Should I take out AVC's

AlwaysHappy

Have started to start thinking about retirement - am "hoping" to retire in 7 years time which is my husbands 60th birthday. I say hoping as I will only be 50 at the time so a lot needs to be done in the next 7 years so that we can manage. We are both in final salary pensions which helps (though I won't be able to claim mine for 10 years) We currently save monthly into isa's and savings accounts but as our savings are at now at an ok level, wondered if it would make sense for me to put a few hundred pounds a month into an avc instead of the savings. Trying to work out if the 7 year period is sufficient time to build something worthwhile - though obviously the tax advantages do help. Many thanks.

dunstonh

wondered if it would make sense for me to put a few hundred pounds a month into an avc instead of the savings.

Depends on the terms of the AVC and whose name. A personal/stakeholder may better but an S&S ISA may be as well.

Trying to work out if the 7 year period is sufficient time to build something worthwhile

Every option is going to have a 7 year period applied to it. So, that bit is irrelevant. Which is best will depend on what you are trying to achieve, when and how it fits with your circumstances.

AlwaysHappy

Many thanks for your swift response, I am wanting to build income really as if my husband were to die first he is the main wage earner and his pension would halve.

ermine

Trying to work out if the 7 year period is sufficient time to build something worthwhile

Depends how much you want it, and how much you can drive down your cost of living. If your AVCs are added to your FS pension for the sake of calculating the 25% tax-free pension commencement lump sum (PCLS) and you can save by salary sacrifice it's almost a no brainer. I saved twice my gross salary in the last three years, but then I have paid my mortgage off, and I really, really, wanted to save my entire 25% PCLS as AVCs Plus I got a decent 20% leg-up on some of it from starting in 2009 when everyone believed the stock markets was going down and staying down, which I've converetd to the cash fund now.

I'm a big fan of AVCs, but only in the last few years to retirement. As a HRT taxpayer with five years to go, forego £58 post-tax income into a cash AVC paying no interest and you get to draw an extra £42 after the five years in your PCLS. That is a simple APR of about 14% p.a. tax-free, of which you will lose about 4% to inflation. Get on the savings section of this site and see if you can find a Cash ISA paying anywhere near that much - I think the best you can do is about 5% on a five year fix. The return is less for a 7 year period (about 10%, or 6% in real terms)

It really is amazing what stopping the Government stealing your earnings can do for you