Stakeholder Pension or AVC?

Gert_Lush

I'm 27 and have just started at a new company. Their standard pension which i have opted in for is a standard Direct Contributions scheme.
I also have the option of starting a stakeholder pension or bump up my existing pension by making AVC's?
Question is, which option (if i have £50 a month available to use) would give me the best results in the long term?

I currently earn just over £30k but will no doubt break the higher tax bracket in the next 3-5 years!

Thanks in advance... and happy new year!

dunstonh

If you have a final salary pension, you cant start a stakeholder pension at this time (subject to a few clauses which may allow it) as you earn over 30k. From April, AVCs will basically become an obsolete product. That being said, if the AVC terms are good and the fund selection good, it may be a good time to look at one.

However, the tie ins that exist with in-house AVCs seem to do more harm than good. I havent had anyone happy that they did an in-house AVC once they realised they couldnt use it for early retirement. It takes a bit of begging to the trustees and you end up relying on them.

Not giving advice, but I would save up the money in an ISA and wait until you are a higher rate taxpayer before deciding what to do. Anything you pay in now gets 22% relief. Anything you pay in then will get 40% relief.

Pal

What part of that last sentence is "not giving advice"?

dunstonh

It lacks dates, amounts, type of pension and provider. - the fact you havent edited it also

Gert_Lush

Many thanks for the advice.
I made a mistake... my pensions is a direct benefits pension, not direct contributions. How does this change things, if at all?
Also, the AVC's are arranged through 1 of 2 big pensions providers (not sure if i can name names on here!) again, no idea if this is a good or bad thing!

Thanks again in advance.

Pal

Gert_Lush wrote:

Many thanks for the advice.

He didn't give advice!

Dunston: Please note that writing words like "This isn't advice but.." or "If I were you.." does not constitute an FSA approved risk warning.

Happy new year everyone!

dunstonh

As Pal says, anything posted here is not advice. However, I do think that what I posted is a long way from advice as it doesnt mention product, provider or amounts. It only suggests that waiting is a good idea. Waiting is not a product.

To rephrase it to keep Pal happy:
If you were to save up the money in an ISA and wait until you are a higher rate taxpayer before paying the money into a pension, you would get 40% tax relief on the contribution. Anything you pay in now gets 22% relief.

Also, the AVC's are arranged through 1 of 2 big pensions providers (not sure if i can name names on here!) again, no idea if this is a good or bad thing!

It makes no difference. An in-house AVC ties the commencement of benefits to the scheme retirement date. Regardless of the provider (who you can name as its factual). So, you cannot use an in-house AVC if you plan to or require to retire at a different age. Many do not plan their retirement date. It's something that happens when they get closer to the time. The average retirement age in the UK presently is 63. So, if your scheme was 65 and they didnt allow early retirement, you wouldnt be able to use that or the AVC.

If you had a private pension (stakeholder, SIPP or personal pension as examples) or an ISA, you are not tied to any retirement date other than being aged over 55, in the case of pensions.

EdInvestor

He didn't give advice!

Quite right, I see no fact find....

Happy new year everyone!

Indeed, a Happy New Year to all on MSE and espcially the Money Forums :)

Gert_Lush

Ok, sorry for using the word 'advice'!
Seeing as i pay into a DB pension not DC, i assume that i eligible for a stakeholder pension, if so, what are the pro's and con's of this compared to an ISA?

dunstonh

Seeing as i pay into a DB pension not DC, i assume that i eligible for a stakeholder pension, if so, what are the pro's and con's of this compared to an ISA?

It makes no difference. At least until April that is.

personal pension vs ISA is something that gets mentioned a lot on here. I suggest you review some of the past threads. Although read them with an open mind and remember that many of the posts are made by anti-pensions people who only spin the negatives. Look for the posts that highlight the positives and the negatives. As it is very much a case of pros and cons with both options.

Debt_Free_Chick

dunstonh wrote:

Its the other way round. Defined benefit schemes have the restriction on those earning over 30k cannot pay into personal pensions. At least until April they do.

DD

Isn't it the case that membership of any occupational pension scheme - DB or DC - precludes concurrent membership of a stakeholder, for those who earn over £30k? An occupational scheme being one constituted under trust with the company as the principal or participating employer.

Concurrent membership of a stakeholder would only be an option (if earnings are over £30k), if the company scheme were a personal pension.