AVC advice please.

Stevev99

Hello all,
I am in BT pension scheme C (have been for about 28 years) and planning ahead for retirement since have taken out a 20 year mortgage last year that I want to pay off in 15 years ideally.


Couple of questions. My idea is to invest in pension scheme AVC's for the next 15 years since as a 40% tax payer could invest £275 per month at a cost to me of around £165. I reckon I'll need about £55k to pay off mortgage 5 years early in 15 years.
Does that sound a credible idea?


Secondly, looking at the investment choices for the AVC's, what do people normally do? Spread them across all 4 or usually pick just the 1? Choices are based around Standard Life & Legal & General UK and Global funds. I'm not looking for specifics, just wondering what the normal approach usually is.


Many thanks, Steve.

atush

I persoanlly think Global is preferable to UK only as it is mroe diversified, but I dont know your 4 fund choices.

Your plan is a sound one, but do remember that only 25% of your AVC can be withdrawn Tax free (unless your AVCs can be used to fund the TFLS from your whole pension). If you have to take the rest taxed it could impact on the viability of your scheme.

Stevev99

atush wrote: »

I persoanlly think Global is preferable to UK only as it is mroe diversified, but I dont know your 4 fund choices.

Your plan is a sound one, but do remember that only 25% of your AVC can be withdrawn Tax free (unless your AVCs can be used to fund the TFLS from your whole pension). If you have to take the rest taxed it could impact on the viability of your scheme.

Thanks, the pension rules state '25% of your overall BTPS benefits, including AVCs, may be taken as a tax free lump sum (capped at 25% of the lifetime allowance' which I'm fairly sure means I can safely withdraw all the AVC fund as a lump sum since it'll still be below the lifetime allowance even with the lump sum allocated to the pension.

Flyingmag

I took out an AVC with the Pru some years ago, I only paid into it for a few years as I left the RAF. This year I contacted Phoenix (who bought out Pru) and asked for my pot as a lump sum (£13000). They were not very forthcoming with information, asking me to look on their website for the information I needed. I made several phone calls asking for what information they needed me to know etc, and I was cut off, transferred to the wrong department, told that staff were on lunch, there was no-one available to assist with my particular case. After several days and even more calls they said they had to make sure I was making the right choice. I had to wait 10 working days for a pack to arrive to tell me to talk to an independant FA and/or Pensionwise, I also saw someone from the CAB.
I spoke to an FA and rang Pensionwise and after discussing my degenerative heart condition, both concluded that this small amount, compared to my other pensions, would be better as a lump sum.
I rang Phoenix again, this time they said that they would have to send out another pack, which would take 10 days, and there was a form which needed to be signed by a FA to make sure I was making the right choice. I said that I had already spoken to an FA, they said they needed proof. I gave them a reference number from Pensionwise, this was not good enough. After 10 days the pack had not arrived, I rang again and the customer service operator offered to print the forms off there and then and send them to me first class, I accepted this offer. I was then told that I was required by law to provide my birth certificate, scan of my passport, driving licence, bank account details and a utility bill before they could issue the cheque. These documents were legally required for verifying who I was. I told them that I had given a copy of my BC to the original provider, they also had a scan of my RAF identification when I took out the policy in Cyprus, they already have my bank details (and have done since 1990).
I asked which act or law required me to give all of this personal information. After holding on I was informed that it was not actually a law but a procedure that Phoenix liked to carry out. I asked what would happen to this documentation and was told it was all scanned and then returned. I said I'd like it deleted once the contract was up as keeping the information would contravene the data protection act and that they must use in a way that is adequate, relevant and not excessive, and kept for no longer than is absolutely necessary and handled according to people’s data protection rights. I questioned the amount of information they required and after being told that the customer centre had no idea how the information was used, deleted or disposed of was asked to hang on again. I asked the chap to call me back. He called back after 10 minutes and said he had good news. I didn't have to have a form signed by the FA, I don't have to send a copy of my BC, Passport or driving licence and I had already sought advice and my age, address etc were already verified. He was going to send me a form which I had to sign to confirm my bank details for the money to be paid into. Phoenix Life have done nothing but make the last two months of my life a misery. They do not want you to have your own money. This in contrast with Scottish Amicable and Standard Life who were absolutely magnificent in sorting my other pension/insurance requirements.

Stevev99

Flyingmag - have you posted this incorrectly since as sorry as I am with all the palaver you went through reading your post, not sure it's at all relevant to my post!

tigerspill

Stevev99 wrote: »

Hello all,
I am in BT pension scheme C (have been for about 28 years) and planning ahead for retirement since have taken out a 20 year mortgage last year that I want to pay off in 15 years ideally.


Couple of questions. My idea is to invest in pension scheme AVC's for the next 15 years since as a 40% tax payer could invest £275 per month at a cost to me of around £165. I reckon I'll need about £55k to pay off mortgage 5 years early in 15 years.
Does that sound a credible idea?


Secondly, looking at the investment choices for the AVC's, what do people normally do? Spread them across all 4 or usually pick just the 1? Choices are based around Standard Life & Legal & General UK and Global funds. I'm not looking for specifics, just wondering what the normal approach usually is.


Many thanks, Steve.

I went for 50% in the L&G Global Equities fund and 50% in the SL money market fund. Cant remember the actual name but it wasn't the "with profits" one.
The Global Equities fund is UK skewed in that I think it is 50% UK and 50% non-UK global.

tigerspill

atush wrote: »

I persoanlly think Global is preferable to UK only as it is mroe diversified, but I dont know your 4 fund choices.

Your plan is a sound one, but do remember that only 25% of your AVC can be withdrawn Tax free (unless your AVCs can be used to fund the TFLS from your whole pension). If you have to take the rest taxed it could impact on the viability of your scheme.

With the BT pension, the AVC is considered part of the total pension pot as far as the TFLS 25% is concerned. So with 28 years service, it is likely the OP will be able to withdraw all the AVC tax free - subject to taking the AVC at the same time as starting to collect their DB pension.

Gadfium

Have a look on the intranet for the Pension Portal. It has a retirement planner that will allow you to play with the numbers. input what you think the AVC amount will be at retirement (put that number into the field marked "AVC Amount"). Leave the box marked "Lump Sum Required" blank.

The Planner will then give you three options:

1. Standard Benefits: This gives you the maximum annual pension with a small lump sum.
2. Maximum Tax-Free Cash: This gives you the the maximum lump sum which can be taken from the BTPS as a priority (you don't want to do this). The annual pension will be reduced.
3. Maximum Tax-Free Cash: This option takes the maximum tax-free cash lump sum from the AVCs. The annual pension should be the same or similar to Option 1, but you will have a much larger tax-free lump sum. Ideally, you want to balance it so the remaining AVC fund value is as low as possible.

I'd aslo advise putting the maximum into the DirectShare SIP as possible (if you aren't already doing this). This lets you buy £1800 of shares per annum direct from your wages before NI and tax. This means that £100 of shares will only cost you about £58 in real terms. Hold them for 5 years and you can sell them free of income and CGT tax (as long as you sell them from within the scheme). Once you sell them, pay the procedds into your AVC as a lump sum. The gubernmint will (assuming things stay as-is) give you 40% tax relief on the lump, 20% of which will be added into the AVC. The remainder will be refunded by an adjusted tax code.


This means that the £100 of shares will cost you £58. Then pay that £100 into your AVC and it will turn into £120. of course, if the shares go up in the meantime, you will get even more.


Regarding the fund type, I personally am in the Global Equity. I am 55 in 10 years time, so I'm happy to have the money in equities for that period as I am looking for maximum growth. As with all equities though, it's a certain gamble.

robin61

Stevev99 wrote: »

Hello all,
I am in BT pension scheme C (have been for about 28 years) and planning ahead for retirement since have taken out a 20 year mortgage last year that I want to pay off in 15 years ideally.


Couple of questions. My idea is to invest in pension scheme AVC's for the next 15 years since as a 40% tax payer could invest £275 per month at a cost to me of around £165. I reckon I'll need about £55k to pay off mortgage 5 years early in 15 years.
Does that sound a credible idea?


Secondly, looking at the investment choices for the AVC's, what do people normally do? Spread them across all 4 or usually pick just the 1? Choices are based around Standard Life & Legal & General UK and Global funds. I'm not looking for specifics, just wondering what the normal approach usually is.


Many thanks, Steve.

The AVC scheme is a really good deal. You get generous NI relief as well as income tax relief. If I was younger like you I would probably go with one of the funds you've mentioned. I am a lot closer to retirement than you so I invest in the Standard Life cash fund.

You'll be able to use the AVC to maximise your TFLS without reducing your monthly pension.

atush

tigerspill wrote: »

With the BT pension, the AVC is considered part of the total pension pot as far as the TFLS 25% is concerned. So with 28 years service, it is likely the OP will be able to withdraw all the AVC tax free - subject to taking the AVC at the same time as starting to collect their DB pension.

Thanks, got that from a previous post. Most DB plans dont allow this, but if you can get it, great.

Only problem is, if you do this, you cant take the pot at 55+ as it has to be taken same time as your DB pension. So if you want to retire early, with reductions of your DB pension, you still need to open a DC pension (being a Sipp or a PP) to access to cover the years in between.

Gadfium

atush wrote: »

Thanks, got that from a previous post. Most DB plans dont allow this, but if you can get it, great.

Only problem is, if you do this, you cant take the pot at 55+ as it has to be taken same time as your DB pension. So if you want to retire early, with reductions of your DB pension, you still need to open a DC pension (being a Sipp or a PP) to access to cover the years in between.

The BT Pension allows for early retirement before normal pension Age, but is subject to a an early payment reduction factor of approximately 6% for each year before NPA. Benefits accrued to 31st March 2009 have NPA of 60. Benefits accrued from 1st April 2009 have NPA of 65

The tax-free AVC lump sum will more than make up the difference.