AVC advice

pduignan

I am considering contributing to a company AVC scheme (rather late unfortunately) to reduce my prospective retirement age.

Some facts first,

I am 53 this year (July)
I contribute to my company DB scheme
I am a higher rate tax payer (40%)
I am currently over paying my small mortgage
I have a healthy savings amount

My question is fairly basic at this point,
Should I contribute to the company AVC scheme even if I would look to retire from 55-58 years of age.
I can put a fairly high monthly amount that way.

Any advice or pointers to information would be greatly appreciated.

jem16

It would be a good idea to get 40% tax relief so yes pay in the amount you're into higher rate tax by.

However why limit yourself to AVCs as opposed to a PP or SIPP? Is there any advantage to using an AVC for you - ie is there salary sacrifice involved or can you use the AVC pot to fund the tax free lump sum from your DB scheme?

If neither of those is true you would probably be better not using an AVC as it should give you more flexibility. Some AVCS can only be taken when you take the main scheme. If using a PP you can take it earlier and leave the DB pension till normal retirement age.

dunroving

+1 to Jem16's suggestion to look into whether the AVCs pot can fund your TFLS. My employer AVC money purchase scheme is "linked" directly to the final salary scheme, making it easier to offset the AVCs against the final salary pot value.


Rather than take a pension plus a TFLS of 3 x the pension, I am commuting (reverse-commuting) the TFLS from my final salary scheme into added pension and taking 100% of my AVC pot as a TFLS.


At your age, making added contributions may begin to bring you close to the annual allowance (I'm assuming you are planning to put big amounts in during your last few years?), especially if future governments reduce it even further. Particularly if you plan to plough large amounts into the AVC (that's what I have done), look carefully at how much carry-over you have from 2011-2014 years and do the maths. Your employer should give you a calculation of your accrued benefits over these years if you request it.


When the annual allowance was a lot higher, there were people where I work simply putting 100% of their last year or two salary into the AVCs and taking the lot as a TFLS when they retired.

jem16

dunroving wrote: »

Rather than take a pension plus a TFLS of 3 x the pension, I am commuting (reverse-commuting) the TFLS from my final salary scheme into added pension and taking 100% of my AVC pot as a TFLS.

Just be careful with that. Some schemes come with an automatic lump sum which cannot be inverse-commuted.

dunroving

jem16 wrote: »

Just be careful with that. Some schemes come with an automatic lump sum which cannot be inverse-commuted.

Thanks, I have already looked into this and supposedly USS does allow me to inverse-commute the TFLS from the final salary scheme into added pension.


This has been the basis of all the presentations that Prudential has made over the years (with the blessing of the HR/Pensions/Finance section of the university), to push the idea that the TFLS from the final salary scheme can be inverse-commuted to additional pension, and the Pru AVCs taken as the TFLS.


Also, the USS online modeller that allows members to use sliders to change your retirement age, etc., also allows you to use a slider to calculate how much additional pension you can get by giving up part, or all of your TFLS (and the opposite).


I have spent a large portion of my spare time over the past two years looking into all of this pensions malarkey and I am still learning things I didn't realise. Sometimes my head feels like it's about to burst.

tigerspill

I just started my AVC payments in out work scheme.
I am putting as much in as I can via Salary Sacrifice. I will get 42% Tax and Ni relief on most of it.

I do have a followup question, I will probably be going into the BRT a bit. So I will save 20% on that part. How much NI do I save on top - is it 12% giving a total saving of 32%?

pduignan

Thanks jem16, tigerspill and du roving for your advice.
Looks like I need to do a bit more research into my current DB scheme and contribution limits.
Bit gutted that I missed placing this years bonus in the AVC pot.
May come back to you all once I've more detailed info of that's OK?

Cheers:j

jem16

tigerspill wrote: »

I do have a followup question, I will probably be going into the BRT a bit. So I will save 20% on that part. How much NI do I save on top - is it 12% giving a total saving of 32%?

It is, yes.

tigerspill

jem16 wrote: »

It is, yes.

Excellent. Thanks.
So even if I stray into BRT territory, I still save nearly a third.
This means I don't need to be just as cautious with my calculations. 32% is still a huge benefit.

kidmugsy

dunroving wrote: »

USS does allow me to inverse-commute the TFLS from the final salary scheme into added pension.

If it matters to you I recommend you check whether the resulting larger pension would bring with it a bigger widow's pension. If (as I suspect) it doesn't, then you might like to consider performing an Allocation so that a larger widow's pension will eventually be payable.

Another line of thought is that USS is in such poor nick that it might be sensible to withdraw as much lump sum as you can, and eschew allocation, instead buying your future widow some more pension of her own with your dandy lump sum.

dunroving

kidmugsy wrote: »

If it matters to you I recommend you check whether the resulting larger pension would bring with it a bigger widow's pension. If (as I suspect) it doesn't, then you might like to consider performing an Allocation so that a larger widow's pension will eventually be payable.

Another line of thought is that USS is in such poor nick that it might be sensible to withdraw as much lump sum as you can, and eschew allocation, instead buying your future widow some more pension of her own with your dandy lump sum.

Yes, I think you are correct re: additional pension doesn't include widow's pension. Currently not married so it isn't an issue but you never know.


Even though USS is in poor nick I plan to retire in 3.5 years and am hoping that other than the current pending changes, nothing major will change. And I presume once I retire, pension is guaranteed ...?