AVS in to pension is it worth it?

rrwfotr

Hi I work for a company that allows you to pay AVS into the pension fund. I'm 28 and have 6 years service with the company. Would it be worth putting in AVS to my pension (I'm in a final salary pension scheme). Am I too young to consider this course of action?

MrChips

I assume by AVS, you really mean "additional voluntary contributions"?

There are many forms of AVCs and your decision should depend on a number of factors.

Are these "defined benefit" AVCs (i.e. they will give you a fixed pension or purchase extra service in the fund) or are they "money purchase" AVCs (the contributions will be invested for you and used to buy extra pension when you retire).

If the former, then the terms are important - how much do you get for your contribution - is it value for money? Also, how strong is your employer, do you trust it to still be around for another 40 years to keep the pension fund ticking over until you retire?

If the latter, what funds are available to invest in and what conversion terms are available at retirement (will you be able to convert it to pension in your company fund which will more likely give you better terms than an insurance company will).

Your company won't be obliged to offer AVCs from April 2006 so you might want to check if they will be withdrawing this facility and whether it will be worth you just putting in a small contribution now which you won't be able to add to later on.

Apart from these pension considerations, can you afford to make extra contributions which will save you tax now, but lock your money away where you can't access it for several years?

Sorry if it doesn't seem like I am answering your question for you but there is more to it than a simple yes and no. You should also bear in mind what other savings you have access to, and whether you have already used your ISA allowances for this year (thought I should get that in before EdInvestor jumps in to say pension AVCs are a waste of time and ISAs are the way to go for everybody ;-) )

Finally, you are never too young to consider putting extra contributions into your pension, the earlier you invest them the more pension you should get for your money.