AVC's

LULULU1

I am basically in the same position as many here in the similar AVC schemes. I work for royal mail.

So are we saying that for the last couple of years before I retire i would be better off putting most of my salary into my AVC (up to the limits and terms mentioned earlier) and as long as i have other savings to live from. Also ensuring my AVC doesn't go over 20% of my total scheme.

This would avoid me paying tax and national insurance on most of my salary as I would save this in the AVC. Is that basically it.

Many thanks for any help

So

robin61

LULULU1 wrote: »

I am basically in the same position as many here in the similar AVC schemes. I work for royal mail.

So are we saying that for the last couple of years before I retire i would be better off putting most of my salary into my AVC (up to the limits and terms mentioned earlier) and as long as i have other savings to live from. Also ensuring my AVC doesn't go over 20% of my total scheme.

This would avoid me paying tax and national insurance on most of my salary as I would save this in the AVC. Is that basically it.

Many thanks for any help

So

AVCs which are linked to Defined Benefit pension schemes can be really attractive as they can be used to purchase a tax free pension commencement lump sum on retirement without having to reduce the amount of your pension to do this. The maximum lump sum you can get tax free is 25% of the total value of your pension.

If you pay in via a salary sacrifice method you will get 20% tax relief and 12% NI relief if you pay basic rate tax. You won' t be able to pay all of your salary in as the employer still has to pay you minimum wage at least. And anyway you don' t pay tax on the first £11k so no advantage in doing that.

Waiting for the last couple of years might not be the best idea. The rules might change and if they do you have missed out. If you are a 40% taxpayer you might want to do it over a longer period and maximise the amount of tax relief at the higher rate. And anyway you need money to live off during the last couple of years. Could you fund extreme salary sacrifice?

So I would check to see how your scheme works to see if you get all of these advantages.
Reducing your salary like this can also help you to qualify for things like child benefit, child and working tax credits.