AVC's or put the money into a bank or credit union??

Dunree

Hi Guys,

I'm looking for a bit of advice re my pension.

I intend to retire in six years which will be after 19 years of service with my current employer. I also transferred former pensions into this company's scheme. This has given me around 14 years extra into the pot.

I'm now in the financial position where I can afford to put aside money for either AVC's or elsewhere. But, due to my lack of knowledge in these matters, I don't know where to put the money. I'll be able to put aside £336 every four weeks.

Below is what I'll get if I put it into AVC's, would I be better putting the money into the bank/credit union/elsewhere??

From the company pension website...

''The following figures are in addition to the above Fund benefits.

Your AVC fund, based on the details above is estimated to be £28744.79.
This can be taken as either:

A lump sum of £28744.79 with no pension.
or
A pension of £852.13 a year.

The AVC pension amount is based on the annuity type selected.

This estimate is for illustration only, it confers no rights to benefits and should be read in conjunction with the notes on the following pages''

We don't have a mortgage, around £6k of debt, with, at present, £6k in savings, which increase every four weeks.

Current salary is £54k p/a.

Any thoughts/advice folks??

Dunree

jem16

Dunree wrote: »

Hi Guys,

I'm looking for a bit of advice re my pension.

I intend to retire in six years which will be after 19 years of service with my current employer. I also transferred former pensions into this company's scheme. This has given me around 14 years extra into the pot.

I'm now in the financial position where I can afford to put aside money for either AVC's or elsewhere. But, due to my lack of knowledge in these matters, I don't know where to put the money. I'll be able to put aside £336 every four weeks.

Below is what I'll get if I put it into AVC's, would I be better putting the money into the bank/credit union/elsewhere??

Putting the money into a bank would not be a good decision as interest rates are poor at the moment.

Your best option certainly appears to be the pension as you are a higher rate taxpayer so would gain 40% tax relief and possible be a basic rate taxpayer when you retire.

However AVCs are not necessarily the best option unless your scheme allows you to take your tax free lump sum from the AVC pot rather than reduce your main DB pension. You could, however, open any Personal Pension or SIPP and use that instead.

Dunree

Hi Jem,

Here is the full statement, including the AVC's...

Option 1 Pension of £24756.26 a year.
or
Option 2 Pension of £18551.55 a year plus a maximum lump sum of £94932.16.
or
Option 3 Pension of £27860.08 a year reducing to £21960.03 a year from 26 November 2029.
or
Option 4 Pension of £20713.39 a year reducing to £14813.34 a year from 26 November 2029

plus a maximum lump sum of £109344.44.

Your AVC fund, based on the details above is estimated to be £28744.79.

This can be taken as either:
A lump sum of £28744.79 with no pension.
or
A pension of £852.13 a year.

The AVC pension amount is based on the annuity type selected.

How does that look?

Dunree

jem16

Dunree wrote: »

Hi Jem,

Here is the full statement, including the AVC's...

Option 1 Pension of £24756.26 a year.
or
Option 2 Pension of £18551.55 a year plus a maximum lump sum of £94932.16.
or
Option 3 Pension of £27860.08 a year reducing to £21960.03 a year from 26 November 2029.
or
Option 4 Pension of £20713.39 a year reducing to £14813.34 a year from 26 November 2029

plus a maximum lump sum of £109344.44.

Seems to be a commutation rate of around 15:1 so not too bad but not great either. You'll need to decide if you need a lump sum for spending or prefer the higher income. Is the income index-linked?

Your AVC fund, based on the details above is estimated to be £28744.79.

This can be taken as either:
A lump sum of £28744.79 with no pension.
or
A pension of £852.13 a year.

The AVC pension amount is based on the annuity type selected.

How does that look?

Dunree

From April 2015 there will be no need to purchase an annuity and you could take the whole lump sum.

However you didn't answer the question as to whether or not the AVC pot could be used to fund the tax-free lump sum from the main scheme? I would guess at no it doesn't from the above but it's worth checking. Also check if the AVC pot has to be taken at the same time as the main scheme.

If it's no a PP/SIPP might be better and give more flexibility and better choice of funds. You would also need to look at costs.

Dunree

jem16 wrote: »

Seems to be a commutation rate of around 15:1 so not too bad but not great either. You'll need to decide if you need a lump sum for spending or prefer the higher income. Is the income index-linked?




From April 2015 there will be no need to purchase an annuity and you could take the whole lump sum.

However you didn't answer the question as to whether or not the AVC pot could be used to fund the tax-free lump sum from the main scheme? I would guess at no it doesn't from the above but it's worth checking. Also check if the AVC pot has to be taken at the same time as the main scheme.

If it's no a PP/SIPP might be better and give more flexibility and better choice of funds. You would also need to look at costs.

I work for Transport for London, so I'm assuming that it is index linked, would be able to find out for definite on Monday.

The chances are that I won't take the full pension lump sum. Will withdraw some of it to treat ourselves, but it probably be nowhere near the maximum.

''However you didn't answer the question as to whether or not the AVC pot could be used to fund the tax-free lump sum from the main scheme? I would guess at no it doesn't from the above but it's worth checking. Also check if the AVC pot has to be taken at the same time as the main scheme.''

As far as I'm aware, the AVC pot is seperate from the main pot. I can check on Monday if it has to be taken at the same time as retirement. If so, then that will reduce again the amount I withdraw from the lump sum kitty.

Does that help answer your questions?

Apologies for not knowing exactly what is what, I'm still finding out information as I plan my retirement

jem16

Dunree wrote: »

The chances are that I won't take the full pension lump sum. Will withdraw some of it to treat ourselves, but it probably be nowhere near the maximum.

Sounds like a good plan.

As far as I'm aware, the AVC pot is seperate from the main pot. I can check on Monday if it has to be taken at the same time as retirement. If so, then that will reduce again the amount I withdraw from the lump sum kitty.

Does that help answer your questions?

Apologies for not knowing exactly what is what, I'm still finding out information as I plan my retirement

Looking at the website for your pension, your AVC is completely separate and can be taken when you like. There is also no mention of linking it so that you can take your tax-free cash from the AVC post and avoid reducing your pension so you can forget that idea.

Basically the only reason to use an AVC is if it's cheaper than what you can get in a PP or SIPP so check out the charges.

Dunree

jem16 wrote: »

Sounds like a good plan.



Looking at the website for your pension, your AVC is completely separate and can be taken when you like. There is also no mention of linking it so that you can take your tax-free cash from the AVC post and avoid reducing your pension so you can forget that idea.

Basically the only reason to use an AVC is if it's cheaper than what you can get in a PP or SIPP so check out the charges.

Hi Jem,

Thank you very much for taking the time to answer me, it really is very much appreciated

The AVC's are deducted from my salary, if I go down that route.

I'll look into the other options when I get a bit of time to myself.

Again, thank you very much

Dunree

Just found this on the site...

''
AVCs on retiring

You may take up to 25 per cent of the value of your total benefits from the Fund as a tax-free lump sum when you retire. If your AVCs exceed this amount the balance must be used to buy you a pension from an insurer.
Alternatively, you may choose to use all or part of your AVCs to buy an annuity or defer payment''

Dunree

One last question.

If I reduce the amount I take as a lump sum, does that increase the actual pension payment?

jem16

Dunree wrote: »

Just found this on the site...

''
AVCs on retiring

You may take up to 25 per cent of the value of your total benefits from the Fund as a tax-free lump sum when you retire. If your AVCs exceed this amount the balance must be used to buy you a pension from an insurer.
Alternatively, you may choose to use all or part of your AVCs to buy an annuity or defer payment''

So that looks like you can use your AVC pot to take the tax-free lump sum which is good.

This means that you can avoid reducing your pension to provide a lump sum.

jem16

Dunree wrote: »

One last question.

If I reduce the amount I take as a lump sum, does that increase the actual pension payment?

Yes your total pension could be Option 1 or 3 without a lump sum. Looks like you can take any lump sum from the AVC pot.