Advice please! AVC Annuity versus cash?

winnanan

Hi,
My husband took redundancy/early retirement from his job with a Local Authority yesterday. He is 57 ( I am 55. I am not working but due a teachers pension in 5 years time for 20 years service.)

The W Mids Pension fund will give him an annual pension of £5300 aprox, he will also get a lump sum of £10,000 and aprox £23k redundancy. He also has an AVC pot of £13,135.

The AVC will give £4.94 per £1000 (or £4.65 for both of us) if converted to pension (£648 or £610 additional pension per year, index linked)
Also this year in April having paid off our mortgage some time ago we will have a £20k endowment payout.
So what to do with it all?

Should he go for the annuity or is it better to hang on to the AVC pot and plough as much as we can into ISA's? (we have not used any of this year's allowance as the AVC's were a better return)

There's also the option to reduce his pension to £4600 pa and take a lump sum of £30,800 (incl AVC pot) instead. Additionally he has another very small pension pot from another employment but not due until he's 60. We also have about 12k in old ISA's.

We'd be very grateful for any advice on the best way forward to give us enough to live on until my pension kicks in (12 to 15k?) and to maximise our capital into old age.
Thanks for reading this, sorry its so long, just trying to preempt obvious queries!

jem16

winnanan wrote: »

Should he go for the annuity or is it better to hang on to the AVC pot and plough as much as we can into ISA's? (we have not used any of this year's allowance as the AVC's were a better return)

I'm assuimg you mean cash ISAs as S&S ISAs will have the same return as a pension?

There's also the option to reduce his pension to £4600 pa and take a lump sum of £30,800 (incl AVC pot) instead.

Usually with the LGPS, it's possible to take the 25% tax-free lump sum from the AVC pot rather than the main pension scheme. Is this what is being offered here?

We'd be very grateful for any advice on the best way forward to give us enough to live on until my pension kicks in (12 to 15k?)

Are you expecting to get £12k-£15k from your Teacher's pension or have you included your state pension in this too?

winnanan

Hi, Thanks for replying,
re your queries:

yes I mean cash ISA's

The 25% is the 13k from Avc's plus the rest from the pension.

I mean't we need 12-15k min to live on. My pension will be about £5K pa plus a lump sum of course.

We should both get a full state pension. Our main concern is to have a decent income over the next few years without using all our capital if possible.

jem16

winnanan wrote: »

The 25% is the 13k from Avc's plus the rest from the pension.

Is it possible to just take the £13k from the AVCs as your lump sum and get a higher pension? That's likely to be a better option than taking a lump sum from the main scheme and using the AVCs with an annuity.

Do you need the cash or would you prefer the income?

We should both get a full state pension. Our main concern is to have a decent income over the next few years without using all our capital if possible.

Might be an idea to get a state pension forecast online so you know how much to expect. As you have both been members of contracted out schemes it is likely that you will only receive the basic state pension unless you worked elsewhere.

winnanan

jem16 wrote: »

Is it possible to just take the £13k from the AVCs as your lump sum and get a higher pension? That's likely to be a better option than taking a lump sum from the main scheme and using the AVCs with an annuity.

Do you need the cash or would you prefer the income?



Might be an idea to get a state pension forecast online so you know how much to expect. As you have both been members of contracted out schemes it is likely that you will only receive the basic state pension unless you worked elsewhere.

The original figure of £5300 pension is the highest pension figure possible, what we disagree on is whether the £13k AVC's should be put into an annuity or not. I feel its better to have the capital and invest it for income. I don't think there's an option of taking the lump sum retirement grant of £10k as pension as well.

We have both worked elsewhere, my husband has over 40 yrs NI contributions and I have 20 yrs plus 15+yrs HRP for receiving Care Allowance.

jem16

winnanan wrote: »

The original figure of £5300 pension is the highest pension figure possible, what we disagree on is whether the £13k AVC's should be put into an annuity or not. I feel its better to have the capital and invest it for income.

Are you sure the figures you have given for the annuity correct? They sound a little high for index-linked.

I don't think there's an option of taking the lump sum retirement grant of £10k as pension as well.

Would be worth asking if they will do reverse commutation.

We have both worked elsewhere, my husband has over 40 yrs NI contributions and I have 20 yrs plus 15+yrs HRP for receiving Care Allowance.

It's not the basic state pension entitlement. It was more whether you would be eligible of not for any SERPS/S2P.

winnanan

The annuity figs are correct and its def index linked but when we looked on the open market we were quoted much lower. I will see if I can do a state pension forecast.

What is reverse commutation?

jem16

winnanan wrote: »

The annuity figs are correct and its def index linked but when we looked on the open market we were quoted much lower.

It's a good rate if it's joint and index-linked. It is also guaranteed unlike taking it and investing it for income.

What is reverse commutation?

Commutation is hwere you give up pension for a lump sum. In public sector pensions this is usually at a rate of 12:1 which is dire. You will never make up for the income lost.

Reverse commutation is where you give up some lump sum in exchange for more pension. Not all schemes allow it but it's worth asking about.

winnanan

Apparently he asked about giving up the lump sum for more pension and they said no!

winnanan

So do you think he should top up his pension with the AVC's?

Anybody else out there with any advice?

jem16

winnanan wrote: »

So do you think he should top up his pension with the AVC's?

If you need the income now, then the 4.65% or 4.94% rate is better than you would get from a savings account. You might get about 5% from investing it but you take on the investment risk.

if you don't need the income now, perhaps the annuity could be delayed until rates are a little higher?

Someone else may have a different view.