Trying to choose an AVC fund

Cottage_Economy

Hubby is going to start putting some extra funds away for his retirement in a few years time and thanks to the amazingly helpful people on this forum we have now realised that his firm, Royal Mail, will match his contributions into an AVC. I think this is through its Bonusplan scheme, which I am still trying to get to grips with the information about so my knowledge on this is not complete.

I'm now looking at the funds on offer and to be honest I have no idea how to narrow them down to the best for him.

I know that historical performance is no indicator of future performance, and I am aware that if hubby wants to retire in 7 years time then a growth type fund might not be the best.

How do I go about choosing the best of the rest from this lot?

http://www.royalmailpensionplan.co.uk/115/avc-documents

greenglide

How much can I pay into Bonusplan?
Each year, you can pay 4.5% (about £150) of the Lower Earnings Deduction (LED) into Bonusplan or a proportion of this if you work part-time.

It is generous but according to the web site you can only pay in up to £150 per year?

It appears to be to make up for the NI lower earnings limit being subtracted when working pensionable pay.

My pension scheme also subtract the lower earnings limit in these calculations, this scheme is the only other one I have seen.

Cottage_Economy

greenglide wrote: »

It is generous but according to the web site you can only pay in up to £150 per year?

It appears to be to make up for the NI lower earnings limit being subtracted when working pensionable pay.

My pension scheme also subtract the lower earnings limit in these calculations, this scheme is the only other one I have seen.

Hi there, yes I've just been reading up on that in the last few minutes.

To be honest, i am starting to get a bit confused.

There is something called Flexiplan, which I think is the AVC fund bit, and then you can have bonusplan plus your normal pension. So you build your pension pot using all three options and they are all tax-deferred.

dasherman

I am a postman and pay into both Bonusplan & Flexiplan. As someone has already said, employee Bonusplan payments are only about £150 per year or about £120 after tax relief. The Royal Mail contribution is only about £100 per year for a full time postie so it's not going to amount to very much in 7 years. But also bear in mind only Section C members are allowed to pay into Bonusplan, so that's any one who joined the main pension scheme between April 1987 & April 2008.

Flexiplan doesn't get any addition Royal Mail contribution but you can put in as much as you want within the total yearly limit of £40,000, which also benefits from tax relief.

In my opinion, the main reason to save in AVC's via Royal Mail is the fact that they let you take the tax free lump sum from the AVC's rather than the main scheme, thereby giving you a larger index linked pension.

Personally both my Bonusplan & Flexiplan are invested in the growth fund but then I'm in my mid forties and I think that's probably the best place for it at the moment. I would have thought the balanced or the cautious funds could be more appropriate in your husbands case.

atush

If flexiplan gets no employers contribution, and no NICs savings, then a DC pension would be best for the left over money.

More investment choice, and can be taken from age 55 onwards (in case you want to retire earlier than the PO scheme age (what is the OP scheme age?

Cottage_Economy

dasherman wrote: »

I am a postman and pay into both Bonusplan & Flexiplan. As someone has already said, employee Bonusplan payments are only about £150 per year or about £120 after tax relief. The Royal Mail contribution is only about £100 per year for a full time postie so it's not going to amount to very much in 7 years. But also bear in mind only Section C members are allowed to pay into Bonusplan, so that's any one who joined the main pension scheme between April 1987 & April 2008.

Flexiplan doesn't get any addition Royal Mail contribution but you can put in as much as you want within the total yearly limit of £40,000, which also benefits from tax relief.

In my opinion, the main reason to save in AVC's via Royal Mail is the fact that they let you take the tax free lump sum from the AVC's rather than the main scheme, thereby giving you a larger index linked pension.

Personally both my Bonusplan & Flexiplan are invested in the growth fund but then I'm in my mid forties and I think that's probably the best place for it at the moment. I would have thought the balanced or the cautious funds could be more appropriate in your husbands case.

Thanks dasherman, hubby is 53 and a section c member - joined in 1994.

Are the zurich-managed actually good funds in your opinion? I know there's not many options, but I'd like to think they were a half decent place to put his money.

The problem I can see is what the definition is of 'approaching retirement' (balanced fund) or 'some years from retirement' (cautious fund). He sort of falls in between those. However, I am 12 years younger and working I would prefer him to leave off taking his pension for as long as humanly possible, so maybe a more adventurous fund until he definitely decides he is stopping work, and then switch to a more cautious fund?

We've been talking about the age of 60 for him to leave and then see how we go with the finances over the years that follow, only taking his pension if we really need it so we can give it a chance to grow.

Also I take it you can switch between these zurich AVC funds as you get closer to the age you want to take your pension?

dasherman

atush wrote: »

If flexiplan gets no employers contribution, and no NICs savings, then a DC pension would be best for the left over money.

More investment choice, and can be taken from age 55 onwards (in case you want to retire earlier than the PO scheme age (what is the OP scheme age?

So being able to use the AVC pot to fund the tax free lump sum isn't a good idea then?
The Royal Mail Pension Plan effectively has two retirement ages. Service up to April 2010 has a NRA of 60, after that date it’s 65.

dasherman

Cottage_Economy wrote: »

Thanks dasherman, hubby is 53 and a section c member - joined in 1994.

Are the zurich-managed actually good funds in your opinion? I know there's not many options, but I'd like to think they were a half decent place to put his money.

There’s not much choice but mine’s done quite well over the years and charges are low at, from memory, about 0.35% I think.

The problem I can see is what the definition is of 'approaching retirement' (balanced fund) or 'some years from retirement' (cautious fund). He sort of falls in between those. However, I am 12 years younger and working I would prefer him to leave off taking his pension for as long as humanly possible, so maybe something more adventurous until he definitely decides he is leaving and will no longer be contributing. Perhaps then switching to a lower risk fund?

Your husbands age(53) is about the sort of age people generally will be looking to start switching from the riskier funds to the safer options, based on his wish to retire at 60. However it seems you’ll be starting this investment from scratch, so I suppose there’s the conundrum of trying to keep the value of what he saves or trying to make the money grow in what will be a relatively short amount of time in pension terms.

Also I take it you can switch between these funds as you get closer to the age you want to take you pension?

Yes.

atush

It depends, using an AVC pot to fund the lump sum (therefor not reducing the valuable index linked pension) is always good.

A, I didn't know the PO offered this (like the LGPS used to do)

And B, the LGPS has stopped this for new AVCs what is the PO's system? I was assuming they would no longer offer this as a private company.

But taking a pension early reduced (at least the age 65 bit) can be costly so some money to draw to keep from doing it is helpful.

Cottage_Economy

atush wrote: »

It depends, using an AVC pot to fund the lump sum (therefor not reducing the valuable index linked pension) is always good.

A, I didn't know the PO offered this (like the LGPS used to do)

And B, the LGPS has stopped this for new AVCs what is the PO's system? I was assuming they would no longer offer this as a private company.

But taking a pension early reduced (at least the age 65 bit) can be costly so some money to draw to keep from doing it is helpful.

I'm going to go and check this now, because I assumed the AVC was added to the pension fund for calculation purposes.

atush

Sometimes the AVC must be used to buy an annuity (though if this is covered by the new DC pension rules I dont know).

But the relevant thing is, if they can't be used to provide the LS, then it is tied to scheme age so couldn't be taken before age 65. Which means you couldn't use it to retire early?