Buying AVCs in a DB scheme-does this sound good?

C_Mababejive

Hi all.

I am a member of a FS/DB scheme.
I have recently had a ball park quote to buy AVCs /added years.

Its a 40/60ths scheme.

The ball park quote is to pay £65.45 per month for each added year which will see a benefit of £493 worth of pension.

Clearly i also need to think about retirement and how much i will be taxed above my personal allowance.

Does the above sound like a good deal?
ta

Linton

C_Mababejive wrote: »

Hi all.

I am a member of a FS/DB scheme.
I have recently had a ball park quote to buy AVCs /added years.

Its a 40/60ths scheme.

The ball park quote is to pay £65.45 per month for each added year which will see a benefit of £493 worth of pension.

Clearly i also need to think about retirement and how much i will be taxed above my personal allowance.

Does the above sound like a good deal?
ta

How many years to retirement?

Have I understood it right? You only need pay in £785 to get £493/year extra pension, which will pay off the cost in less than 2 years? Sounds unbelievably good or is it paying £785/year from now til retirement?

C_Mababejive

#2 I see what you mean about it sounding too good and i think I am not fully understanding the scheme !

I have since downloaded and had a look at the AVC guide book and clearly i doubt anyone is going to offer £493 pa extra pension for £785. so im guessing that its 785 pa until retirement but not sure if thats retirement at 60 or 65. so potentially another 11 or 16 years for me to work. Also i understand the additional contributions are deducted pre tax from salary and the pension is subject to rpi increase pa..

jem16

C_Mababejive wrote: »

so im guessing that its 785 pa until retirement but not sure if thats retirement at 60 or 65. so potentially another 11 or 16 years for me to work.

It would be normal for monthly terms to be until retirement age. It would be the scheme's normal retirement age that would be used for calculation purposes.

Linton

After a quick bit of calculating and some arbitrary assumptions such as:
- £785/year until retirement
- you being a married man: 50% spouse pension on your death
- no inflation or wage increase
- 5% investment return
- non smoker

I calculate that its a good deal for 11 years til retirement, and not so good for 16 years in that you may reasonably do better putting the £785 into a private pension and then buying an inflation linked annuity.

Different assumptions may give a different conclusion.

C_Mababejive

Thanks ,,i have done some rough sums as well and was thinking i might fare better by buying hopefully the right funds within an ISA.

Linton

C_Mababejive wrote: »

Thanks ,,i have done some rough sums as well and was thinking i might fare better buy buying hopefully the right funds within an ISA.

I would agree in that the extra year is small and marginal from a pension point of view and the extra flexibility of the ISA could well swing things. One option if your DC pension is more than around £13K would be to put your spare money into a private pension and then go for flexible drawdown.