Juggling company AVC scheme and SIPP?

dunroving

OK, here's my latest hare-brained scheme, would appreciate you smart people telling me if it's cobblers:


Currently pay into three "pension pots":


Final salary scheme, including added years AVC contract - this is pretty straightforward.


Employer-sponsored Prudential AVC money-purchase scheme, invested in two bond funds and two S&S tracker funds. The choice isn't great but it's broad enough.


SIPP with Fidelity. Current reasons are: (a) greater flexibility than Pru choices offer, and (b) gives tax-relief (HMRC "top-up") on the last £10k of my salary (i.e., pay in £8k, get £10k).


My plans are:
2014-2015: Maximize pension contributions to 100% earnings
2015-2016: Maximize pension contributions to 100% earnings
2016-2017: Maximize pension contributions to annual allowance (no carry-over left)
2017-2018: Maximize pension contributions to annual allowance (no carry-over left)
2018-2019: Take retirement halfway through the year; Maximize pension contributions to annual allowance/100% of 6-month earnings.


FYI, am putting 100% of my earned income into these three pension sources this year and next (have checked I'm OK with the annual allowances) in order to take advantage of the "too good to be true" additional bump on the last £10k, as described above.


I only recently was advised by people on here that at retirement, I could transfer (if I wanted) any unused pot from the employer-sponsored Pru AVC scheme into another pension (e.g., my SIPP).


So (finally!) here is my question:


Are there NI advantages to putting pension contributions into my employer Pru money purchase AVC scheme, rather than into the Fidelity SIPP? I'm wondering if I get NI relief on what my employer takes out of my salary, based on contributions to my employer-sponsored pension schemes? Or do I pay NI on my full salary, regardless of how much I put into the employer pension? Or, if there's no NI advantage, is there any other advantage I'm not thinking of?


Sorry for all the detail around such a small question but last time I posted a new thread I got all sorts of cr*p from one of the resident IFAs for not giving enough detail!

david78

You get a reduction in NI if you pay into your company scheme (and linked AVCs) using Salary Sacrifice ("SMART Pensions").

So it depends on your particular employer and how they collect payments. So ask them or look on your payslips.

dunroving

david78 wrote: »

You get a reduction in NI if you pay into your company scheme (and linked AVCs) using Salary Sacrifice ("SMART Pensions").

So it depends on your particular employer and how they collect payments. So ask them or look on your payslips.

That's what I thought - I had looked at my NI deductions on my pay slip and they seemed quite high (am currently putting about 43% of my gross salary into employer pension and AVC schemes), though are about 12% lower than the MoneySavingExpert calculator gives me when I plug my salary into the tax calculator.


They don't operate a salary sacrifice scheme as far as I know, though they are bringing in a scheme called "Pensions Plus" that is something similar, but only for final salary contributions.


The only advantage I can think of is that with the AVCs, the money is immediately 100% invested (tax relief given at source) whereas Fidelity/HMRC take about 2-3 months to credit the 20% top-up (i.e., buy funds). In an up marker that is a pain, but I suppose in a down market this is a way of achieving a crude sort of pound-cost averaging.

kidmugsy

dunroving wrote: »

I only recently was advised by people on here that at retirement, I could transfer (if I wanted) any unused pot from the employer-sponsored Pru AVC scheme into another pension (e.g., my SIPP).

On another thread you imply that your pension scheme is USS. A few years ago it certainly didn't permit transfer of Pru AVCs out to SIPPs. Are you certain that policy has changed?

dunroving

kidmugsy wrote: »

On another thread you imply that your pension scheme is USS. A few years ago it certainly didn't permit transfer of Pru AVCs out to SIPPs. Are you certain that policy has changed?

No, as per my initial post, I'm currently going on comments people have given me on here so I need to look into this with the Pensions Dept. or Pru. I'm starting to figure out who on here knows what they are talking about and who is just expressing an opinion.

kidmugsy

dunroving wrote: »

I need to look into this with the Pensions Dept. or Pru.

Please give us all a shout when you find the answer.

zagfles

Whether the AVC is transferrable separately to the main pension is down to the scheme, in some schemes they're linked. If they are linked, then usually you can take the entire AVC as a tax free lump sum, provided its value is less than 25% of the value of the combined pot (usually this means that it's less than 6.67 times your pension - eg pension of £10k means you can take £66,666 AVC tax free).

You need to check this with the scheme.

Whether you get NI relief on AVCs depends on whether they are salary sacrifice contributions or not. If they are salary sacrifice you will limited anyway by the NMW, your employer must pay NMW after any sacrifice. This doesn't apply to "normal" AVC contributions which don't reduce NI'able salary, but do reduce taxable salary.

dunroving

kidmugsy wrote: »

On another thread you imply that your pension scheme is USS. A few years ago it certainly didn't permit transfer of Pru AVCs out to SIPPs. Are you certain that policy has changed?

dunroving wrote: »

No, as per my initial post, I'm currently going on comments people have given me on here so I need to look into this with the Pensions Dept. or Pru. I'm starting to figure out who on here knows what they are talking about and who is just expressing an opinion.

kidmugsy wrote: »

Please give us all a shout when you find the answer.

Just thought I'd update on this (it took me a while to find the thread!)

I have now been in touch with the Pru and with USS and the latter have confirmed that under the USS regulations, when the new government pension rules come in, it will be possible to transfer the AVCs to another pension (e.g., a SIPP).