Are AVCs worth it late in working-life?

peadar

I know AVCs are very tax-efficient (especially as I'm a higher-rate taxpayer), and are good for people who have left things a bit late - my question is whether, 4 years off retirement, I really have left it too late?

I have 25 years' contributions at present, and will have finally paid off our mortgage at the end of this year: is it worth my while at this stage - four years off retirement - making AVCs with what would have been the mortgage payments? Or would I be better with a cash ISA?

Parking_Trouble

Fill yer boots with AVC's especially as a higher rate taxpayer.

It's never too late.

atush

As a higher rate taxpayer, yes pensions are good for you.

If avcs or not will depend on your scheme look it up or ask for a booklet).
If salary sacrifice yes! AS you save nics too?

If it is tied to your DB scheme so you can't take it separately? then no. Better to pay pension into a separate PP or sipp. That youc an take from 55.

PeacefulWaters

If you pay £60 into an AVC it gets grossed up to £100 thanks to the magic of tax relief. Some employers may add a few extra pounds too. If your AVC scheme is inflexible you may prefer to set up a SIPP or similar away from your employer.

When you draw that money out at the other end you can tax £25 tax free. The other £75 may well only be taxed at 20% giving you £60 in your hand.

So, crudely, you've turned £60 into £85 pretty quickly.

AlwaysLearnin

atush wrote: »

If it is tied to your DB scheme so you can't take it separately? then no. Better to pay pension into a separate PP or sipp. That youc an take from 55.

Unless you don't want the money until your Normal Retirement Date anyway, and can take the AVC money as a Pension Commencement Lump Sum, or perhaps if the AVC amount can be transfered.

I'd say that the latter years are arguably the best time to use pension contributions, because you're less likely to be adversly affected by any Pension rule changes.

xylophone

As a higher rate tax payer you can obtain additional tax relief on your pensions contributions so it is certainly worth considering pension contributions.

Whether to an AVC or to a SIPP or other personal pension arrangement depends on your scheme.


https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

kidmugsy

AlwaysLearnin wrote: »

I'd say that the latter years are arguably the best time to use pension contributions, because you're less likely to be adversly affected by any Pension rule changes.

Once you're passed 55, pensions look awfully attractive, because their inflexibility vanishes.

Parking_Trouble

I have just over 3 years until 60, the NRD in my DB scheme. I am starting to pump as much as I can into AVC's via salary sacrifice (40% taxpayer) with a view to extracting it all as a tax free PCLS.

Be mad not to. Only locked in for 3 years and in the event of an unforeseen emergency I can take it early.

redpepper64

I am just doing that for my hubby who intends to retire in 2 years. If you act quickly you can do it before tax year ends in April.

Triumph13

And if you are making overpayments on that mortgage you say will be cleared this year, you should think about stopping doing so right now and putting that money into an AVC or personal pension as well and then repaying the mortgage from the lump sum. The key factor on that would be the tax rates on contributions going into and out of the pension and in particular;

• Is the AVC scheme linked to a DB scheme that allows the AVC to entirely fund the lump sum so you get it all out tax free?
• Can you get a higher rate of relief now than you'll pay in retirement?

Parking_Trouble

I am trying to get my remaining years of mortgage payment changed to interest only and put the payments into AVC's instead. I then use the lump sum in 3 years to pay off the mortgage 3 years early.

Mortgage co have quite strict criteria for going interest only - £50k savings or £1m Pension fund - I cannot meet those but I do have a pension statement that has a £156k tax free lump sum clearly stated on it. Mortgage balance is £63k.

BTW. My AVCs are linked to DB scheme and I can take the AVC contribution out in the tax free lump sum and avoid a reduction in annual pension.