Tesco Pension

Happychappy

Hi, looking for some views on Avc

My wife has worked for Tesco for 13 years and pays into their pension scheme, she is currently 56 and earns around £27500.

We are hoping to retire in around four years at 60/61, Is it worth paying AVC from her salary for the next four or five years? Will it make much of a difference and what is the maximum she can pay by AVC.

I believe she currently pays 5% into a pension but can pay an additional 25% through AVC ?

We currently don't need her salary, so to pay AVC would not be a problem and we pay the maximum into the Save as your Earn share scheme, not that the shares are startling good at present but have bought the shares for the past 12 years for the tax benefit?

Any views greatly appreciated

atush

Well, what are the tesco scheme rules for the AVC? if you can use it for the TFLS instead of using pension, then that would be a very good idea.

AlwaysLearnin

If her retirement income is going to be over the tax allowance, then although she'll be saving tax putting in to a pension, she'll be paying tax when that pension becomes payable. As atush says though, if the AVC amounts can be taken as the tax free lump sum, being up to 25% of the pension pot value, then you'd be saving tax on the way in and be able to get it back tax free on retirement, which makes it pretty worthwhile.

atush

Is tesco a 60ths or an 80ths scheme?

Even at a 60ths, 17 years pension will be below the allowance /(before sp)

TheSandman

It's a 67ths, or 5% contribution for 1.5% of your salary.

It's also career average, if she was a customer assistant for a long time she'll have been building pension years on c.15K.

Also I think that you're able to take it pre-NI so there is a saving there even if 20% tax both sides negates tax advantage.

And it seems there is the option to use up AVCs as the 25% lump sum.

If any other readers wish to snoop; pensionwebsite.co.uk Username: tesco / password: mypension

Happychappy

atush wrote: »

Well, what are the tesco scheme rules for the AVC? if you can use it for the TFLS instead of using pension, then that would be a very good idea.

Thanks guys, I have copied excerpts from the web site

You choose how you take your AVC fund
As part of your tax-free cash sum,
or
You can take extra pension from the Tesco Scheme based on your AVC fund,
or
You can have a combination of the above two (within certain limits,)
or
You can take an ‘open market option’. This means that if you can get a bigger pension, or one that is a better fit for your lifestyle from a provider (like an insurance company), you can use your Tesco AVC fund to buy it. There are strict rules about where you can get a 'open market option' from – it has to be an approved pension provider

You can take up to 25% of the value of your total Tesco pension and AVCs as tax-free cash. If you wish, you can take all or part of your AVC fund as cash.

If your fund is less than the maximum allowed, you can take some tax-free cash from the pension scheme too.

Your Benefits Report will give you an idea of how much tax-free cash you can take.

atush

Sounds like AVCs could be the way to go. But, there's a but..

How much savings have you and the OH put away in ISAs, cash etc? Is your mtg paid off?

what is the scheme age of both pensions, and will they be actuarily reduced to be takn in 4 years? At what ages (ie how long until) will your state pensions be payable?

AlwaysLearnin

and, any other pension (looks like she only started at tescos at 43 so may have worked elsewhere)?

Happychappy

atush wrote: »

Sounds like AVCs could be the way to go. But, there's a but..

How much savings have you and the OH put away in ISAs, cash etc? Is your mtg paid off?

what is the scheme age of both pensions, and will they be actuarily reduced to be takn in 4 years? At what ages (ie how long until) will your state pensions be payable?

Hi, thanks for your response, we have paid off the mortgage some time ago, we are both maxed out on cash Isa's, very few shares, just 12 years of Tesco save as you earn and share saves, worth around £35k, we both have around 8 to 9 years to state pension age.

I have a public service pension £23k and am employed full time, as well s paying into second local government pension, we have a very healthy cash reserve, too healthy, losing interest in savings accounts, but considering investing into shares/bonds, we do not use the wife's salary and could invest this, hence the question of AVC to be more tax efficient ?

AlwaysLearnin

Looks like AVC's , via salary sacrife if poss, to get the most of personal allowance, tax free lump sum and/or increased retirement income.

May be what you're planning anyway, but should consider deferring pension and living off those cash reserves too.

atush

if you have 35K in Tesco shares, then that is too much in one company. I would think of selling some and investing in some collective funds/trusts.

At the very least, if these are still outside an ISA, I would bed and ISA them?