LGPS AVCs - Advice sought please

jamesd

The range of funds is poor and not well suited to a person with medium and high risk tolerance, particularly not high. It's more suitable for someone who wants to pay in at a high rate in the few years before retiring.

The least bad deal is probably the UK FTSE tracker fund, Prudential UK Equity Passive fund (Series 3). That could form a useful portion of a larger portfolio mostly held elsewhere.

The funds all seem to do no better than average, not a good thing. I wouldn't want to be using them, except perhaps the tracker, for the long term. A FTSE tracker can be had for 0.25-0.35% a year so it's worth checking what this one would cost.

The rep was correct to suggest paying in a large amount during the final year of earnings before retirement. It's perfectly suited to that use, and to similar use during the immediately preceding years.

IBM01

Thank you pandora205 and jamesd for the further posts.

Thanks also for clarifying the point about putting larger sums away as you approach retirement and also the idea of protecting this money via the 'Cautious Managed' option.

In my friend's case this is not really an option as they are still someway off retirement. They are really considering using AVCs as a way of making best use of some spare monthly money that gets nothing at present in a bank account.

jamesd, sorry to ask a further question, but with regard to your suggestion of the Prudential UK Equity Passive fund (Series 3), could I just clarify before I pass on the information with this being the only 'suggested' fund, does this mean that the other funds are not worth bothering with because they are likely to lose money or is it just that they don't perform as well as other funds in their sector?

If it is the latter would it be sensible to inform my friend that the money invested would still do better long term in one of these 'poorly performing' funds than in a bank account?

Thanks again

jamesd

It would do better than in a bank account but less well than it could do if put into a pension pot with better investment choices. For someone who's a long time from retiring that difference is significant. It matters less when close to retirement, which is why this looks more suitable for that scenario.

The FTSE tracker is OK longer term. So I'd suggest using that in this and later putting other money into other pension investments elsewhere.

IBM01

Thanks jamesd for clarifying the point for me.

Sadly it throws up another question though. When you talk of other 'pension pots' does this mean that my friend would benefit from looking elsewhere before signing up to AVCs with prudential?

They have already asked about buying 'extra years' within the LGPS and had been told that it wasn't as cost effective or flexible as using the AVC option. They were under the impression that they could only go with Prudential, i.e. the AVC provider offered by the LGPS. If they chose not to use the AVC option what would be the other alternatives please?

Thanks again

jamesd

There are hundreds of other pension providers. Big names include place like Hargreaves Lansdown, though they are far from the cheapest, just easy to deal with.

I can't comment on buying extra years being cost effective or not, I'll have to leave that to someone more familiar with LGPS.

Extra years is less flexible than AVCs and AVCs with LGPS seem to be less flexible and with fewer investment options than standard personal pensions. Standard personal pensions can be taken from age 55, though with income that will depend on how the investment performance has gone.

For AVCs paid for at work they would have to go with whatever AVC provider work offers, so that'd be Prudential. But pension contributions outside work can be made to any other pension provider.

IBM01

Thank you jamesd for the quick reply.

I will take on board all the advice and pass it on to my friend.

Thanks also to all the others who took time to post replies.

Very helpful indeed. :T

jem16

IBM01 wrote: »

They have already asked about buying 'extra years' within the LGPS and had been told that it wasn't as cost effective or flexible as using the AVC option.

Extra years are no longer available. What is available is buying additional pension in multiples of £250 up to a maximum of £5000. This is know as additional regular contributions and would be paid monthly just like the normal pension contributions.

The main advantage of this is that there is no investment risk and the amount is guaranteed. It is also index-linked from purchase and in payment.

They can be cost effective when you compare the benefits with the alternatives.

Not sure what you're looking for with regards to flexibility.

They were under the impression that they could only go with Prudential, i.e. the AVC provider offered by the LGPS.

Some councils offer more than one AVC provider.

jamesd wrote: »

Extra years is less flexible than AVCs and AVCs with LGPS seem to be less flexible and with fewer investment options than standard personal pensions. Standard personal pensions can be taken from age 55, though with income that will depend on how the investment performance has gone.

I think what you have to take into account is the ability with the LGPS AVCs to take the whole pot tax free as opposed to just 25% tax free with any other pension option.

jamesd

Yes, taking the whole AVC pot tax free, instead or some of the main pot at a typically bad commutation rate, is one reason to do it. How close you have to be before potentially higher investment returns elsewhere make it less good is perhaps the interesting question. Close to retirement it's easy, the AVCs are a good deal.

IMB01, for buying additional pension, that can be compared with the cost of inflation-linked annuity income. After allowing for as many years of investment growth there would be in the alternative until buying an annuity. For those who are cautious it's a nice option.

Scruffycat59

I contribute to the LGPS and to top it up pay AVC to Prudential. I have just received by annual statement of AVC from Prudential and am horrified at the cost of the monthly AMC I have paid out. This amount seems to escalate each year. I am paying over 10% to them. This means over one months contributions going to prudential profits. Does anyone know of alternative schemes I could use. I think I would rather cancel these contributions altogether and have a little more money to live on now. By the way before any of you high flyers get too carried away, I am one of this countries lower paid people.

Drp8713

Scruffycat59 wrote: »

I contribute to the LGPS and to top it up pay AVC to Prudential. I have just received by annual statement of AVC from Prudential and am horrified at the cost of the monthly AMC I have paid out. This amount seems to escalate each year. I am paying over 10% to them. This means over one months contributions going to prudential profits. Does anyone know of alternative schemes I could use. I think I would rather cancel these contributions altogether and have a little more money to live on now. By the way before any of you high flyers get too carried away, I am one of this countries lower paid people.

Are you sure? The AMCs are usually 0.65-0.85%, which granted, is not personal pension with a decent sized pot cheap, but is not really "horrific".