are AVC's worth it

wellfedupnow

hi all, i only have 18months left to work, is it worth my while increasing my existing AVC's?

cheers muchly :beer:

sdooley

Do your AVCs get you a defined benefit or are they just invested on the stockmarket?

Potentially, you could double your money in some schemes, once the tax benefits are taken into account.

artha

wellfedupnow wrote: »

hi all, i only have 18months left to work, is it worth my while increasing my existing AVC's?

cheers muchly :beer:

It depends on a number of factors. I think that you need to post more details of your pension scheme and how your AVCs fit with the main scheme.

For me, approaching retirement/voluntary severance I can use my AVC to take tax free cash and am therefore pumping in all of my salary (less that needed to pay NI) in order to take it in 6 months time. i.e. I have avoided paying tax on the money and can withdraw it tax free. To be able to do this I am fortunate enough to have money in an instant access esavings account earning poor interest and a spouses salary to live on frugally in the short term in order to take full advantage. In mt case I would not use increased AVC contributions to buy pension - it's not worth it for me

mallymal

Hi,

I write the scheme literature for a big staff pension scheme, so know little about this. AVCs are a top up plan to your main works pension. Strictly speaking they are offered though a third party (eg Prudential) and are therefore an investment, with all the risks that brings.

When you retire you can draw the AVC as a pension (this is known as buying an annuity - like people in personal pensions do) or in many cases you can draw it as tax free cash.

Some schemes have "internal" topping up methods, such as buying extra years of membership, but these aren't technically AVCs.

So (eventually) the answer to your question is:
a) how much do you want to spend
b) check out whether the AVC is the investment type thing I describe
c) if so, are you happy about the investment risk

Hope this helps

wellfedupnow

thanks to all who replied.
mallymal, i pay £70 per month now toAVCs but was considering topping this up to £100 per month for the next 18 months. i get an annual prediction of what my pension and lump sum will be so i'm guessing this is not an investment type of pension but a safer savings one? see, now i wish i had stuck in at school

thanks again

dunstonh

i get an annual prediction of what my pension and lump sum will be

Its not a prediction. Its an example projection.

so i'm guessing this is not an investment type of pension but a safer savings one?

No. it sounds like its investment based.

Jennifer_Jane

artha wrote: »

It depends on a number of factors. I think that you need to post more details of your pension scheme and how your AVCs fit with the main scheme.

For me, approaching retirement/voluntary severance I can use my AVC to take tax free cash and am therefore pumping in all of my salary (less that needed to pay NI) in order to take it in 6 months time. i.e. I have avoided paying tax on the money and can withdraw it tax free. To be able to do this I am fortunate enough to have money in an instant access esavings account earning poor interest and a spouses salary to live on frugally in the short term in order to take full advantage. In mt case I would not use increased AVC contributions to buy pension - it's not worth it for me

Yes, I'm doing exactly this too. Putting £1000 a month in AC's apart from pension amt, and will be able to take all this as tax-free lump sum (I know it's called something else now). Just to add that I was previously invested in some higher risk equity funds and changed in July this year to a cash fund. No need for any risk with this as it comes from pre-tax income and is therefore equal to 20%. No better 'investment'.

PS - my Company takes the AC's first for the 25% lump sum before it starts on the main pension.
Jen
x

Academic

Jennifer_Jane wrote: »

.....tax-free lump sum (I know it's called something else now)

Pension Commencement Lump Sum............;)

EdInvestor

wellfedupnow wrote: »

thanks to all who replied.
mallymal, i pay £70 per month now toAVCs but was considering topping this up to £100 per month for the next 18 months.

At some companies they allow you to amalgamate your main pension and AVC money together and then take all the tax free cash from the AVC.

If your company allows this, then stick with the AVC.If it doesn't there are usually better ways to invest your money.

cyclonebri1

:T

artha wrote: »

It depends on a number of factors. I think that you need to post more details of your pension scheme and how your AVCs fit with the main scheme.

For me, approaching retirement/voluntary severance I can use my AVC to take tax free cash and am therefore pumping in all of my salary (less that needed to pay NI) in order to take it in 6 months time. i.e. I have avoided paying tax on the money and can withdraw it tax free. To be able to do this I am fortunate enough to have money in an instant access esavings account earning poor interest and a spouses salary to live on frugally in the short term in order to take full advantage. In mt case I would not use increased AVC contributions to buy pension - it's not worth it for me

:T :T :T

My take on it exactly, with a tax benefit of 20% up front it would be hard to better short term.

I did the same prior to taking mine a year ago.

One point, see if the sheme offers a lifestyle type investment shift. IE as you approach retirement, as is the case here, the funds are moved to very low risk type investment. The avc scheme i was in with NU allowed this.;)