Final salary scheme benefits of AVC

helius

I am a member of a final salary scheme I have never added AVC's. I am 53 and think it likely I will be made redundant in the next 6 months so am thinking about adding AVC to get the benefit of the tax relief, ( I earn £50k). Then when I leave my company take the 25% I am allowed to have from the pot as tax free lump sum. Now the question is about whether its worth taking a secured loan on my house which has loads of equity in it then putting this money in as the AVC then leave the company and take the tax free cash then pay off the loan and I get the benefit of the 40% tax on the AVC in the first place. I will have enough with the AVC and the pension pot to get back out to pay off the loan. Any thoughts?

thanks

Andy_L

If your lump sum can be taken purely from the AVC fund this may work (requires some careful number crunching).
If the lump sum has to come from both the AVC and by commuting your FS pension the, generally, poor commutation rate (eg £1/pension buys £12 lump sum) makes it less favourable.

Xbigman

Are you sure you get the 25% lump sum on leaving your employer? AVC's are more usually available when you take retirement not when you are made redundant.

Also, check on the charges for the AVC. This could be as high as 65% in the first year. Saving 40% tax and paying 65% charges would be a bit of a disaster.
And will your scheme allow unlimited payments into the AVC. If its restricted you could be talking about quite small amounts of money.

Then you have to look at the charges on the secured loan. If there are hundreds to lay out on valuations that might kill any savings anyway.

Lastly, how employable are you? If you can't find another job very quickly or take a pay cut you might not be an HRT this year anyway.
Regards



X