Is this a good deal that I should keep ?

amc1

I am currently contributing 5% of salary (gross) to what is called a Flexible Options AVC as part of my Final Salary Scheme. I am 40 in a couple of months. My retirement age is currently 62. The estimate being provided is that this arrangement will return an annual income of 6.5% of my finishing salary.

Is this a good investment ? Thanks.

ReportInvestor

How many years' contributions have you made to date?

amc1

8 months worth.

ReportInvestor

I should also have asked the terms of the pension. The calcuation below is a possible comparison were you to go it alone and assumes the following:

You are a male no smoker
You have a partner 3 years younger
You would buy an inflation linked joint life annuity that paid your partner 50% income on your death.
It also assumes
£20K current salary
3% pa salary increases
7% investment growth (after charges)

Result

Under your work scheme you would retire on a pension of £2,418pa

Under an alternative pension savings scheme you might retire on a pension of £2,340 pa if annuity rates remain the same and if your investments grow @ 7% pa.

It sounds like the work pension has probably used the same standard style calculations as me (but included the 8 months contributions to date).

So it probably boils down to whether you trust yourself to invest your pension money better than your work pension scheme.

What is the name of the fund(s) your work AVC is invested in?

amc1

My estimate provides for a guestimate £50,000 finishing salary which would provide a £3,200 pa return. (This would be also be halved and paid to my spouse if I died).

Thanks for your help.

amc1

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amc1

"What is the name of the fund(s) your work AVC is invested in?"

I don't know and there is no real need for me to know and they guarantee the return at 6.5% of my finishing salary.

amc1

Opinions on this appreciated. (I need to make a decision on whether to keep it by this Friday). Thanks.

EdInvestor

Is this an estimated or a guaranteed return? :huh:

ReportInvestor

If it's guaranteed - and assuming you aren't an investment expert who fancies managing their own portfolio - then it makes sense to take it since it effectively removes the risk of not getting 7% returns and/or the risk of falling annuity rates over the next 20 years.

You did say in your first post

the estimate being provided

Which has thrown us.

Is the estimated bit just dependant on estimated salary increases & not on investment returns / annuity rates?

I actually wrote "Take it" in my first reply and then edited it out when I reread your post and saw the word "estimate".

amc1

its a guaranteed return of 6.5% of my finishing salary.

"Is the estimated bit just dependant on estimated salary increases & not on investment returns / annuity rates?" - yes, the 6.5% is guaranteed, the estimate is on my finishing salary.

Thanks a lot.