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  • FIRST POST
    • Benzene
    • By Benzene 10th Jun 17, 7:50 PM
    • 16Posts
    • 2Thanks
    Benzene
    AVC for a young teacher on TPS
    • #1
    • 10th Jun 17, 7:50 PM
    AVC for a young teacher on TPS 10th Jun 17 at 7:50 PM
    Hello. I am 34 years old male and joined TPS last tax year. Salary is around £58000 and I receive Child Benefit (CB) for 2 kids (both under 5). I returned significant amount of CB last year, when I was not part of TPS. My state pension retirement age is 68.

    I personally feel demotivated at this young age to work harder because of 40% tax and returning my CB! Thats why I joined paying into TPS primarily for tax relief purposes. Despite of this, I made a solid cash saving of £15000 last tax year, which is giving me somewhere around 2% return through various savings (incl current and regular savings) accounts.

    However, I recently met a very friendly gentleman from Prudential and like this idea of paying into AVC.

    I am 21 years away from being 55 and I know I donot want to retire early as well. I would be mortgage free at age 54 as well.

    Now two questions:

    1. I understand that I can get 25% as tax free lump sum at 55 (assuming rules dont change!) and I do not have to stop working as well. What is the best channel for me to receive the other 75% tax free or in the most tax-effecient manner? I do not want to retire at 55 and have an age of 65+ in my mind for retirement.

    2. What should I put in AVC every year (if you were me)? I am thinking about £3000/ year, which would also ensure that I dont repay any of the CB back as well! This would still let me save a solid cash of £13200 at the end of the current tax year.

    Thanks in advance for your comments!

Page 1
    • bigadaj
    • By bigadaj 10th Jun 17, 10:27 PM
    • 9,364 Posts
    • 5,983 Thanks
    bigadaj
    • #2
    • 10th Jun 17, 10:27 PM
    • #2
    • 10th Jun 17, 10:27 PM
    Not sure of the meaning if part of your post, you seemed to say you've saved around £14k from post tax earnings, and a suggestion you might be over paying your mortgage?

    The most tax efficient thing to do is pay into a pension to reduce your earnings down to below higher rate tax threshold, which means you are getting back £4 in every £10 of earnings, plus the child benefit saving.

    Whether you do this through avc, or through an external personal pension or sipp is an individual choice. The avc may be more expensive and of limited investment choice, the main advantage is often that it can take up part of the pcls which means you keep more of the valuable defined benefit pension.

    The avc option probably isn't great if you want to take pension early, generally suggested that access to private pensions will be aligned with ten years before state pension age, so could be pushing 60 for you.

    If you are over paying a mortgage it's probably wise to stop that if you have a low rate, as many now do.
    • atush
    • By atush 11th Jun 17, 9:25 AM
    • 16,104 Posts
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    atush
    • #3
    • 11th Jun 17, 9:25 AM
    • #3
    • 11th Jun 17, 9:25 AM
    I dont think the TPS AVCs can be used in that way.

    I agree you should pay more into pension- 100 into a pension is only going to cost you 60 if you pay 40% tax. You could use your AVC, or you could go it alone with a PP or Sipp. Choose something simple and diversified for your investments such as a global tracker or a Vanguard fund that has both equities and other assets in a % that fits your risk profile.

    Once you have 3-6 months outgoings in cash, consider using your S&S isa allowance for other savings.
    • Benzene
    • By Benzene 11th Jun 17, 9:41 AM
    • 16 Posts
    • 2 Thanks
    Benzene
    • #4
    • 11th Jun 17, 9:41 AM
    • #4
    • 11th Jun 17, 9:41 AM
    First of all, many thanks for your reply. Much appreciated.

    Not sure of the meaning if part of your post, you seemed to say you've saved around £14k from post tax earnings, and a suggestion you might be over paying your mortgage?
    Originally posted by bigadaj
    My mortgage is 1.79% and I am not making any overpayment. All other savings are getting 2% or higher.
    • xylophone
    • By xylophone 11th Jun 17, 10:19 AM
    • 22,058 Posts
    • 12,725 Thanks
    xylophone
    • #5
    • 11th Jun 17, 10:19 AM
    • #5
    • 11th Jun 17, 10:19 AM
    Thats why I joined paying into TPS primarily for tax relief purposes.


    What about the protection offered to your wife and children in the event of your demise?

    What about the protection offered to you in the event that you become too ill to work?
    • Benzene
    • By Benzene 11th Jun 17, 10:34 AM
    • 16 Posts
    • 2 Thanks
    Benzene
    • #6
    • 11th Jun 17, 10:34 AM
    • #6
    • 11th Jun 17, 10:34 AM
    [/B]

    What about the protection offered to your wife and children in the event of your demise?

    What about the protection offered to you in the event that you become too ill to work?
    Originally posted by xylophone
    Good point! I never looked it from this angle!!
    • Benzene
    • By Benzene 11th Jun 17, 10:36 AM
    • 16 Posts
    • 2 Thanks
    Benzene
    • #7
    • 11th Jun 17, 10:36 AM
    • #7
    • 11th Jun 17, 10:36 AM
    I am still not sure if I know my options....

    What is the best channel for me to receive the other 75% tax free or in the most tax-effecient manner?
    I do not want to retire at 55 and have an age of 65+ in my mind for retirement.
    • bigadaj
    • By bigadaj 11th Jun 17, 11:14 AM
    • 9,364 Posts
    • 5,983 Thanks
    bigadaj
    • #8
    • 11th Jun 17, 11:14 AM
    • #8
    • 11th Jun 17, 11:14 AM
    I am still not sure if I know my options....

    What is the best channel for me to receive the other 75% tax free or in the most tax-effecient manner?
    I do not want to retire at 55 and have an age of 65+ in my mind for retirement.
    Originally posted by Benzene
    I think that statement demonstrates that you don't really understand your situation or options.

    Any pension you received assuming teh rules don't change and you access your 25%, will be taxed at your marginal rate. So as well as making provision for old age then pensions are about smoothing income and tax, if you earn less than £11k then pensions are free, Above that you are paying 20% or 40% above £45k ish.

    The most efficient route is probably paying into a personal pension or sipp, as you can draw that when you want above the legislated age, currently 55 and likely to be closer to sixty by the time you retire.

    For more flexibility you can use your isa allowance, as you can draw this at any age. No tax relief but taking income from the isa is tax free.

    One main comment given your current knowledge is don't let the tax tail wag the investment dog. For example when you take a defined benefit pension you are often allowed a tax free lump sum; however this is often not the best option. The commutation rate, ie the rate at which lump sum is derived from income can be terrible, leaving it as income can guve an effective rate of guaranteed return of maybe 8%, which obviously massively exceeds anything available elsewhere.
    • Chapuys
    • By Chapuys 11th Jun 17, 11:35 AM
    • 120 Posts
    • 93 Thanks
    Chapuys
    • #9
    • 11th Jun 17, 11:35 AM
    • #9
    • 11th Jun 17, 11:35 AM
    What about the protection offered to your wife and children in the event of your demise?

    What about the protection offered to you in the event that you become too ill to work?
    Originally posted by xylophone
    Generally, if you die whilst in service, the teacher pension will give 3 times your current wage upon death plus a small pension for x amount of years. Not sure how long you have to be in to activate it (I think 2 years) but it is on my yearly statement.

    You can also make extra payments (AVC) into the teacher pension and also get an Additional Pension if you have the spare change and also gain Faster accrual by paying more.
    Last edited by Chapuys; 11-06-2017 at 12:07 PM.
    Anything I say in no way constitutes financial advice and anything you do is your own decision.
    • xylophone
    • By xylophone 11th Jun 17, 3:14 PM
    • 22,058 Posts
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    xylophone
    Good point! I never looked it from this angle!!
    Give me strength.......

    https://www.teacherspensions.co.uk/members/faqs/bereavement-and-family-benefits/family-benefits.aspx

    https://www.teacherspensions.co.uk/members/working-life/life-events/ill-health.aspx

    https://www.pru.co.uk/rz/teachers/england-wales/avcs/
    • atush
    • By atush 11th Jun 17, 4:18 PM
    • 16,104 Posts
    • 9,815 Thanks
    atush
    I am still not sure if I know my options....

    What is the best channel for me to receive the other 75% tax free or in the most tax-effecient manner?
    I do not want to retire at 55 and have an age of 65+ in my mind for retirement.
    Originally posted by Benzene
    If your TPS pays out at say 67, then you would have no income in the 2 previous years having retired at 65. In that instance, and money you draw from your DC pension pot would be tax free up to your Personal allowance- whatever it is at the time.

    Any income taken over that, would be taxed at basic rate up to the HR threshold
    Last edited by atush; 11-06-2017 at 9:06 PM.
    • JoeCrystal
    • By JoeCrystal 11th Jun 17, 4:25 PM
    • 1,233 Posts
    • 695 Thanks
    JoeCrystal
    Give me strength.......
    Originally posted by xylophone
    Well, it does sound like that he didn't bother to join TPS when he able to. Naturally as a taxpayer, I thanks him for not joining early since it saved us money in the long run,
    • xylophone
    • By xylophone 11th Jun 17, 5:14 PM
    • 22,058 Posts
    • 12,725 Thanks
    xylophone
    Naturally as a taxpayer, I thanks him for not joining early since it saved us money in the long run,
    Tsk, tsk, where's your altruism, man?
    • Benzene
    • By Benzene 11th Jun 17, 6:01 PM
    • 16 Posts
    • 2 Thanks
    Benzene
    Well, it does sound like that he didn't bother to join TPS when he able to. Naturally as a taxpayer, I thanks him for not joining early since it saved us money in the long run,
    Originally posted by JoeCrystal
    Thanks for your comments. I do see your point now! A mistake that I do regret
    • bostonerimus
    • By bostonerimus 11th Jun 17, 8:08 PM
    • 515 Posts
    • 253 Thanks
    bostonerimus
    I'll assume you have no other debt than the mortgage as you should pay off things like credit cards as that will net you a large guaranteed return.

    Have you thought about a S&S ISA. This won't reduce your taxable income, but it will grow tax free and be tax free on withdrawal. I't is a nice compliment to a pension plan.
    Misanthrope in search of similar for mutual loathing
    • zagubov
    • By zagubov 11th Jun 17, 8:39 PM
    • 14,503 Posts
    • 124,715 Thanks
    zagubov

    You can also make extra payments (AVC) into the teacher pension and also get an Additional Pension if you have the spare change and also gain Faster accrual by paying more.
    Originally posted by Chapuys
    You need to investigate Faster Accrual on your TPS account. It's nobody's job to sell you it, as you're the only person (well alongside your dependants) who benefits from it. Then Additional pension and maybe the AVC after that. I took an AVC with the Pru and found it very expensive for what it was getting me.

    It's likely better than paying off your mortgage early.
    There is no honour to be had in not knowing a thing that can be known - Danny Baker
    • Benzene
    • By Benzene 11th Jun 17, 9:15 PM
    • 16 Posts
    • 2 Thanks
    Benzene
    Thanks bostonerimus and zagubov!

    I dont have any other debts apart from 1.79% low rate mortgage.

    With Faster Accrual option, I would ask for a quote, but I understand I would not benefit from having a seperate 'pension pot' that can be initiated while I am working. With AVC, I understand I have that option.
    • atush
    • By atush 11th Jun 17, 9:46 PM
    • 16,104 Posts
    • 9,815 Thanks
    atush
    You need to investigate Faster Accrual on your TPS account. It's nobody's job to sell you it, as you're the only person (well alongside your dependants) who benefits from it. Then Additional pension and maybe the AVC after that. I took an AVC with the Pru and found it very expensive for what it was getting me.

    It's likely better than paying off your mortgage early.
    Originally posted by zagubov
    The only problem with added pension- is if the desire to retire before scheme age raises itself. And generally MOST people (apart from the OP dont want to work til 65+ unless they have to. Or if they think so know, they change their mind.
    • PeacefulWaters
    • By PeacefulWaters 11th Jun 17, 9:50 PM
    • 6,591 Posts
    • 8,097 Thanks
    PeacefulWaters
    It's amazing how, as you get into your forties, the desire to retire at state retirement age dissipates and many can't wait to escape the drudgery of employment.

    Get plans in place to retire earlier. Work longer if you want to when the opportunity to retire comes.

    It's so much better than getting disillusioned or ill and not having the means to escape.

    A mistake that I do regret
    Plucking figures from thin air, that could be well over £100,000 in today's money that you've chucked away.
    Last edited by PeacefulWaters; 11-06-2017 at 9:53 PM.
    • JoeCrystal
    • By JoeCrystal 12th Jun 17, 6:32 AM
    • 1,233 Posts
    • 695 Thanks
    JoeCrystal
    Thanks for your comments. I do see your point now! A mistake that I do regret
    Originally posted by Benzene
    Well, on the plus side, you are in it now. So it will provide a solid foundation now.
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