1/80th AVC

Dithering_Dad

Hi, sorry if this sort of question has been posted in here many times before, but I have recently started with a new employer that has a final salary scheme (1/60th) and I signed up to that from day 1, knowing the value of this sort of pension.

They also have a 1/80th AVC scheme and I have asked HR for details, but just wondered if anyone knew the benefits of this sort of AVC and whether they're worth investing in or whether the money is better off invested elsewhere?

Thanks in advance for any replies.

jamesd

I'm assuming that x put into the AVC scheme now buys y years and that y never changes over time.

The older you are the better the deal the 1/80th scheme is because investments have less time to grow to beat it. Check how much flexibility you have for retirement in the plans. My guess is that you're young enough and interested enough in retiring before you're 67 that doing pension investing outside the AVC scheme is a better idea.

Also check how the AVC purchase works in later years. Maybe you can invest now and AVC later after you've gained from a few years of stock market recovery. If you can delay, delay seems sure to be the best approach unless you think you're going to actively lose money with investments.

The AVC deal sounds like one intended for those only a few years from retiring, optimised to their needs, not those of younger pension investors. Worth considering as an alternative to an open market annuity purchase at retirement, not for people who are barely if at all middle aged.

CLAPTON

Whether a 1/80 avc scheme is a good investment depends of course on how much you have to pay in to achieve it.

dasherman

With this type of scheme you buy extra years with your contributions. The younger you are when you start the less it costs per week/month.

If you were to leave it until you were older to buy the same number of years,the contributions will be considerably higher.

jamesd

dasherman, that would be sensible, then you'd need to know how the price changes over time to get the assumed rate of return and judge whether you think you can beat that rate of return yourself.

Dithering_Dad

Thanks for the input guys. I received the details back from HR and I was misinformed, the AVC was not a 1/80th as I was first told, but is just a stock market investment vehicle (without employer contributions)

I'm not terribly interested in investing in this sort of pension as I already have a SIPP on the go, with much better investment options available.

jamesd

You might check the AMC of the options. It's possible that some are both desirable and at more competitive rates than in your SIPP. If you're buying say a developed market tracker or ETF you might find that it's cheaper using one via AVCs. While the range is small, the AMCs of this selection of the funds I have available are quite low:

0.1% BGI Aquila Life UK Equity Index
0.25% BGI Aquila Life World (ex UK) Equity Index
0.1% BGI Aquila Life Over 15 Years Gilt Index Fund
0.15% BGI Aquila Life Cash Fund
0.4% Fidelity Long Term Growth