AVCs

JollyNolly

My wife and I are both teachers, and so have teachers' pensions to look forward to ;-) She is convinced that we should be paying for additional voluntary contributions - how does this rate against just saving the cash?

ReportInvestor

If either of you is a higher rate taxpayer then additional pension contributions probably have the edge.

The younger you are, the more you should also consider additional contributions into the Teachers Pension Scheme rather than AVCs. This would also apply if either of you expects to be promoted and move up to a higher salary in the future.

Your school bursar may be able to advise you on whether the TPS is better for you at your age.

Re AVCs - you used to be able to draw on them at age 50, but that is moving up to 55.

dunstonh

re AVCs - you used to be able to draw on them at age 50, but that is moving up to 55.

I will just add to that. You cannot take in-house AVCs at an earlier age than the scheme retirement age unless the trustees agree to it. Many will not and with increasing focus on increasing the scheme retirement age, it is possible that it will be harder to get early retirement on civil service schemes.

With teachers tending to want early retirement, an in house AVC is an inappropriate product to consider in these circumstances. Stakholder/personal pensions would give the same benefits (post April 2006) but with flexibility on retirement date which isnt linked to the occ scheme.

JollyNolly

ReportInvestor - are you talking about free-standing AVCs here? I have to admit to being way out of my depth - for something as important as my pension, I'm horribly ignorant!

ReportInvestor

1) With the Prudential in house AVC scheme you can

either take your pension (convert it to an annuity) at the same time as your main teacher's pension - so 60 unless you negotiate an actuarially reduced pension from the TPS.

or alternatively you can leave it until 75.

2) With a FSAVC with someone other than the Pru, you can usually purchase an annuity between the ages of 55 & 75.

I forgot to mention that if you are going to mix and match, & other things are equal, then the woman should buy in the added years in the TPS since she will currently get a lower annuity rate than her partner from the same AVC/FSAVC pension savings.

CLick on this BBC link to see a horror story of teachers who regret going the AVC/FSAVC route

"..In August of this year, aged 55, Ruth left teaching and said she was devastated to learn the AVC fund, valued at over £18,000 would only yield an extra annual pension of just over £600 a year, or £50 a month.

Ruth said that had she not invested in the Prudential AVCs, but instead bought added years into the occupational teachers' pension scheme she would have got an extra £500 pension income a year, and a valuable tax free lump-sum of over £3000..."

JollyNolly

Sounds like my wife's plan to buy extra years from the teachers' pension scheme is likely to be best - we're both 50-ish.

dunstonh

Buying of extra years is often the best option as a pension product goes but it is also usually the most expensive. You shouldnt rule out investigating ISAs as an alternative.

JollyNolly

What sort of ISAs might be a possible alternative?

ReportInvestor

I agree with dh on this one. 50 is the sort of age that buying in extra years can be expensive.

It could be a close call for you. It might depend on the value you place on the bells & whistles in the TPS like dependants' benefits.

This could even be a time to use the Prudential representative and to get him/her to do a cost benefit analysis of the PruAVC scheme v added years into the Teachers' Pension Scheme.

It's much easier for us then to compare the AVC v an ISA alternative, once you have got the other comparison sorted.