AVC or ISA?

cococat_4

Hi,

Have loitered on the site for a while and found these forums really useful. Wonder if anyone can give me advice on on this query.

I am 50 and have been in the NHS pension scheme for 8 years. Have around £50 per month to invest towards retirement (at the moment, hope to be able to invest more later on). Which would be the best option, to use it for AVC's and therefore boost my NHS pension (planning to stay until retirement) or save it through ISA's for use in retirement?

Thanks for any advice you can give.

Cococat

jem16

If you can purchase Added Years, I think this would be the best option as it's then linked to your final salary and will be index linked. However you may find it's quite expensive as you would only have 10 years until retirement.

As to AVCs or an ISA, the ISA would give you more flexibility but it would have to be a stocks & shares ISA not a cash ISA.

david78

cococat,

First, a very warm welcome to the MSE forums.

I would say the best thing to do is to put your money into an investment ISA (stocks and shares ISA) first. Only put extra money into AVCs if you are fully using your ISA limit.

At £50 per month you should consider a "mini" stocks and shares ISA (You can then put up to £3000 into a cash ISA as well if you want to). Look for one where you can invest in funds and recieve a discount on the initial charge and some rebate of the monthly charges.

This is especially useful as you can use take cash from your ISA tax free at retirement and take a bit less tax free cash from your NHS pension at retirement.

If you like, you can use a cash ISA for now and move it to a stocks and shares ISA later (but we don't know when this will be -- next year?).

David.

Mortgage_&_debt_free

Before you put it all in a S&S ISA speak to your pension administrators, as there may be significant benefits to investing in an AVC.

I am in the local government scheme and this allows the possibility of taking up to 100% of your AVC fund as tax free cash. THis means tax free going in due to the relief granted & tax free on the way out. This is significantly better than a normal ISA. It's to do with how they calculate the lifetime allowance in a FS scheme.

I would strongly suggest speaking to your scheme administrators before taking any action.
HTH

jem16

I would agree with checking it out with the administrators as each seems to vary. My teacher's pension only allows you to take out 25% of AVCs as a lump sum.

Mortgage_&_debt_free

jem16 wrote:

I would agree with checking it out with the administrators as each seems to vary. My teacher's pension only allows you to take out 25% of AVCs as a lump sum.

You may want to check if things have changed since A day for the Teacher's pension. They have to have a calculation in order to ascertain the cost of the pension because of the new lifetime allowances.

The LGPS has calculated this as 20 x annual pension plus any other sums such as pension lump sum (LGPS is annual pension x 3) and AVC total. The 25% tax free lump sum available is 25% of the total fund, not just the AVC fund. As you can see, if you have substantial AVC fund this can bump up the total significantly and may enable you to receive up to 100% of what you've paid in to the AVC.

HTH

jem16

Mortgage_&_debt_free wrote:

You may want to check if things have changed since A day for the Teacher's pension. They have to have a calculation in order to ascertain the cost of the pension because of the new lifetime allowances.

The LGPS has calculated this as 20 x annual pension plus any other sums such as pension lump sum (LGPS is annual pension x 3) and AVC total. The 25% tax free lump sum available is 25% of the total fund, not just the AVC fund. As you can see, if you have substantial AVC fund this can bump up the total significantly and may enable you to receive up to 100% of what you've paid in to the AVC.

HTH

Yes I did have a look at the changes. It reads;


For consistency with the ‘A day’ date for the coming into force of the changes in the Finance Act 2004, the mandatory changes will have retrospective effect from 6 April 2006, as authorised by section 12 of the Superannuation Act 1972.

The amendments also introduce two permissive changes allowed under the Finance Act 2004, in relation to the scheme’s in-house Additional Voluntary Contributions (AVC) arrangements. These

are to have effect from 30 June 2006 (the date this instrument comes into force) and are as follows:-

• Members of the scheme will be able to make AVCs of up to 100% of their STSS salary, less contributions to other registered pension schemes, including the STSS.

• On retirement, members will also be able to take up to 25% of their invested STSS AVC fund, as a tax-free ‘pension commencement’ lump sum.

That seems to me to read I can pay in 100% of my salary but I can only take up to 25% of my AVC fund.

Not that it matters as I'm not going down the AVC route. I have chosen to buy past added years and take out a personal pension where the fund choice is much greater than the Prudential AVC would offer.

Mortgage_&_debt_free

It looks that way, I'm keeping my fingers crossed they won't change the LGPS scheme, as it's the main reason I'm putting into the AVC.

cococat_4

Hi Guys,

Thanks for all your advice. I think I need to look deeper into all the options and maybe speak to the pensions administrator.

Cococat

jem16

Mortgage_&_debt_free wrote:

It looks that way, I'm keeping my fingers crossed they won't change the LGPS scheme, as it's the main reason I'm putting into the AVC.

Hopefully it won't. I'm surprised though that it's quite different from the teacher's pension re AVCs as I though all Public Pension Agency pensions were fairly similar.

Mortgage_&_debt_free

jem16 wrote:

Hopefully it won't. I'm surprised though that it's quite different from the teacher's pension re AVCs as I though all Public Pension Agency pensions were fairly similar.

Fairly similar, but with huge differences!!

The LGPS scheme I'm in is great, I pay 6% (which will rise if the current proposal become law) but the Civil Service is non-contributory i.e. you pay nothing & get loads - it makes my scheme look very dismal in comparison!