Teacher pension - avcs versus additional contributions

davvyg

I want to maximise my pension. Thinking of investing an extra £500 per month so that I can retire early. Would I be better of with AVCs or Additional Contributions as I am reading all sorts of bad things about AVCs and want minimum risks. I want to pay at source to make it more tax efficient. Please, can anybody help?
Thank you

ExMugPunter

I am in a similar position to yourself, but I have chosen to dump my extra money into a stocks and shares ISA and personal pension left from a previous job.
I felt that I would prefer the flexibility of having a fund separate from the pension. Therefore if I can save enough to retire early I wont have to take an actuarial reduction of my TPS (which I believe can be very expensive). The money I build up outside of the TPS can pay for my early retirement years before the TPS kicks in.

I guess its all personal opinions, but I don't see the point in buying the extra benefit, if you are going to give up a large chunk of it by retiring early.

jem16

davvyg wrote: »

I want to maximise my pension. Thinking of investing an extra £500 per month so that I can retire early. Would I be better of with AVCs or Additional Contributions as I am reading all sorts of bad things about AVCs and want minimum risks.

Only you can make that choice as far as risk is concerned. Added Pension is certainly guaranteed but doesn't help much if you want to retire early as it will be actuarially reduced along with your main pension scheme.

If you want to retire early then as already said, you might be better considering S&S ISAs and leave your main pension scheme till normal retirement date.

I want to pay at source to make it more tax efficient. Please, can anybody help?

Paying at source doesn't make it any more tax efficient as you're still entitled to tax relief with any pension.

Are you a higher rate taxpayer or not?

chucknorris

Like jem says it is very subjective. Personally I prefer buying the additional pension to AVC's, I finish buying the £5,600 max allowed when I started buying it 2 years ago this December. The tax year after that (and subsequent years) I will buy the additional inflation amounts allowed (subject to min £250 pension amount purchased). The reason I prefer it is that I can see what I am getting, I also invest in a SIPP so that is my more riskier pension element with nothing guaranteed.

davvyg

I will receiving some extra income which will push me up into the higher tax bracket and I am concerned about that too.

jem16

davvyg wrote: »

I will receiving some extra income which will push me up into the higher tax bracket and I am concerned about that too.

So you will be earning more than £41,450?

If so using a pension is a good way of avoiding the higher rate tax, especially if you will be a basic rate taxpayer when you retire. However that pension could be AP, PP or SIPP. AVCs is the teachers's scheme doesn't hold any great advantages as you can't take the whole pot as your lump sum.

davvyg

Hi Jem, Thank you so much for your advice. My main salary is just about into the higher tax bracket, but the occupational pension should keep this down. The new income that I will be receiving, however, definitely push it up into the higher tax bracket so I am looking for a way of investing it more wisely. Taking out an additional private pension seems like a plan (I assume that's what a PP is.) Sorry, I am a bit ignorant; what is an AP? I already have a HSBC Stakeholder pension that I had before I became a teacher. It hasn't got much in it, but perhaps I could reinstate this?

jem16

davvyg wrote: »

Taking out an additional private pension seems like a plan (I assume that's what a PP is.)

PP = Personal pension

Sorry, I am a bit ignorant; what is an AP?

Additional Pension through the Teachers' Pension Scheme.

I already have a HSBC Stakeholder pension that I had before I became a teacher. It hasn't got much in it, but perhaps I could reinstate this?

It might be possible but it's unlikely to be the best option with regards to charges.