 2014 at 5:10PM

jabbahut40 wrote: »

Hi,

My wife works for Glasgow City Council (Education Dept), is a lower rate tax payer in her mid 40s and is a member of the final salary Strathclyde Pension Fund. As part of her retirement planning she has been offered to invest in AVCs with Prudential. We have been looking at the list of funds available and performance offered by Prudential and are not overly impressed.

http://www.pru.co.uk/retire/retirement_zone_localgov/home/funds/strathclyde/

She already has a small S&S ISA which she started a few years ago (but stopped paying into) and is comfortable making her own fund selections.

She can afford to invest approx. £100/month towards her pension and was wondering whether AVCs vs. S&S ISA would be the best way to save towards retirement.

Any thoughts would be appreciated. Thanks,

Jabba

Has anything changed since your thread on exactly the same subject 9 months ago?

http://forums.moneysavingexpert.com/showthread.php?t=4473715&highlight=

jabbahut40 · 5 January 2014 at 5:22PM

jem16 wrote: »

Has anything changed since your thread on exactly the same subject 9 months ago?

http://forums.moneysavingexpert.com/showthread.php?t=4473715&highlight=

Thanks. I forgot we posted this last year...how time flies. My wife's circumstances have NOT changed since this post and embarrassed to say that due to fear (of doing the wrong thing) she has done nothing. Hoping that some help from the forum may help her make her mind and move to action.

Jabba

pip895 · 5 January 2014 at 5:31PM

As she is a lower rate tax payer and already contributing to a pension I would think adding to the isa would be a pretty good option. It is also simple and you can start straight away - no need to wait another 9months!!

kidmugsy · 5 January 2014 at 5:35PM

May I suggest that you check the charges on the Pru funds offered for the AVCs? If they are high by current standards, e.g. 0.65% p.a., then that would be a reason to tend towards S&S ISAs instead. There you could use ETFs or other "funds" with lower charges: Vanguard, for instance. The blogger 'Monevator' is a good source on such topics.

jem16 · 5 January 2014 at 5:42PM

jabbahut40 wrote: »

Thanks. I forgot we posted this last year...how time flies. My wife's circumstances have NOT changed since this post and embarrassed to say that due to fear (of doing the wrong thing) she has done nothing. Hoping that some help from the forum may help her make her mind and move to action.

Jabba

There is nothing much that can be added over what was already posted in the other thread.

The main advantage to AVCs with the LGPS is the ability to take the whole AVC pot as the tax-free lump sum.

I take it your wife has decided against ARCs?

jabbahut40 · 5 January 2014 at 8:12PM

jem16 wrote: »

There is nothing much that can be added over what was already posted in the other thread.

The main advantage to AVCs with the LGPS is the ability to take the whole AVC pot as the tax-free lump sum.

I take it your wife has decided against ARCs?

No. ARCs are still also on her list.

If I am reading the other thread rightly the main advantages are:

ARC
Guaranteed return linked to CPI but cannot take as lump sum?

AVC
Can take as tax free lump, limited choice of funds, my wife takes on risk of fund performance compared to ARC.

S&S
Gains tax free, access to money throughout, my wife takes on risk of fund performance (with arguably more scope to control this through greater choice of funds available)

Does this sound about right?

Jabba

planteria · 5 January 2014 at 8:37PM

i would ensure that she is contributing as much to her pension as necessary to get GCC to part with as much as they will, and then invest externally...either via a Pension or an ISA.

atush · 6 January 2014 at 1:10PM

jabbahut40 wrote: »

Thanks. I forgot we posted this last year...how time flies. My wife's circumstances have NOT changed since this post and embarrassed to say that due to fear (of doing the wrong thing) she has done nothing. Hoping that some help from the forum may help her make her mind and move to action.

Jabba

How about you look up the funds you might have chosen and see how much they went up in 2013? That she didn't take part, and didn't reap the benefits might jog her into action lol?

woolly_wombat · 6 January 2014 at 5:48PM

jabbahut40 wrote: »

No. ARCs are still also on her list.

If I am reading the other thread rightly the main advantages are:

ARC
Guaranteed return linked to CPI but cannot take as lump sum?

AVC
Can take as tax free lump, limited choice of funds, my wife takes on risk of fund performance compared to ARC.

S&S
Gains tax free, access to money throughout, my wife takes on risk of fund performance (with arguably more scope to control this through greater choice of funds available)

Does this sound about right?

Jabba

FWIW I went for the certainty of ARCs, which looked like good value, with the employer taking the risk. At that time ARCs were RPI-linked, but that is not the case with ARCs taken out now (and the cost of RPI-linked ARCs rose sharply and at very short notice in April 2013).

I am now considering investing separately in a SIPP as well, due partly to the uncertainty over the continuing ability to take all LGPS AVC investments as lump sum, but more importantly because with LGPS 2014 starting soon I do not envisage continuing in current employment until State Pension Age.

WW

jem16 · 6 January 2014 at 8:32PM

woolly_wombat wrote: »

I am now considering investing separately in a SIPP as well, due partly to the uncertainty over the continuing ability to take all LGPS AVC investments as lump sum, but more importantly because with LGPS 2014 starting soon I do not envisage continuing in current employment until State Pension Age.

WW

Are you a higher rate taxpayer?

if not you might be better using a S&S ISA. That way you could retire earlier and use the S&S ISA to bridge the gap till NRA for the LGPS - would save any actuarial reduction.

Prudential AVCs vs S&S ISA

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