Are AVC's Any Good? I want to put £100 per month in

OMAR

Hi,

I am 29 currently and earn 42k. I am in a company defined benefit scheme since the age of 20. It contracts out of S2P.

I want to retire at 55 and am thinking of putting in £100 AVC's via work....is it worth it? The scheme I am looking at is the Lifestyle option via Standard Life which my employer offers...

jem16

OMAR wrote: »

Hi,

I am 29 currently and earn 42k. I am in a company defined benefit scheme since the age of 20.

I want to retire at 55 and am thinking of putting in £100 AVC's via work....is it worth it? The scheme I am looking at is the Lifestyle option via Standard Life.

The only reason these days that AVCs are considered a good option is if the scheme rules allow you to take your tax-free lump sum from the AVC pot as opposed to commuting pension.

Does your scheme allow this?

If not you may be better using a S&S ISA. This would allow more flexibility and you could use the cash from that to live on between the age of 55 and whenever the normal retirement date is for your pension. That way you may avoid the actuarial reduction that you will have.

Pensions are certainly beneficial if you are a higher rate taxpayer but I'm assuming that your normal pension contribution is using up the higher rate tax that you're paying.

OMAR

Hi,

Yes my scheme does allow me to take my lump sum from AVC's thus leave my normal pension high?

jem16

OMAR wrote: »

Hi,

Yes my scheme does allow me to take my lump sum from AVC's thus leave my normal pension high?

About a year ago you posted that you were moving into teaching. Did you not do this? The Teachers' Scheme certainly doesn't allow the AVC pot to be used in this way.

OMAR

You can take up to 25% of the value of your total Company pension and AVCs as tax-free cash. If you wish you can take all or part of this cash from your AVC fund. If your fund is less than the maximum allowed, you can take some tax-free cash from the Company Pension Scheme too.
If your AVC fund is more than the maximum tax-free cash that you can take, you will need to exchange the rest of the AVC fund for extra pension.
Your annual Benefits Report will give you an idea of how much tax-free cash you can take.

OMAR

no I didn't move into teaching! lol....u must be my stalker....I just copied and pasted this from my company website...

jem16

OMAR wrote: »

You can take up to 25% of the value of your total Company pension and AVCs as tax-free cash. If you wish you can take all or part of this cash from your AVC fund. If your fund is less than the maximum allowed, you can take some tax-free cash from the Company Pension Scheme too.
If your AVC fund is more than the maximum tax-free cash that you can take, you will need to exchange the rest of the AVC fund for extra pension.
Your annual Benefits Report will give you an idea of how much tax-free cash you can take.

OK so not the Teachers' Scheme then.

Now you will need to decide if you're happy taking the actuarial reduction.

OMAR wrote: »

no I didn't move into teaching! lol....u must be my stalker....I just copied and pasted this from my company website...

No stalking lol. Just had a vague memory as it was the Teachers' scheme that you had asked about and looked back to check.

OMAR

Haha thanks.....but confused about what you mean actuarial

jem16

OMAR wrote: »

Haha thanks.....but confused about what you mean actuarial

If 55 is not the normal retirement date for the scheme, then you are looking at an actuarial reduction for each year that you take it before that date. In most Defined Benefit schemes it's around 5%pa but does vary from scheme to scheme.

When is the company's normal retirement date?

OMAR

normal retirement is 65

OMAR

what if I take the avc fund at 55 and company pension at 65....or do you have to take both at the same time?