AVC's

Dagman

Hi, I have received an update on my AVC fund. I am 51, been paying £130 a month into the fund since Dec 2000. It is a workplace trustee type AVC where the company add to the scheme. I enquired how much I could expect if I retire at 60. The figures are..
projected fund 'middle rate value' of £54900, giving a monthly return of £132. Now, from that I would have to hit the age of 94 before I get back what I've accumulated! Am I missing something here? I am not very knowledgeable with finances but surely this is horrendously wrong? I may as well have stuffed it under the mattress if it's right! Any views appreciated.

kidmugsy

Dagman wrote: »

Hi, I have received an update on my AVC fund. I am 51, been paying £130 a month into the fund since Dec 2000. It is a workplace trustee type AVC where the company add to the scheme. I enquired how much I could expect if I retire at 60. The figures are..
projected fund 'middle rate value' of £54900, giving a monthly return of £132.

Is that return index-linked? Does it contain a widow's pension? Is it after taking a tax-free lump sum? I take it that it's quoted before tax, is it? It's based on your taking it at what age?

Linton

I assume the pension income projection is based on you not taking the 25% tax free lump sum, which may be a better option.

By the time you retire in 9 years time you will have paid in roughly 23X130X12=£35880.

The figures suggest that the £132/month will be inflation linked. Assuming 2.5% inflation you will pass the £35880 at 19 years and the £54900 estimated value at 26 years. Assuming average health and that you do actually live to 60 you can expect to live to about 88, 28 years after retiring at 60. There is a 1/3 chance that you will live to 93.

You could opt for a fixed rate pension which would be very roughly twice the projected amount.

kidmugsy

Linton wrote: »

The figures suggest that the £132/month will be inflation linked. Assuming 2.5% inflation you will pass the £35880 at 19 years and the £54900 estimated value at 26 years.

The annuity also provides insurance against a few years of high inflation; remember the seventies!

Also, it does so with a ratchet (or at least OP should check that it does). So if the annual inflation rate goes 2.5%, 5%, -2.5%, your pension increases by 2.5%, 5% and 0%. In other words, the inflation index has increased over three years by 4.934% while your pension has increased by 7.625%. Yippee!

But most people seem to feel that an index-linked annuity is too costly for them. In which case you could consider an investment-linked annuity. Or, if the fund is transferable to a personal pension of some sort, you could do Income Drawdown rather than buying an annuity.

Dagman

When would i opt for the fixed rate pension (I am already in the company dc fund pension), now or when i'm 60?. I'm not sure how it is invested, only that it is a group managed fund. It doesn't include a widows pension and without taking a 25% cash sum. I may just stop the whole thing and open a long term savings account instead. Just seems such a bad bad return after so many years. Tia.