At 57 are AVCs worth considering?

Arkwright007

After being self-employed for 27 years I started working for the local county council (in education) for my last 10 working years. On starting 2 years ago I participated in the pension scheme and am now being offered the 'opportunity' to increase by my contributions with additional voluntary contributions.
Quite simply, are these worth consideration? (e.g. an extra £5,000 into this instead of savings/shares). Any comments welcome.

jim77_2

hi, I am far from being an expert on this......and I'm trying to work out myself whether I should start contributing to AVCs instead of alternative investments. However, based on what I have read so far it looks like it might be a very wise thing to do, and even wiser as you get closer to retirement. This assumes that your scheme recognises your AVC pot as part of your entire pension pot - so you are able to take 25% of this as a tax free lump-sum on retirement. So assuming you select a low risk investment option for your AVCs, I can not see why you would not put as much as you can into AVC's given that you not only benefit from the tax relief going in, but essentially 25% is also tax free coming out..... I could be wrong, but thats what I have read so far..... can anyone confirm this?

dunstonh

AVCs are increasingly becoming obsolete. With employers no longer required to offer them, many are closing them and with retails pension products now cheaper or equal on charges to most AVCs, they have become a bit of a relic. There are some good AVCs left which have matching contributions and under the right circumstances they can be used to good affect. However, if the scheme and your circumstances dont match those, then there is usually little reason to do one.

jim77_2

dunstonh wrote:

AVCs are increasingly becoming obsolete. With employers no longer required to offer them, many are closing them and with retails pension products now cheaper or equal on charges to most AVCs,.

if you open an additional pension plan instead, alongside an occupational final salary scheme say....does anyone know how the 25% tax free lump sum works? i assumed the advantage with AVC's was that your employer could include everything in one pot?

ReportInvestor

You take 25% of your new fund in cash when you convert it into an annuity.

Some in house AVCs didn't have the potential of a tax free pot, but have been granted it under the new rules .

jim77_2

just to clarify.... so basically, occupational AVCs dont really have any advantage over starting an addititonal pension plan? deciding which route to take is essentially down to the actual investment product itself and charges? is this correct?

dunstonh

Some schemes havent yet implemented the 25% pension commencement lump sum (to use its correct name now, pending Labour taxing it later ). They dont have to either.


edit: Correct Jim. With just a handful of exceptions.

ReportInvestor

jim77 wrote:

just to clarify.... so basically, occupational AVCs dont really have any advantage over starting an addititonal pension plan? deciding which route to take is essentially down to the actual investment product itself and charges? is this correct?

You've got it in one.

Unless your AVC scheme is one of those laggards mentioned by dh that hasn't yet incorporated the possibility of a 25% "pension commencement payment" - which would count against it.

I understand - from MSE posters - that there are a few AVC schemes that have been allowed more than the 25% lump sum. That would also be a consideration.

bristol_pilot

A crucial piece of information has not been posted by the OP. If the AVCs are considered to be part of the total pension scheme, then on retirement you may be able to take 25% of the whole value of your pension (the value is 20 times the annual pension plus standard lump sum plus AVCs) as tax-free cash. This CAN mean that you can have all your AVCs back as part of the tax free lump sum including all the tax relief that you have had when you were saving (providing that you have not paid in so much that the total of AVC + standard lump sum exceeds 25% of the total value). This is very attractive for higher-rate taxpayers in particular. On the other hand, if the AVC fund is separate from the main scheme then you are likely only to be able to take 25% of your main scheme pot plus 25% of your AVC fund as tax-free cash, which is MUCH less attractive. The OP should therefore find out how AVCs are treated in his scheme. As the employer is a local authority, my guess is the OP may be in luck.

Mortgage_&_debt_free

I'm in the LGPS and can confirm the 25% is of the entire pension pot, which makes AVC option a no-brainer in my view, particulalry as the LGPS now has a considerable range of funds the AVC can be invested in.

HTH