AVCs - are they worth it?

chesky369

I'm in a final salary scheme (at the moment, but that's another story) and have been contributing a further £100 per month since 1985 in AVCs. I've been trying to find out what the advantages are to other forms of saving - i.e. ISA's; stakeholder, etc. but can't really see any. I can't buy additional years with the scheme. It seems to be under money purchase rules, so why am I bothering?

And will A-day have any effect on this?

dunstonh

You have to look at your goals for retirement and why you are saving into an AVC.

Pros of an AVC: erm, not many nowadays. Some providers match benefits or give small enhancements. A 1985 version may contain a guaranteed annuity rate.
Cons of an AVC: Not reliable for early retirement planning as you cannot commence benefits early unless main scheme does. Trustees may insist on benefits being taken at same time as occ scheme which can prevent phased retirement. Investment options may not be to your liking.

After A day, AVCs are basically obsolete as a new product. If you already have one, you can keep it. Otherwise, you will be looking at alternative options.

The alternatives are:
ISA
Unit Trust
Investment Bond
Investment Trusts
savings accounts
National Savings
Stakeholder pension
personal pension
SIPP

List not complete and not in any particular order. Each has its pros and cons which again depend on what you are looking for with the money. Some of those can easily be eliminated as they would only be used if you were a higher rate tax payer currently with less than 20 years to go until retirement or if you only have lump sums available. Some are not really suitable for long term investing.

So, what is best? It depends on your personal circumstances and what you are trying to achieve with the money. Is an AVC best? Unless the employer adds to it, it is unlikely.

chesky369

thanks dunstonh - my suspicions confirmed. Do you know whether the £30,000 earnings limit will be removed post A-day with regard to having a stakeholder pension?

dunstonh

chesky369 wrote:

thanks dunstonh - my suspicions confirmed. Do you know whether the £30,000 earnings limit will be removed post A-day with regard to having a stakeholder pension?

Yes it is and it applies to all pensions, not just stakeholder.