Help on AVC's please ?

Confused.com_5

Hi - I am new to the Chat Forum, have been a regular viewer of the website for a while now - getting well and truly addicted ! Thanks for everyones good advice.

My Hubby has been a member of his employers pension scheme for 20 years now and for at least 15 of those years he has also paid AVC's which are now £154 per month !. If I remember rightly the last avc prediction was £80 per month payout on retirement...

I really don't understand about pensions and avc's but on the face of it it doesn't sound like a good scheme to me ? Also, does anyone know how we would go about cashing this plan in, or would it be worth just freezing it ?

Any advice would be much appreciated !!

Thank you

Scouse_Mick

I don't know what you mean about the £80 per month on retirement. Is this a portion of a predicted pension which is attributable to AVCs? I'm guessing the rest is based on final salary?

In general terms I would say if you can afford the £154 per month then you should go on paying it. You don't say how long to got to retirement but you could br drawing out this £80 per month for 20 / 30 years in which case it might be worth it if there's only a few years to go. You really need to see a specialist financial advisor on this one but as I understand it employer pension schemes are usually the best because they pay the fees for you.

dunstonh

AVCs are virtually obsolete now. FSAVCs are totally obsolete.

AVCs used to offer some attractive advantages in low charges and some employers did enhance benefits above and beyond the norm. However, without those, AVCs can do more damage to your retirment plans than personal pensions (AVCs have to be taken at some time as occupational scheme, unless you get trustess to agree otherwise and that can rule out phased retirement or income drawdown).

Also, does anyone know how we would go about cashing this plan in, or would it be worth just freezing it ?

You cannot cash it in and you cannot transfer it whilst your husband is still a member of the occupational pension that it is attached to.

Options are ceasing and redirecting contributions to alternative products or continuing contributions.

THe most important part of the AVC is the one thing you havent mentioned. How and where it is invested and performance and charges linked to that.

Confused.com_5

Thanks for your reply !

The AVC's are independent of the employment pension scheme.. And there is another 27 years til his retirement. It seems like an awful long time to be paying that much each month when we could be overpaying the mortgage !

Confused.com_5

Thanks dunstonh. I have very little details on the Scheme. He started this scheme with Alliad Dunbar years ago, it has since changed to Zurich. I will need to dig all the info out tonight and see if I can understand it a bit more.. Hubby is even more ignorant to the whole pension thing than I am !!.

dunstonh

The AVC's are independent of the employment pension scheme..

They can't be. AVCs are linked to the occupational scheme. AVCs which are not are called FSAVCs and have different rules. Your second comment mentioning Allied Crowbar suggests they are FSAVCs. With the new rules that come in after 6th April 2006, it is possible to transfer those to stakeholder pensions. However, a cost analysis would need to be done.

Confused.com_5

More Details - This plan is a Free Standing AVC Pension Plan. Does anyone know if this plan can be frozen until retirement, or cashed now ?

The plan is worth approx £22k.

Thanks

EdInvestor

If your husband is over 50 you can take 25% of it as tax free cash now and either leave the rest invested until retirement, or take a (taxable) income from it now.(After 2010 the min age is 55).

If he's under 50 you can freeze it, or transfer it to another pension with lower charges and better funds, where it might achieve better investment growth.

dunstonh

It cannot be "cashed".

FSAVCs are now basically personal pensions. It is possible to transfer them if you feel alternative providers offer a better deal for you.

Confused.com_5

Could we reduce the amount we pay into this per month ? - We both pay into other pensions which should cover us in retirement and I think we should be paying this amount off our mortgage.

EdInvestor

Could we reduce the amount we pay into this per month.

Yes.You can also transfer the money into another personal pension plan, which might be a good idea if it has better funds and lower charges.