Final Salary, AVC vs FSAVC

jakowako

Hi, I'm fortunate that I am in an University Final Salary Pension Scheme. I would like opinions on adding to this. I am 52 and intend to retire at 60
I would like to use my taxable earnings that have creeped above the higher rate as I can manage on a lower salary income.

1, Is this a good idea
2, If so, with the new pension rules coming out, would I be better taking out and using an FSAVC to take a larger lump sum (on retirement) and keep more lump sum in my work pension.

hope this is clear

kidmugsy

Are you referring to the AVC supplied by the Pru?

jakowako

Yes, I believe that it is?

kidmugsy

In that case the new rules don't have any bearing on it. If you want to take as large a lump sum as you can combined with a large USS pension then the AVC is the way to do it. But beware: if you take a larger pension than your standard USS pension (by virtue of giving up some USS lump sum), you don't get extra widow's pension.

Secondly, by retiring at 60 rather than 65 you'll lose rather a lot on the pension by "actuarial reduction". So it might be better to accumulate as much as you can in a personal pension of some sort and then at 60 live off that money for a while so you can defer taking the USS pension until you are nearer 65.

dunroving

This is exactly what I am doing. The Pru give regular presentations in which they advertise the headline "take 100% of your Pru AVCs tax-free"


The small print often isn't spelled out, but essentially, as long as it isn't more than 25% of the total value of your USS benefits plus value of your Pru pot, you can take all of it tax-free.


As suggested, this allows you to inverse-commute the USS tax free sum into USS pension, if that's what you're looking for.


The USS online modeller is pretty good - have you used it? It allows you to fiddle with your retirement age, and fiddle with the USS tax-free cash (e.g., to set it to zero, to see how much additional pension you can get).


The drawback is that you can't take bits and pieces from the Pru/USS at different times - it's all or none. That's why it may also be a good idea to have an additional SIPP, if you want to postpone taking USS pension (in order to avoid a reduced pension due to early retirement), and will need some cash to tide you over until 65 (or 66).

jakowako

Hi, my pension scheme is STSS and not USS, don't know if that makes any difference. Also could you comment on the contributions, does it make sense to use part of wages that is in 40% tax? Cheers

dunroving

jakowako wrote: »

Hi, my pension scheme is STSS and not USS, don't know if that makes any difference. Also could you comment on the contributions, does it make sense to use part of wages that is in 40% tax? Cheers

Not sure what you mean - any pension contributions will first come out of the top end of your salary - the part being taxed at 40%.


Absolutely yes, I'd say pay this into some pension or other - why pay 40% tax? I presume that in retirement you will only be a 20% tax payer ...?

jakowako

Yeh thanks

redbuzzard

Pensions are clearly better value with 40% tax relief even if you only get 25% back tax free. If you put all the extra contributions into AVCs so as to take the AVCs tax free (assuming you are allowed to do that) then it's £6000 net cost in, £10000 out, even without any investment growth - a 66.7% uplift. if you only use the 40% taxed element of income to do it.

In any case, doing AVCs with your employer means you get the tax relief immediately - if you did it separately, you'd need to claim back the higher rate element from HMRC afterwards.

jakowako

Thanks for all comments, cheers