Stakeholder Pension or AVC?

EdInvestor

Hi Gert

Gert_Lush wrote:

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?

Just to try and clear up some of this confusion.There are basically three types of company pensions:

1) Defined benefit (aka final salary pension) which is what you have.This means your pension benefit is defined by how big your final salary is when you retire.

2)Defined contribution ( aka money purchase pension) which means the size of the pension on retirement is defined by the amount of contributions made into the fund by you and your employer ( and their investment growth)

3) Group personal pension (GPP, or group stakeholder pension GSP) which means the company has done a deal with an insurance company to provide personal pensions for all the staff in a package, usually at a cheap charge, kind of "buying in bulk", if you see what I mean.


An AVC (Additional Voluntary Contribution) can only be invested in if you have 1) or 2). The problem with AVCs is that they follow the rules of your company pension scheme. If the company scheme says you will retire at 65, the AVC will say the same thing.

If by chance you get made redundant at age 55 ( happens to many people) you won't be able to get any of that AVC money for 10 years.

Hence the view is that it is better to invest additional money into an ISA,which has no restrictions at all, or a more flexible type of pension such as a SIPP or a personal pension, where you can at least get an income from the money at 55, independently of what happens with the company pension scheme.

HTH

dunstonh

Debt_Free_Chick wrote:

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.

Yes. You are right. That was very badly worded by me and had a GPP moment and it didnt reflect my intended comments. I have edited it.