To AVC or not to AVC

Melmar

Hi
I am currently paying into a final salary pension scheme and have been doing so for the last 14 years. I have a further 20 years to work before retirement.
I am thinking of paying AVC's but have very little spare money each month so could only really afford about £10 per month.

My question is this. Considering the small contribution of £10 per month will this be of any significant benefit to my retirement income?

Thanks in advance for the advice.

dunstonh

Anything you put aside is going to benefit you later. Obviously £10 isnt much but if you have 34 years in final salary scheme then you are likely to be on less than half your income in retirement so there is some scope to need to increase that by some means. That is unless you feel your existing provision is enough.

Melmar

Thanks for the advice.

Much appreciated

Stewster

I am also considering paying into AVC's and would like opinions on them. I have been paying into my company's final salary scheme (one of the oil majors) for 8 years and have another 34 years to go before I retire. Do you think AVC's would be worth considering in my case ? I could afford £100 a month or more I think. I would obviously check out the AVC options (I think its Legal and General with my company) Thanks

dunstonh

I am also considering paying into AVC's and would like opinions on them.

AVC is a generic term for a product type. Its a bit like saying I have a container and would you to give an opinion of this container without you seeing it or what is in it.

AVCs are largely obsolete nowadays but a few do have advantages which can make them attractive.

Do you think AVC's would be worth considering in my case ?

Might be. But then there may be other options like buying added years, a new hybrid option (mostly introduced since April 2006), personal pensions, stakeholder pensions, SIPPs, ISAs and other investments.

It really depends on a range of things as to what option will be best.

Stewster

Thanks for your comments. If it helps my employer is Shell and the funds that are approved by the pension fund trustees for AVC's are :

Legal & General Pension Cash Fund
Legal & General Pension UK Equity Index Fund
Legal & General Pension Newton Balanced Fund
Legal & General Pension Global Equity Fixed Weights (50:50) Index Fund
Legal & General Pension Newton International Growth Fund
Legal & General Pension Consensus Fund
Legal & General Pension Ethical Fund
Legal & General Pension Fixed Interest Fund
Legal & General Pension Property Fund
Legal & General Pension Pre-Retirement Fund

Do any of these have a good track record to date from your experience and worth putting any money into ?

Academic

You can check out the funds yourself using Trustnet or one of the other fund listing companies.

For instance, here is the L&G Newton Balanced Fund (Pension). If you want to search for the other funds available in your pension scheme use the 'keyword' search box on the upper right-hand side of the screen and enter L&G.......

It is unlikely that anybody will give you specific advice on the MSE forum, you'd have to employ an IFA for that.

artha

In my opinion, one of the major things to think about is whether the AVC can be used to take tax free cash. In my position that is a major benefit under the current rules after the "A-Day" changes in 2006. Whether it will still apply in future years is anyones guess.

At the moment the option, where schemes allow, to take tax free cash from AVC funds is a no brainer. At the moment I am pumping all of my salary into an AVC cash fund , avoiding income tax, to be able to take it tax free at retirement in a few months time.

For those who are in the early years of employment this is likely to be of no relevance but is worth bearing in mind when considering what to do

dunstonh

In my opinion, one of the major things to think about is whether the AVC can be used to take tax free cash. In my position that is a major benefit under the current rules after the "A-Day" changes in 2006. Whether it will still apply in future years is anyones guess.

That and matched contributions are about the only times left its still worth using an AVC.

For everyone else, one of the other tax wrappers/pension versions are better.

david78

artha wrote: »

..., one of the major things to think about is whether the AVC can be used to take tax free cash.

Its worth finding out if you can do this. Sometimes you can, sometimes not, depends on what the trustees have decided (and how well/poorly the FS scheme is funded). In my case I can do this up to a capped amount, any tax free cash above this reduces the entitlement from the FS pension. I have stopped paying into my AVC now and pay into a personal pension instead. I found the AVC difficult to manage; statements arrived at odd times in the year, and switches were difficult to arrange. With my personal pension I get access to better funds (just my opinion) and can manage everthing on-line.

cyclonebri1

Don't forget that typically the AVC fund also can provide for an additional cash some at retirement. As happened in my case the AVC pot was approx 25% of the whole pension value, I therefore effectively got back the whole of the investment with profits as cash, and had the main pension to provide just that;)