AVC versus ISA

Grumpy_Old_Duffer

I have 5 years to go until I retire :j and am in the Royal Mail Pension Scheme. What are the Pro's & Con's in taken out the AVC option being offered compared to ISA's, of which I do the full £7k per year? Both are supposed to be 'Tax efficient'.

oldfella

you pay the AVC with no tax deduction, but pay tax when you get your pension assuming you pay tax - so you get the possible benefit of higher rate tax deduction on input and lower rate on output

ISA is reverse - you pay for it net of tax but interest is gross of tax, no capital gains, and it cant push you into higher rate tax

AVC once invested you have no flexibility, ISA can be withdrawn at any time

likely lower charges on a ISA

most people will probably say ISA is preferable if you can only afford one or the other

Mike

dunstonh

ISAs dont go towards age allowance either so if you are going to be close to that £20,100 mark, ISAs can beat AVCs as well.

Plus, on death, your capital in an ISA goes into your estate. The pension can die with you unless you include a spouse option. If you do include a spouse option, watch the annuity rate drop.

AVCs are virtually obsolete now. A day rule changes abolished FSAVCs (they are now personal pensions) and occupational schemes are no longer required to operate an AVC with most expected to withdraw them for new entrants.

AVCs used to be a cheap way to invest. Nowadays though, the financial services industry offers products at more or less the same cost (sometimes cheaper) and with better investment options (AVCs tend to be very weak on the investment front).