Final Salary and AVC's and ISA

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
2 replies 957 views
Andy7856Andy7856 Forumite
183 Posts
Tenth Anniversary 100 Posts Combo Breaker
Just a spot of assitance please:

I'm currently on a final salary scheme, I have just started paying AVC these go towards the tax free lump sum and not towards the yearly pension income.

I also pay into a S&S ISA (which I'll prob keep running until i retire, so i can move this into a income paying fund).

This mix of investments will hopefully give me the benefit of tax free lump sum (plus gained tax relief on the AVC contributions) and also a part tax free income (via the S&S isa).

In your opinion is this a bad strategy? should i consider dropping the AVC and paying more into the S&S? or vice versa?

I'm a basic rate tax payer and have 30 years to go to retire..



    108 Posts
    As long as your scheme allows you to take the AVCs as tax free cash it is an excellent strategy because otherwise you would have to cash in part of your final salary benefits to get the tax free cash. The conversion rate when you do that (called the commutation rate) is usually poor value for money.

    Not all schemes allow you to take your tax free cash from your AVCs and force you to convert part of your final salary pension to cash, so check with your scheme (get it in writing from them because your retirement is a long way off and you want to be protected from them changing the goalposts in the future).

    When you have paid enough into your AVC such that the projected value at retirement is enough to cover the projected maximum tax free cash, then is the time to reconsider where you are saving.
  • Andy7856Andy7856 Forumite
    183 Posts
    Tenth Anniversary 100 Posts Combo Breaker
    Nice one, thanks for that. Just for the record my pension admin team recently informed us that new contributions to the AVC will be required to take a tax free lump sump to the value of 25% of the total pension benefit. (AVC's over the 25% value will be used to buy extra income in the pension years ** at a ratio to be agreed with the assurance company **).

    Only problem is the AVC funds are not exciting and more simply UK growth funds or Global Index Funds. But i can add some spice to it all with my ISA emerging market funds etc.

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