AVC's for dummies

garyclay

Hello,

Hello I'm 32 and have been in my company's final salary scheme for 12 years. I have also been paying into AVC's for the past 3 years, to be honest I'm a complete muppet when it comes to pension stuff but a bloke at work said 'get some AVC's' so hearing all this pensions crisis talk I did.

I pay 75 pounds a month into the AVC.

I have now been warned that there are limits on the total bennefits of pension+AVC upon retirement and this will mean I'll need to retire early, which is fine as I want to anyway.

So here is the question, what are these 'limits' on pension bennefits and how do I work out when I'll need to retire to ensure getting the maximum from the pension/AVC's.

Thanks for any help. Sorry if it sounds a bit confused but pensions are a bit of a mystery to me, I just know I'm in a good scheme.

david78

Gary,

Currently, you can only take a pension of 2/3 of your final salary. The pension is made of of the pension paid by your company plus the avc pension. If you take some tax free cash out of your main scheme this limit reduces.

However this is all academic for you because it all changes again from 6 April next year. After that, there is no limit (or the limit is probably so high as to be irrelevent.) Instead there will be annual and lifetime limits on the contributions.

From 6 April, you should also be able to take 25% cash from your AVC fund though this will be subject to approval from your scheme trustees. You could also stop paying into the AVC and pay into a personal pension instead.

dunstonh

but a bloke at work said 'get some AVC's' so hearing all this pensions crisis talk I did.

Not the best way to buy finanancial services products.

In house AVCs have a number of restrictions which, when compared to alternatives, make them quite undesirable. In the old days (Pre 2001), in house avcs used to have the advantage of very low charges. That is not so much the case now, althouth they can be cheaper on some occassions, they can also be more expensive now.

I have had a few clients this year alone who have regretted ever doing an in house AVC. They would have been much better off with the alternatives.

and this will mean I'll need to retire early, which is fine as I want to anyway.

Using an in house AVC for early retirement planning is not a good move. They are linked to the occ scheme. If the occ scheme do not allow you to commence benefits early, then the in house AVC cannot be commenced either.

garyclay

Thanks for that. So what would be a better investment to give me better early retirement bennefits?

dunstonh

Personal pensions, stakeholder pensions, SIPPs, ISAs, Unit Trusts, OEICs (not in any order).