Confused by options

evergreen

I have AVc's with group AVC Civil Service Sceme with Standard life. I am 57 in a couple of weeks and asked for quote for taking at age 60 and quote for taking now.

Age 60: Fund value now £16960. Estimate increase of 5%, fund value at age 60 £19300. Pension a year £852.

Age 57: Fund value now £16960.
1. Pension a year - £871.80 fixed
2. Pension a year - £493.20 Increase by RPI
3. Pension a year - £649.92 fixed- Tax free lump sum of £4240.17
4. Pension a year - £366.00 Increase by RPI - Tax free lump sum of £4240.17
5. Open market option with or without lump sum.

Firstly why is the pension larger if I take now rather than wait even though the pot is smaller?
Secondly which of all the options is the best do you think?

Would appreciate any advice or comments. Thanks

Debt_Free_Chick

It will be the difference in the cost of buying an annuity today, compared with the assumed cost of buying an annuity in three years time. The annuity rate that's used at age 60 is essentially one that the FSA states is "reasonable" to assume for the future. The actual annuity rate could be better or worse than that shown in the illustration.

As for which option - that's always a difficult question! It really depends on your total income and what you need in the future. Also, how sensitive your future income is in relation to inflation.

I assume you have a main Civil Service pension too? If so, then the income (pension) from that is inflation-proofed, so you may feel no need to inflation-proof the income from your AVCs. That would discount options 2 & 4. You then need to consider whether you want/need the tax free cash option, remembering that you get a lump sum from your main pension.

Option (5) is worth exploring. This means that would shop around to see if you can get an annuity better than that offered by Standard Life.

HTH

dunstonh

Firstly why is the pension larger if I take now rather than wait even though the pot is smaller?

The illustration of future benefits is almost certainly not on the same terms. It could be on SMPI basis which includes a deduction for inflation to give you a real terms figure. It could include spouse or indexation or have a different guarantee.

Secondly which of all the options is the best do you think?

open market option (out of the ones you listed - there are more options).

evergreen

Thankyou for your replies. Dunstonh you are correct. I rang them today and they said the future illustration is based on other companies as well as their own and would be linked to RPI. I said why doesn't it say that so you can compare like for like. He agreed but said that is the way they have to do it. Looks like I will not be taking this pension for a while. May wait until I get my civil service pension at 60 or if I can afford to I might wait until I am 65 and my tax allowance will go up.
Thanks again.