Suggestions for investing/saving

kidmugsy

pauljoecoe wrote: »

I have a teacher pension. Its a final salary scheme. I have the choice when I retire to choose a certain proportion as a lump sum and the rest as a monthly/yearly pension payment. this is allowed within certain parameters. If I pay any extra in at is as AVC's and then yes I could take this as a lump sum. However, I am not sure that the return on this is guaranteed to be any better than any other way of saving other than it is tax free. (as would be a S & S ISA), My wife is already making the maximum AVC so I am not really wanting to go down this route also.

You're still missing the point. No one has recommended AVCs. Open a private pension of some sort.

Vortigern

kidmugsy wrote: »

You're still missing the point. No one has recommended AVCs. Open a private pension of some sort.

We need to be more explicit. Nobody suggested a new pension outside of the Teachers scheme until bowlhead's reference to SIPPs and PPs at post #11

OP should take look at the Pensions board and the new rules for defined contribution pensions.

pauljoecoe

Thanks bowlhead99 for that very clear explanation.

It certainly does seem to make sense to put the money into a pension but would I be just as well contributing AVC's through my teachers pension scheme?

What would the be the benefit of starting a separate private pension over paying the money into AVC's? As far as I can see the teachers AVC scheme with the Prudential is essentially a standalone pension and with the new pension rules all of this can be taken out as a cash lump sum when I am 60 (As it is likely to be under £30,000)

bowlhead99

A potential advantage of AVCs is that they might take those AVCs off you gross, so if you contribute £1000 you never pay tax and it goes straight into the pot as £1000.

With a personal pension that you arrange yourself, you would contribute £800 which the provider would gross up to £1000, then at the end of the tax year you would tell HMRC what personal contributions you had made and they would give you £200 back in cash or through adjustment to your tax code. So you ended up paying £600 of your taxed income for £1000 of pension asset but have a timing difference which can only really be resolved by getting your tax code changed in year 2 and beyond once HMRC know what level of contributions you're making.

An advantage of investing outside the AVC scheme is that personal pensions involve a wider choice of funds than you will have in the AVC pot, which to many people is a good thing. This can give you the ability to invest in specific sectors or simply the ability to invest more cheaply (e.g. personal pension at 0.5% or less depending on pot size and provider and fund chosen, versus AVC charges of 0.75% or 1% or whatever their rates are these days for the fund you choose to use within the AVC).

Also with a personal pension it is literally yours to do with as you like completely personally and independent from the employer, subject to the standard government rules about how it can be cashed in or kept invested from age 55. It's feasible that an AVC scheme tied into an occupational pension is linked to the main pension in some way and not free standing as a truly independent pot. Consequently you might need to transfer it to a separate pension provider who would let you draw it down before 60 or whatever. I haven't looked into how the Pru's scheme operates, but presumably you know how it works for contributions and taking benefits, so you can consider your options.

Going with a personal pension arrangement is not necessarily better than AVC, but I mentioned personal pensions and SIPPs simply because the range of investment options is the same (i.e. just as wide) as for S&S ISAs, so the pension vs ISA route has no major downside (if you're happy with a lock-in to age 55+) and a tax upside for a 40% taxpayer.

If you're the kind of person who is 'heres my money sort it', you don't need a SIPP, but a low cost personal pension could hit the spot by offering more investment choices at lower cost than the AVCs. Generally PP costs come down with pot size so if you have an existing AVC pot that could be transferred in without losing any benefits, you could manage it together with the new money and maybe access a better percentage charge. The new money of £500pm or £6000 p.a. would be £10000 p.a. gross of tax so would not take you long to have a decent amount invested in the pp.

Someone like Cavendish could set you up with any of a number of pp providers quite easily: http://www.cavendishonline.co.uk/pensions/stakeholder-and-personal-pensions/ . I have no specific recommendation as I use SIPP myself apart from company GPP.

pauljoecoe

So I decided to go the AVC route with a view to withdrawing as a cash sum when I retire rather than using it to buy an anuity. However, the kindly lady a the Pru reminded me that this is not possible at the moment as it is still a proposal not fact. I don't want to commit any money to a pension, I am looking for a lump sum in 8 years time.

So, I guess until it is made law then it might be better to put it into a S&S NISA. Would that be sensible as a short term commitment and then leave it there when it is appropriate to put into AVC's?