buying AVC or added years with redundancy payout

coffeeandcake_3

I am keen to minimise my tax on redundancy payout. Also keen to increase my pension. Would it be a good idea to purchase AVC or added years, if available in my company's final salary pension scheme before leaving? I have 18years service.

dunstonh

Would it be a good idea to purchase AVC or added years

They are two of the options potentially available. They may or may not be the best option. It really depends on your personal situation, your future objectives, current and future tax position, marital/partner status, investment decisions, pension scheme rules and a number of other things.

Contributing extra to your retirement is never a bad thing. However, if you want the fine tuning of choosing the best option, then its really hard to say without any of the facts.

Debt_Free_Chick

Assuming it's right to increase your pension using your redundancy pay, the best way to achieve this is for your employer to divert some of your severance directly into your pension plan - either the current one or a new one.

Essentially, you and your employer agree to restructure your severance, so instead of you receiving £x, they pay you £y and also pay £z into your pension plan.

lowbrim

On the assumption you are "close or at " retirement and do not need the money the purchase of added years is normally a no brainer if the final salary pension scheme is indexed. Just do simple maths what is the return on the money if you put it into AVC's (ie you put in £10,000 say do you get a pension more than £600 indexed which is 6% +) against what you would get if you took it out and put it into the bank or invested it which is currently probably 5% max. Both returns would be taxed.

If you have quite a long time to go to retirement (3years +) then the decision is more difficult, as it is norrmal for the pension not to be index linked until you start taking it. You would need to check this as if this is the case then you lose out on the compound interest over the years prior to taking the pension.

coffeeandcake_3

thank you to all of you
I think I need to speak to my employer to see what options are actually open to me.
I am at least 10 years off retirement and thinking of entering public service- teaching- so will have another final salary scheme hopefully. Assuming I should leave my 18 years final salary pension where it is however...?