Thinking of AVC's to take as lump sum when I retire in 8 years. Advice?

pauljoecoe

I was thinking of putting £500 PM into AVC's as a way of saving for a lump sum for when I retire in around 8 years.

2 worries really,

1. the government have not actually introduced the changes to allow this yet...can they be trusted to actually do this in April 2015.

2. Whats to stop any future government reversing this and then my money will be stuck and I will need an annuity which I don't really want.

greenglide

Why AVCs?

They can be very useful if the scheme allows them to fund a tax free lump sum rather than source the lump sum from the main scheme - this is a DB / final salary thing.

Otherwise are the AVCs tied to taking them at the same time as the main pension.

I cannot see any government in the future succeeding in making annuities compulsory again - this was abolished a number of years ago - why should the bring them back?

If you are talking about the 25% tax free lump sum the medium to long term survival of this is anyone's guess.

FatherAbraham

pauljoecoe wrote: »

1. the government have not actually introduced the changes to allow this yet...can they be trusted to actually do this in April 2015[?]

Yes. But if it's still a big worry for you, then start saving the money now, but keep it somewhere else (an ISA or savings account, perhaps), then dump it as a lump sum into a personal pension scheme once the law has changed, or make your monthly contribs even higher, and replace the missing income by drawing down on the savings.

pauljoecoe wrote: »

2. [What's] to stop any future government reversing this and then my money will be stuck and I will need an annuity which I don't really want.

What's to stop the state from sentencing you to death and confiscating all your assets? Nothing.

However, I wouldn't call getting an extra income for life a disastrous outcome, and one's money isn't really stuck. There are financial products which turn income streams into capital (the most common is called a loan).

Warmest regards,
FA

pauljoecoe

FatherAbraham wrote: »

Yes. But if it's still a big worry for you, then start saving the money now, but keep it somewhere else (an ISA or savings account, perhaps), then dump it as a lump sum into a personal pension scheme once the law has changed, or make your monthly contribs even higher, and replace the missing income by drawing down on the savings.

Warmest regards,
FA

Already got lots in ISA/savings but interest rates aren't good as you know. wanted to take advantage of the 40% tax relief on paying into the AVC scheme attached to my pension.

FatherAbraham

pauljoecoe wrote: »

Already got lots in ISA/savings but interest rates aren't good as you know. wanted to take advantage of the 40% tax relief on paying into the AVC scheme attached to my pension.

interest rates are low, and so is inflation, so you're hardly losing anything. What you're losing is the price of the insurance/certainty you're seeking.

If you want the 40% tax relief, and can only get it by paying in now, then take it now, and stop whingeing.

http://i.imgur.com/qQHhKOo.jpg

Warmest regards,
FA

robin61

pauljoecoe wrote: »

Already got lots in ISA/savings but interest rates aren't good as you know. wanted to take advantage of the 40% tax relief on paying into the AVC scheme attached to my pension.[/QUOTE

For me it is a no brainer and I am stuffing as much as I can into the AVC scheme that sits alongside my DB scheme. It is a smart AVC scheme so I get 40% tax relief and I also get NI relief at 12% so I assume the company is sharing their NI saving with me. So that is 52% tax relief.
The risk is the Government could cut the amount of tax relief in which case i will have to reduce my contributions so all the more reason to make the most of it now. Or they could start taxing the TFLS. If they did that it would make taking a larger lump sum from my DB scheme (funded by the AVC) less attractive so depending on the level of tax I could consider transferring the AVC into a SIPP and accept the tax on that income. I would be hacked off obviously to have the goal posts moved but would still be quid's in on what I have put in so far.
I have either 3 or 6 years to go. I am hoping there will not be any changes and I reckon if we get another 3 years or so with the current rules I will be able to go in 3 years. Probably changing the rules would need time to implement and would. Involve some industry consultation first. I guess there is no such thing as a sure thing but for me this is just too attractive to ignore at the moment so I would say go for it.

greenglide

It is a smart AVC scheme so I get 40% tax relief and I also get NI relief at 12% so I assume the company is sharing their NI saving with me. So that is 52% tax relief.

Are you sure you get 12% NI relief? Normally you get employees NI reduced by the fact that gross pay is reduced. Anyone above the upper earnings limit only saves the lower rate.

To give you the employers NI (or part of it) the amount paid to the pension scheme (ignoring any employers pension contribution) has to be greater than the amount the gross salary is reduced by.

Is this the case for you?

robin61

greenglide wrote: »

Are you sure you get 12% NI relief? Normally you get employees NI reduced by the fact that gross pay is reduced. Anyone above the upper earnings limit only saves the lower rate.

To give you the employers NI (or part of it) the amount paid to the pension scheme (ignoring any employers pension contribution) has to be greater than the amount the gross salary is reduced by.

Is this the case for you?

Yes I am sure. Every time I have increased my contribution I have a had a significant reduction in NI. I was expecting the lower rate of 2% ? But I am getting 12% and that is fine by me. I have been paying into it for 4 years now.