Trying to choose an AVC fund

dasherman

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)

I mentioned it on my previous post!

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.

As far as i know nothing has changed.

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 agree, DB pensions should never be taken before their NRA. RM employees should always take both elements at the correct age, and not before.

atush

thanks i missed that in your prev post.

But I still think it is important to think about the age of actual retirement. If they are going to be supported by a younger partner, and not that the age 65 element early, then fine.

A little DC pot could easily help with those 5 years (as could outside investments built up during the working years such as S&S ISAs and cash funds.

dasherman

atush wrote: »

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?

I agree there is some confusion as to how the new rules will relate to AVC's. But current RM pension rules do allow members to transfer their AVC funds to alternative providers, so they aren't tied in with the scheme age.

Cottage_Economy

Ok..reading around here and found some interesting stuff:

Did you know that all but the AVC cash fund are passively managed? Presumably all index trackers...? In which case, would it be worth looking elsewhere for a tax deferred wrapper to put in a index tracker with cheaper fees...or is 0.35% the best deal I can hope to get.

There is a lifestyle option that splits your money between different funds (starting with all the money in the growth fund) then starts changing the split to progressively less risky funds eight years before your selected retirement age. Additional charge for this service of course equal to the charge of the funds themselves (0.35%). Shariah law and ethical funds are excluded from the lifestyle option.

Regarding funding the lump sum:

"When you take your pension benefits you can use your AVC account to take a tax-free cash lump sum (up to a total cash lump sum of 25% of the total value of your main Royal Mail Pension Plan benefits and AVC plan benefits combined)."

atush

dasherman wrote: »

I agree there is some confusion as to how the new rules will relate to AVC's. But current RM pension rules do allow members to transfer their AVC funds to alternative providers, so they aren't tied in with the scheme age.

Well if the avc pot can be transferred that would be a help I guess.

bigadaj

Cottage_Economy wrote: »

Ok..reading around here and found some interesting stuff:

Did you know that all but the AVC cash fund are passively managed? Presumably all index trackers...? In which case, would it be worth looking elsewhere for a tax deferred wrapper to put in a index tracker with cheaper fees...or is 0.35% the best deal I can hope to get.

There is a lifestyle option that splits your money between different funds (starting with all the money in the growth fund) then starts changing the split to progressively less risky funds eight years before your selected retirement age. Additional charge for this service of course equal to the charge of the funds themselves (0.35%). Shariah law and ethical funds are excluded from the lifestyle option.

Regarding funding the lump sum:

"When you take your pension benefits you can use your AVC account to take a tax-free cash lump sum (up to a total cash lump sum of 25% of the total value of your main Royal Mail Pension Plan benefits and AVC plan benefits combined)."

The 0.35% in a pension should be the total costs which is pretty competitive, anything less than 0.5% is pretty good. Not sure why you'd look elsewhere.

The lifestyle option may need some thought. Traditionally this would move money from equity into bonds, and there's still a risk of a bond bubble, so the safer option could lead to fairly substantial capital losses if the timing was bad.

The fact you can take a lump sum which means not eating into the db element is a good thing and should be taken advantage of.