Confused about AVCs vs. buying additional pension - help please!

atush

smellymel74 wrote: »

Wow, brilliant advice thanks guys! I learn something every time i come on here!

I should have said that I'd LIKE to retire early, which is kind of why I'm thinking about planning now 15-20 years ahead. I was hoping to retire (or worst case scenario, go PT) at age 55, though my pensionable age (under the old pre 2005 scheme) is 60. By age 55, I'll have 20 years contributions and an average salary of roughly £50K. I was hoping that by doing something now to top up the early years I missed, I'd give myself a better chance of being able to retire at 55.

It sounds like buying additional pension is more suitable for me than AVCs, but I hadn't thought about getting a SIPP so the decision may actually be between additional pension and a SIPP - a bit more mulling it over needed I think. Like the idea of a SIPP though as, like exmugpunter says, if I understand correctly it could mean I'm able to retire (or at least go PT) at 55 but without having to take my teachers pension early (& thus heavily reduced) then live of the SIPP until I can draw my teachers pension. Just wish I'd done something about it earlier, like you exmugpunter!

Over more question please - Atush and YourHero mention some benefits of AVCs if you have to take a lump sum - under the old teachers pension scheme that I'm in, I get an automatic lump sum. Does this mean AVCs might be better than a SIPP after all?

I did not say to use AVCs for a lump sum, as you can't. You are in the TPS, not the LGPS which did allow this. AVCs are DC, but tied to your main pension and cannot (at this time) be taken early separate to the main pension.

I did however, before exmugpunter, say to use a personal pension (but not always a SIPP) instead of additional pension if you want to retire early. Optimum would be to do both if you could afford it.

chucknorris

ExMugPunter wrote: »

I also missed the boat in transferring my other pension into the TPS as you only have 1 year to do so.

I also didn't transfer in my existing private pension, by the time I realised that I should have done it (or at least got a quote), I had already missed the 12 months deadline. When I started lecturing I had spotted that I could do this, but there was a lot happening all at once, and I was so busy preparing lectures in my first year that it slipped my mind. By the time I relaxed into the job and had time to think about such things, it was too late. I did enquire after about 18 months, but I was told that there was no flexibility, the 12 months was a rigid deadline. Whenever a new lecturer starts at our university I point this out to them, but none have opted to do this yet (not even get a quote).

kidmugsy

My own experience with AVCs at the Pru makes me wish that SIPPs had been available at the time.

jem16

atush wrote: »

You are in the TPS, not the LGPS which did allow this. AVCs are DC, but tied to your main pension and cannot (at this time) be taken early separate to the main pension.

As I said in the post 11 atush, teachers' AVCs are not linked to payment of the TPS.

From the link I gave;

Payment of your teachers’ AVC benefits is not linked to payment of your TPS pension. You could access your teachers’ AVC at any time from age 55.

It's been this way for years and is not in any way linked to the new rules from April 2015.

zagubov

kidmugsy wrote: »

My own experience with AVCs at the Pru makes me wish that SIPPs had been available at the time.

I paid up extra years using a combination of an AVC from Pru and what at the time was called additional years with the TPS. The AVCs were four times more expensive than the TPS payments.

I cancelled the AVCs when I switched jobs and realised how the money was split. My wageslips were as clear as mud about where the money was going. I would be substantially better off if I'd avoided the AVCs from the start

However it's nobody's job to sell you extra payments to the TPS...........:o

jem16

zagubov wrote: »

I paid up extra years using a combination of an AVC from Pru and what at the time was called additional years with the TPS. The AVCs were four times more expensive than the TPS payments.

Do you mean the AVCs were four times more expensive than the normal TPS contributions or more expensive then buying back years?

greenglide

And how do you arrive at "four times more expensive" when they are buying very different things?

zagubov

jem16 wrote: »

Do you mean the AVCs were four times more expensive than the normal TPS contributions or more expensive then buying back years?

Sorry I've summarised it too much. In the early 90s I was 4 and 1/2 years short of ever getting a full pension because I started my full-time education career late. The man from the Pru came round and we discussed ways of making up the shortfall by combining three past-added years additional payments to the Teachers Pension and enough AVCs to cover 1 and 1/2 years of pension. I only noted what the total outgoings were without paying attention to the breakdown of which part was which

When the additional money came out of my salary I could tell one sum was double the size of the other, which foolishly made me think the larger payment was to the Teachers Pension System and the other smaller one was to the Pru. My payslip was as clear as mud in those days. The total deductions made sense.

Later when I moved jobs my new employers messed up my payments and then it all came to light that the larger payment was to the AVC and the smaller to the TPS. So the AVC was costing twice as much to achieve half as much additional pension IYSWIM.

I realised I could have built up the same pension more cheaply by just paying it all to the TPS and leaving out the Pru so I changed it to do that. Wish I'd known earlier, more fool me.:o

I've posted about this on similar threads here hoping that other can learn from my stupidity.

jem16

zagubov wrote: »

The man from the Pru came round and we discussed ways of making up the shortfall by combining three past-added years additional payments to the Teachers Pension and enough AVCs to cover 1 and 1/2 years of pension.

Now that's the bit I find rather strange to be honest. A man from the Pru would only be there to sell you AVCs as that is his job. Why would he also encourage you to purchase added years as he would make nothing from that?

When the additional money came out of my salary I could tell one sum was double the size of the other, which foolishly made me think the larger payment was to the Teachers Pension System and the other smaller one was to the Pru. My payslip was as clear as mud in those days. The total deductions made sense.

Another strange thing happening there too. Currently I am buying past added years. My payslip shows 2 deductions - one for my normal contributions and one for my past added years. If you also had an AVC I would expect to have seen three deductions and not just two. However perhaps the TPS is different to the Scottish scheme.

I realised I could have built up the same pension more cheaply by just paying it all to the TPS and leaving out the Pru so I changed it to do that. Wish I'd known earlier, more fool me.:o

I first elected to buy back 4 years. At the time the cost of those spread over approximately 25 years was double what I was paying for my normal contributions. This year it's actually slightly less because the main contributions have risen from 5% to 9.5%. The buying back of added years is better but because you also have to make up the employer's contribution as well as your own, they are certainly not cheap.

The AVC on the other hand can be as much or as little as you decide - most go for the little amount as it's too costly to buy the past added years or additional pension as it is now.

Main message is - don't opt out as it will be very costly to make up what you have lost.

zagubov

jem16 wrote: »

Now that's the bit I find rather strange to be honest. A man from the Pru would only be there to sell you AVCs as that is his job. Why would he also encourage you to purchase added years as he would make nothing from that?



Another strange thing happening there too. Currently I am buying past added years. My payslip shows 2 deductions - one for my normal contributions and one for my past added years. If you also had an AVC I would expect to have seen three deductions and not just two. However perhaps the TPS is different to the Scottish scheme.



I first elected to buy back 4 years. At the time the cost of those spread over approximately 25 years was double what I was paying for my normal contributions. This year it's actually slightly less because the main contributions have risen from 5% to 9.5%. The buying back of added years is better but because you also have to make up the employer's contribution as well as your own, they are certainly not cheap.

The AVC on the other hand can be as much or as little as you decide - most go for the little amount as it's too costly to buy the past added years or additional pension as it is now.

Main message is - don't opt out as it will be very costly to make up what you have lost.

Both of us needed to boost our pensions and were looking into past added years. However, after a friend died unexpectedly young and her husband was well looked after because of death in service benefit, we looked into using the Pru as a form of life insurance.
When the guy turned up he sold us the life cover and seeing we were convinced past added years was the way forward, he gave us a sales pitch that convinced us that taking out AVCs for part of our added pension was more sensible. He showed us what the combined outgoings would be.

Sure enough our payslips contained our usual pension outgoings and two additional ones with indecipherable codes next to them. We assumed the bigger one was the 3 years TPS added years and the smaller one was the 1.5 years AVC, including life cover. It added up to the amount we expected to pay and we didn’t realise it was the other way round – the larger was the AVC and the smaller was the TPS.

There was a surge in compensation claims over this kind of mis-selling but we didn’t qualify as we clearly knew about the TPS system as well. Tough luck for us.