Pension AVC's

redalan

My wife works for Barclays Bank and we have been paying £100 AVC's into her company pension plan for over 10 years. my question is are we doing the right thing paying this way? I know the government pay in an aditional percentage too - not sure what that is? Should we pay more to top up the AVC.s or stop paying them altogether and take out an other long term investment. We are both 45 years old.

We did initially take out the AVC,s with the CIS but that was not sold in our best interest and they paid back what we had paid in and put it into the banks pension plan.

Many thanks

Mortgage_&_debt_free

The govt payment is tax relief at your highest rate. You would gain the most by being a higher rate tax payer when working and a basic rate payer in retirement.

The question of whether you should continue paying AVcs depends on the scheme. You will see posts from several regular, well-informed posters saying AVCs are defunct after the A-Day changes, but they should all contain the caveat that it depends very much on what the scheme you're in and what you can do with the AVC.

For example I am in the LGPS and have been investing in AVCs for more than 10 years. Due to the A-Day changes (I won't go into the technicalities) I could take up to 100% of my AVC payment as a tax-free lump sum. This means I would be getting tax relief on my payments AND tax relief when I take it out i.e. 22% free money from the govt plus the growth in the underlying investments within the AVC.

Another option is that, as I have been a regular purchaser (prior to 2001) at any age over 50 and before retirement I can use the AVC to buy service (i.e. increase my pension) at a very favourable rate, which is no longer available to new investors. This service will also count towards the rule of 85 (another technical thingy), which could mean I could retire at 55-60 without an actuarial reduction in my pension for taking it early.

Apologies if some of the above may be confusing but it's just to illustrate that AVCs may contain specific benefits that you may find advantageous.

My advice, for what it's worth, is to talk to your pension department and ask exactly what the options are when it comes to using your AVC at and before retirement.

HTH

dunstonh

We did initially take out the AVC,s with the CIS but that was not sold in our best interest and they paid back what we had paid in and put it into the banks pension plan.

Ironically, AVCs are not the option they once were and now less flexible than the FSAVCs which would have been the best option. Unless the AVC gets contribution enhancements from the employer or can be used to enhance lump sum benefits then then the alternative options are likely to be better.

Occupational schemes no longer have to offer AVCs and many are withdrawing them for new entrants.

JollyNolly

Sorry to hijack this thread, but can anyone point me in the right direction for good advice on the pros and cons of AVCs compared with other forms of saving for retirement? (I can't seem to find anything from Martin on the subject...)

GeordieMac

I have gone for Employment related AVCs in the past, and with my current employer... I hope to be able to get most of the AVCs back Tax-free when retiring fully in the next 5 or so years. The current employer Final Salary scheme has no associated tax-free Lump sum ... so you can convert part of the pension into a lump sum ... I think this is a Post A-Day (April 2006) advantage of having the AVCs associated with employment.
Also, I have no running costs associated with the current Employment related AVCs ... and ... they would stop if I left the company....
both also plus points in my view.

Hope this helps.