AVC SIPP, ISA - Options Please

SteveM_uk

Background
- Late 40's
- Higher rate Tax Payer
- Defined Benefits Company Pension
- Not expecting to retire for at least 10-15 years
- Company Pension scheme offers AVCs


I am considering making a regular investment of about 2.5k a year. Although this will hopefully rise every year as am considering using any future salary increases as investments.
At the moment considering making this into the company AVC.


The benefits I see are that the contributions are made pre tax and minimise my need to deal with HMRC to claim back Tax if I used alternative routes.


The AVC allows me to select funds within which my money is invested so is equivalent to a S&S ISA, although less choice of funds. I am comfortable with the risks and returns of the funds available.


However I am not sure what happens when I retire.
- I know that I cannot draw down on the AVC before retirement (company scheme rules). I cannot see a reason I would want to at the moment.


My projections of what this regular investment might look like in say 15 years are in the order of 30-40k


On retirement I may want to draw this lump sum as cash, or may wish to retain it as an investment. For the latter I would like to retain this in a tax free environment.


Can anybody advise on the following:
- Is it generally possible to retain money in AVCs after retirement
- Is it possible to transfer money from an AVC into say an ISA or other (not an annuity) structure which retains its tax free status


Alternatively should I consider the option of something like a SIPP. If this is possible given that I already have a company pension scheme?

mania112

Is the AVC connected to the Final Salary?

Does it allow you to take your Lump Sum in the Final Salary from the AVC?

SteveM_uk

The AVC is unconnected to the final salary. Any contributions I make through AVCs have no impact on the benefits of my main pension. In effect I think it is a completely separate put, managed through the pension scheme but where the actual money is invested with a major financial organisation. The pension scheme offers the choice of doing this for you in accordance with a number of different profiles, or it allows a self selection of funds from within those used.

bigadaj

apart from simplicity of payments then there appears to be little benefit on you continuing with the avcs. The main advantage is where these can be taken to rather than reducing the pension payable where the commutation rate is quite poor, if you can't use it in this manner then therers generally no distinct advantage, limited range of funds as you say and potentially not particulalry low cost.

The temptation is always to pay into pension what you can afford where you get higher rate tax relief, so paying into probably a personal pension rather than a SIPP might be best for contributions above the higher rate starting point. I'd personally still like the flexibility of shares isas as well, though this has become less of an advantage arguably following the budget announcements. You'd have to claim back your additional tax relief this way round but not necessarily have to do a Full tax return, and it could probably be dealt with by adjusting your tax coding if the contributions were regular.

zagfles

SteveM_uk wrote: »

The AVC is unconnected to the final salary. Any contributions I make through AVCs have no impact on the benefits of my main pension. In effect I think it is a completely separate put, managed through the pension scheme but where the actual money is invested with a major financial organisation. The pension scheme offers the choice of doing this for you in accordance with a number of different profiles, or it allows a self selection of funds from within those used.

Yes, but even though the pot of money is completely separate from the main DB scheme, an AVC attached to company DB scheme are often considered the same "pot" when it comes to the 25% tax free lump sum.

What this means is that you could take the entire AVC pot as a tax free lump sum providing it's value is less than 25% of the combined value of the DB & AVC (usually this means the AVC pot is less than 6.67 times your DB annual pension).

You can usually take a TFLS from the main DB scheme and get a lower DB pension, but the rates are usually rubbish for this (perhaps 9% - try getting a 9% index linked annuity!), so being able to use the AVC for the TFLS is a valuable benefit if it applies.

This is worth confirming with the scheme before deciding. There might also be some protected rights with the scheme such as being able to take the pension (& AVC potentially) at 50.

OldBeanz

You may want to ensure whether the two pots are linked. As has been explained above it may allow you to draw a larger lump sum. On the other hand you may want to take the AVC early which would you allow you to retire or work part time before you draw your DB pension as drawing a DB pension early is usually fairly punitive.
Having reached the age where I know there is no promotion and have enough money to live on but having paid a lump sum into my DB which would be penalised if I retired, I find my enthusiasm for work somewhat curtailed.

Triumph13

Ditto to Zagfles point on taking the whole AVC pot tax free by leveraging the DB pot.

The one point I'd make in favour of free standing arrangements though, is that they can be very handy if you want to retire early - particularly with the new rules. A freestanding pot could enable you to retire, live off the pot for a year or two and then take the DB pension without having to suffer such a big penalty for taking it early. That could be a very profitable way of 'investing' it as you may well struggle to get returns on the pot equivalent to the difference taking the DB pension a year or two later would give.