Should I move my Free standing AVC

Moby

I have been paying into the Local Government Pension Scheme and will have that as my main pension when I retire. However I took out a Free Standing AVC with Winterthur in April 1998. I've been making £50 monthly payments since then. Its current bid value is £12 305 and transfer value is the same. I think this is pretty bad but of course part of the reason for that is I haven't increased my contributions to it. Question is do I increase my contributions so that it grows to become a worthwhile fund for when I retire or should I transfer it to another provider? I know my local government scheme has a Free Standing agreement with the Prudential and I think the Prudential would enable an AVC to be taken as a tax free lump sum? This sounds a good idea to me but I don't even know if I transferred this pension whether I'd be allowed to take it as a lump sum?

Any advice on this gratefully received!

dunstonh

However I took out a Free Standing AVC with Winterthur in April 1998. I've been making £50 monthly payments since then. Its current bid value is £12 305 and transfer value is the same. I think this is pretty bad but of course part of the reason for that is I haven't increased my contributions to it.

The pension you have could well be very out of date. Since the changes in 2001, many pre 1999 pensions appear old fashioned (the run in the for pension changes meant that in the years before 2001, pension providers were expected to be compliant with the incoming changes). Not all pensions of that era are bad or poor value but given the consistent changes, there have been over the last decade, it is always worth getting them reviewed.

Part of the reason it may not have done as well as you hoped is probably more to do with timing though and the decade in question and what has happened in that period. Also, if it has been left its own devices without reviews and rebalancing then that certainly wouldnt have helped.

Question is do I increase my contributions so that it grows to become a worthwhile fund for when I retire or should I transfer it to another provider?

That would need to have an analysis of the pension to decide.

Moby

Thanks Dunstoh. If I go back to Winterthur for a review what are the issues to check out for when making my decision as to whether to transfer it or increase my contributions?

dunstonh

Winterthur don't operate a salesforce and will not review it. You should never use a salesforce even if they did have one. You should get a local IFA to look at it. They can show you where it stands in relation to modern schemes and options.

innit

I would like to ask you a question regarding my avc ,i have had a final salary pension since 1987,then in 1990 i joined the avc (additional voluntary contribution) scheme of my company and was contributing £20 pwk and my employer was also matching this amount total of £160 pcm.in 2003 i consulted a financial advisor regarding increasing my AVC contributions,i was told i should reduce the contributions to just £7 per week,as per the 66.67% rule so i would not be overfunded on early retirement at 58 with 40 yrs service.I now have a fund worth £23,000 (avc only) with a projected lump sum of £59,000 at retirement.If i had continued with the £20 per week funding my fund would now be worth over £46,000 with a projected lump sum of £96,000 at retirement,do you think this decision was in your opinion correct?

dunstonh

If i had continued with the £20 per week funding my fund would now be worth over £46,000 with a projected lump sum of £96,000 at retirement,do you think this decision was in your opinion correct?

In 2003 there were maximum contributions you could make which were quite low. In 2006, the rules were relaxed and the contribution levels increased. They were reduced again in April 2012.

So, if the adviser in 2003 was applying 2003 rules then the advice was correct. The fact that you were able to pay more in 2006 onwards does not make 2003 advice wrong.

Did you ever discuss the retirement planning again after 2003 with that adviser?

grizzly1911

Moby wrote: »

I have been paying into the Local Government Pension Scheme and will have that as my main pension when I retire. However I took out a Free Standing AVC with Winterthur in April 1998. I've been making £50 monthly payments since then. Its current bid value is £12 305 and transfer value is the same. I think this is pretty bad but of course part of the reason for that is I haven't increased my contributions to it. Question is do I increase my contributions so that it grows to become a worthwhile fund for when I retire or should I transfer it to another provider? I know my local government scheme has a Free Standing agreement with the Prudential and I think the Prudential would enable an AVC to be taken as a tax free lump sum? This sounds a good idea to me but I don't even know if I transferred this pension whether I'd be allowed to take it as a lump sum?

Any advice on this gratefully received!

While not startling it is still an effective return of 8%= on your average pot of £3900.

I have AVC s spread over equities sand some property commenced in in 1995, annual payments out of non pensionable bonuses and they have are probably 40% lower than the peak. I stopped after about 8 years and went into S&S ISAs, giving more flexibility, which have at least kept pace since.:o

Moby

Grizzly,

How did you work out this return of 8% and an average pot of £3900? Don't know what this means...sorry may be being a bit dense?

innit

dunstonh wrote: »

In 2003 there were maximum contributions you could make which were quite low. In 2006, the rules were relaxed and the contribution levels increased. They were reduced again in April 2012.

So, if the adviser in 2003 was applying 2003 rules then the advice was correct. The fact that you were able to pay more in 2006 onwards does not make 2003 advice wrong.

Did you ever discuss the retirement planning again after 2003 with that adviser?

The advisor never requested a review,he based his assumptions on taxation at the time the lump sum was to be cashed,the AVC was seperate from my pension and was not taxable !! the advisor was not qualified to advise on taxation,he was not an accountant or qualified tax advisor,having spoken to an actuary he stated the advice was very wrong,and should have invested the maximum which i was at the time,the maximum that could have been invested in the fund in 2003 would have been highly unlikely to be have reached, even on the highest funding allowed set by the employer,the employer would have corrected this by sending you a letter to reduce or stop your payments,those values where set at the age of retirement being 60,i was retiring early at 58.

grizzly1911

Moby wrote: »

Grizzly,

How did you work out this return of 8% and an average pot of £3900? Don't know what this means...sorry may be being a bit dense?

Rough and ready.

Total investment of £7800 (50x12x13).

Over that period your average capital amount is £3900 (7800/2)

The total value is now£12305, less £7800 gives a "inetrest/capital appreciation/profit" thus far of £4505.

4505/3900 gives you a return of 116% over 13 years or 9% p.a less an allowance for compound effect (interest on interest) say 8%.

Whilst not entirely accurate it gives you a figure for comparison.

Only works for fixed regular payments, if lumpy or less frequent then weighting allowances need to be factored in.

dunstonh

The advisor never requested a review,

Did you employ the adviser on a servicing contract or was it transactional advice?

he based his assumptions on taxation at the time the lump sum was to be cashed,

You couldnt take a lump sum from an AVC in 2003.

the advisor was not qualified to advise on taxation,he was not an accountant or qualified tax advisor

All advisers are qualified on taxation for pensions. Indeed, more so than most accountants.

having spoken to an actuary he stated the advice was very wrong

Is the actuary looking at pre 2006 rules or post 2006 rules or post 2011 rules?

even on the highest funding allowed set by the employer,the employer would have corrected this by sending you a letter to reduce or stop your payments

Employer doesnt review your pension contributions like that. Its left to you to monitor.