AVC or Stakeholder

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
25 replies 4.4K views
CameronCameron Forumite
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Bank accounts I can understand - one pays 2% one pays 6% I know what to do - Pensions - where’s the annadin?

Help please - My wife is a teacher and has contributed to teachers AVC - with Prudential for almost 4 years now - I think I understand it as follows - she’s gets tax relief on the money she invest of 20% or so, Prudential invest it and give her back 0.01% interest? - when I compare this with paying the tax and investing the money myself at say 5% its only marginally better and I mean marginally

I'm playing with the ideas of changing to a Stakeholder -is this advisable?

is there anywhere I compare stakeholder pensions?

can you swap and change stakeholders like bank accounts?

can I transfer the prudential pot to my new stakeholder?

any advise will be greatly received - even if its a headache remedy.
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Replies

  • PalPal Forumite
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    From looking at the teacher's pension scheme websites, it appears your wife has a choice within the scheme of added years AVCs or Prudential money purchase AVCs, the latter of which can be invested in a range of Prudential funds.

    If any of the Prudential funds has achieved a 0.01% return, it is presumably it is because of the fund choices she made, rather than the fault of the Prudential itself, although without knowing the funds it is impossible to say for sure. Presumably she was in an equity fund or the with-profits fund? If your wife is not happy with these returns she should review her AVC investment choices and change them if necessary.

    If your wife is not happy with the Pru investment returns then she is also unlikely to be happy with similar investment choices obtained through her own stakeholder or free standing AVC arrangement. And if you don't understand investments that well, you can't really guarantee that your chosen stakeholder provider is going to offer better investment performance than the Prudential. The fees may also be higher through a stakeholder.

    In general I would suggest that most teachers should go for the added years AVC choice instead, especially if they believe that they might be promoted at some time in the future. It passes most of the risks back to the scheme/taxpayer rather than your wife having to make investment choices that she probably does not really understand.

    Alternatively, speak to an IFA.
  • dunstonhdunstonh Forumite
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    Prudentials rate of return seems very fair considering what has happened to the stockmarket over the last 4 years. Just think yourself lucky she didnt pick the unit linked funds.

    I cannot recall the Pru AVC charging structure for the teachers pension scheme. It used to be low pre stakeholder but there is a good chance it is no longer the case. So that is worth investigating.

    Your wife may not be eligible for stakeholder depending on her income. As for comparing them, there isnt a lot of difference in the actual product. Some offer small discounts of 0.1 here and there. Some have consistantly bad funds, some have consistantly good funds (good thread to read is the marks and spencers thread a few down in this section).

    Stakeholder pensions can be switched as can your wifes AVC into a stakeholder. Its normally a process you would do under advice though as there some things that may make it unadvisable, such as a market value reduction, transfer penalty (although pru no longer make a transfer penalty). Also, the Pru with profits fund is considered the best in the industry and in a very strong position to increase bonus rates again in the future. Leaving that fund may not be advisable.

    If you dont have a clue about the workings of a pension investment and dont want to. Criticising the the performance of the WP fund from Pru over a period when most have lost 20-50% of the their fund values suggests you dont ;). The added years would be a simple solution as Pal says.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • PalPal Forumite
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    Cameron - are you invested in the with-profits fund?
  • PrudentPrudent Forumite
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    I was very interested in the responses to this topic. I am also a teacher, but have missed years due to having time out for family.

    I had the financial advisor from my teaching union out to review my pension situation two weeks ago.
    His advise was to buy a stakeholder pension and he recomended one with AXA sun life which is property fund. howver even with putting in £234 per month (the maxim I am allowed) it will only give me an estimated return of around 14% of my salary.

    He advised against buying back years because you also have to pay the employers share of the contribution. It also is final salary so you have to be sure you want to remain in teaching until retirement to get a good return.
    I am 38 at present, so that it is quite a long term decision to make.

    I haven't yet made any decisions and would appreciate any comments.
  • dunstonhdunstonh Forumite
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    I was very interested in the responses to this topic. I am also a teacher, but have missed years due to having time out for family.

    I had the financial advisor from my teaching union out to review my pension situation two weeks ago.
    His advise was to buy a stakeholder pension and he recomended one with AXA sun life which is property fund. howver even with putting in £234 per month (the maxim I am allowed) it will only give me an estimated return of around 14% of my salary.

    He advised against buying back years because you also have to pay the employers share of the contribution. It also is final salary so you have to be sure you want to remain in teaching until retirement to get a good return.
    I am 38 at present, so that it is quite a long term decision to make.

    I haven't yet made any decisions and would appreciate any comments.

    I had arranged over 150 pensions since April and not one has been with AXA. I know some IFAs like them but I cannot see what they have to offer that is better than the alternatives.

    Property has done well and is expected to continue doing well for couple more years but not as much as it has been. The property fund is commercial property so works under different principles to residential property. I drop in residential prices shouldnt have an impact on commercial prices. However, i would have to question why 100% of your money is going in one fund. If you are low to low medium risk, then some of it should be looking at fixed interest, gilt funds, corp bond funds and even defensive managed funds. Investing in just one fund is a very old fashioned way of doing things and smacks of the sort of thing that tied advisors do because they are not allowed to recommend funds. Although they often steer you when they shouldnt. The AXA property fund has done well but others, such has friends provident has done better so that cant be the reason why AXA was recommended.

    Were figures obtained from the teachers scheme to allow you to compare stakeholder against the scheme. It is almost certainly true that its the more expensive option but it may not be that much more and the guarantees in the teachers scheme coupled with an increasing pension in retirement could make the extra cost worthwhile. Im guessing here that the stakeholder illustration shows a level pension in retirement and probably with no spouses pension either. If you want those, that 14% you anticipate would be closer to 6%.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • PalPal Forumite
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    A lot of assumptions there DD! ;)

    Personally I am all in favour of investing in just one fund rather than spreading the risk. Spreading might be slightly "less risky", but it also guarantees average investment returns. As this is an AVC policy and not the only pension savings, taking a bit more risk is probably reasonable.
    The AXA property fund has done well but others, such has friends provident has done better so that cant be the reason why AXA was recommended.

    Good! At last an adviser who is not blinded by past performance statistics! ;)

    The comment about paying the employer contributions as well (through the teachers scheme) is misleading. You do not pay the employers contributions, but you do have to pay the full cost of buying the extra pension you are being given. But putting the money in the stakeholder is exactly the same. You still have to pay the entire cost of the pension you are buying.

    In the end it comes down to an analysis of the added years you could buy plus your future pay rise expectations, against future investment returns and annuity rates. Hopefully the IFA did his/her job properly when analysing those factors.

    14% looks more like a joint life rate to me, but my gut feel on annuity rates and investment returns might be a bit out of date.
  • PrudentPrudent Forumite
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    Thank you so much. The replies were very helpful. I don't know if there is any consideration of joint life or a spouses contribution.
    I am separated and it wasn't a consideration for me.

    Reading your coments, I am unclear about why the financial advisor steered me away from the teacher's scheme. I have held off from applying for promotion just now as I am a single parent and do not want the extra workload at present. However I am about to start courses to add to my qualifications with a view to promotion in a few years. This was explained to the him.

    I also said I was happy to pay higher premiuims than the ones I have quoted here. This is the maximum I was able to pay into this particular pension.
    I am also happy to make a lump sum contribution.
  • I am having a similar dilema to Cameron and have read this thread with interest.  My AVC is with AMP/NPI (or whatever they're branding themselves as now).  What worries me is that they are not taking on any new business in this area and therefore may be not too focussed on their existing cusomter as well.  I only put £75 per month into the AVC but it does annoy me that it has lost £300 over the last two years compared to putting under the mattress although, it didn't do too bad for the first 4 years.  

    I have been told and would like any advice/confirmation of this, that even though I now earn £35,000 I could transfere some of my AVC fund into a stakeholder.  This would be for the time when I didn't earn above £30,000.  Is this rubbish or even worthwhile?

    My other options are increasing my contributions to a mini shares ISA I have with the Skandia, my cash ISA allowance is full or buying back 3 lost years in my teachers pension scheme.

    Any thoughts or ideas would be most gratefully recieved.  I'm tired of financial advisors who are very keen to recommend AVC's to you but are not interested once their commission has stopped being paid - my advisor for this is still getting back to me since February regarding this despite my 3 reminders!
  • dunstonhdunstonh Forumite
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    I am having a similar dilema to Cameron and have read this thread with interest.  My AVC is with AMP/NPI (or whatever they're branding themselves as now).  What worries me is that they are not taking on any new business in this area and therefore may be not too focussed on their existing cusomter as well.  I only put £75 per month into the AVC but it does annoy me that it has lost £300 over the last two years compared to putting under the mattress although, it didn't do too bad for the first 4 years.  

    I have been told and would like any advice/confirmation of this, that even though I now earn £35,000 I could transfere some of my AVC fund into a stakeholder.  This would be for the time when I didn't earn above £30,000.  Is this rubbish or even worthwhile?

    My other options are increasing my contributions to a mini shares ISA I have with the Skandia, my cash ISA allowance is full or buying back 3 lost years in my teachers pension scheme.

    Any thoughts or ideas would be most gratefully recieved.  I'm tired of financial advisors who are very keen to recommend AVC's to you but are not interested once their commission has stopped being paid - my advisor for this is still getting back to me since February regarding this despite my 3 reminders!

    You cannot transfer an FSAVC into a stakeholder if you are still in pensionable service of the employer you started the FSAVC is linked to.

    Also, as its final salary pension you are in, you will not be able to contribute to a stakeholder pension due to your salary being over 30k.

    You cannot blame NPI for the stockmarket drop and paying in monthly during that period should end up being beneficial over the long term. When you are paying monthly, you want drops like this to happen during the early and mid years. It allows you to buy your units cheap.

    Had you paid the money into an ISA you could have been looking at a greater loss than an FSAVC as they invest in the same areas but the FSAVC has greater tax benefits. In addition from April 2006, you will be able to take upto 25% tax free lump sum from the FSAVC when you get to retirement. Cash ISAs are hardly appropriate for long term pension planning.

    You say you are tired of financial advisors that dont want to know when the commission has been paid. How many financial advisors have you had experience of? Perhaps the AVC was recommended as it was best advice. Based on the little information posted, it certainly seems to be the right product.

    If you are paying into the Skandia ISA monthly, then the financial advisor is still being paid for the advice. He is probably still earning on every pension contribution paid too. Like any service, if you dont get any or dont like it, go to another IFA. The new IFA can get you to sign an authority to allow them to receive future commission instead of the old useless one.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • PalPal Forumite
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    Reading your coments, I am unclear about why the financial advisor steered me away from the teacher's scheme. I have held off from applying for promotion just now as I am a single parent and do not want the extra workload at present. However I am about to start courses to add to my qualifications with a view to promotion in a few years. This was explained to the him.

    Without knowing the full details it is not possible to comment on why he advised the way that he did. The use of a property fund was fairly unusual by itself.

    He probably advised you properly based on your current circumstances. After all, you may not gain the additional qualifications or promotion. In the end he can only go on what you tell him so chances are he played it safe.

    That said, if I was erring on the side of caution I would probably have suggested the added years option instead, if only because it would have been obvious what you were going to get. If you then "lost out" as a result it would have been your fault for not getting the correct salary rises and promotions, rather than mine for choosing an incorrect fund option! :)
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