AVCs the right way to go?

synergysaver

Looking for some advice on best way to go. The Details:

> Currently 34, live with my wife and young daughter.
> Mortage outstanding 80K @ 2.5% interest.
> Have company defined benefit scheme (contributing 6%) which currently will give me ~20K at 65
> ISA Savings easy access 30K. This is my emergency fund and I am going to keep maxing this out, as I am planning to be moving house in the next 2-5 years.
> S&S ISA 2.5K. Just opened this year and planning to contribute £200 a month.

As I think I have the short and medium term covered (with ISA and S&S ISA), I'd like to start looking at long term and topping up my pension.

My company allows AVCs (upto 15% of salary, which with 6% into current pension would mean I can contribute 9% to AVCs) and am I thinking of doing this rather than setting up a private pension/SIPP etc.

The AVCs funds are selectable, but it is limited selection from Prudential, Global Equity, UK Equity ..... or Lifestyling etc. Having a limited selection will make things easier and I can just select one and pay the money in, rather than fretting about setting up a 'portfolio' (I have my S&S ISA for that!)

The fees for the AVCs funds are currently 0.5% and I can change funds without costs.

Adding to pension pot via AVCs seems a good way to go, but am I missing something? Or would a SIPP be better? Or doesn't it matter much which vehicle?

Also, I'll be hitting the higher rate tax band with my next payrise, so now seems a good time to get sorted and benefit from the 40% tax benefits.

All advice greatly received.

Cheers

Paul

kidmugsy

synergysaver wrote: »

My company allows AVCs (upto 15% of salary, which with 6% into current pension would mean I can contribute 9% to AVCs) and am I thinking of doing this rather than setting up a private pension/SIPP etc.

Also, I'll be hitting the higher rate tax band with my next payrise, so now seems a good time to get sorted and benefit from the 40% tax benefits.

If I were planning to move house in a couple of years I'd hold back from contributing more to a pension, except for the contribution required to avoid 40% income tax.


Personally I'd be tempted by a SIPP rather than an AVC so that I could potentially take benefits at 55 whatever the normal retirement age of my occupational scheme might be. A counter-argument depends on your scheme's rules governing the Tax Free Lump Sum on the combination of your AVC and your occupational pension. Some schemes would allow you to maximise the monthly pension consistent with taking a 25% lump sum by setting the lump sum against the AVC first. Whether such stunts will still be legal when you retire is anyone's guess. But it would be worth checking the rules to see whether this argument is relevant to you. See

https://forums.moneysavingexpert.com/discussion/4733195

taktikback

Agree with the above - if your scheme allows you to take the AVC as your 25% tax free lump sum, you could avoid having to commute any of your main pension benefits at poor conversion rates - definitely worth checking out

dunstonh

AVCs are largely obsolete nowadays. Most companies have stopped offering them. There can be times they are worth having though (compared to alternatives). If the employer matches contributions or if the AVC can be used in conjunction with the main scheme to pay the tax free cash for example. Not all AVCs allow a tax free cash payment.

A SIPP is an experienced investor vehicle. Ideally suited to those that like to use more advanced investment options. Typically the more expensive option (especially if you dont use it for more advanced investment options) but can offer good value and flexibility if you get the right investments.

Personal pension is likely to be the cheapest option. Stakeholder pension is likely to be the more expensive option and least flexible on investment choice but most flexible on how you can pay into it.

atush

I am with the majority, use the AVCs IF you can use that fund to pay your TFLS rather than commuting your DB pension.

Otherwise i'd sipp/PP half and S&S ISA half (as you are short there although I know you are now contributing 200/m).

synergysaver

Thanks for the input.

I checked with my pension department today and I can currently take TFLS from the AVC pot, therefore potentially not having to commute the DB pension to get a TFLS.

atush

JOB over but keep up the S&S isa.