AVC? Pay in or just save instead.

cdbhel

Hello, hoping someone can help with this. My husband is now 52 and has a final salary pension which he hopes to take early (likely after redundancy in 3 or 4 years). He has been paying in for 28 years. In light of planning to take his pension at 55 ish should he pay AVCs now, is this of a benefit or should we continue just saving to help out in retirement? We do not know whether this would be a good thing to do or not but obviously need to maximise his pension as much as we can and have some money that could be invested this way at the moment. I guess that he will take his maximum lump sum at retirement and then whatever pension is offered according to his final age when he takes this. It will not be enough to live on by any stretch of the imagination but he was thinking of working part-time to top up his income. Thanks for any advice.

greenglide

It will not be enough to live on by any stretch of the imagination

Then why do you say " he will take his maximum lump sum at retirement"?

Taking "optional" lump sums is often a seriously bad idea.

Does the pension scheme have an "automatic" lump sum or are all the lump sum amounts paid by reducing the pension payments?

Can the AVCs be used to fund a lump sum without reducing the pension? Is is then AVCs can be an excellent idea, especially if the pension contributions are paid by salary sacrifice, otherwise the link between the AVC and the main scheme can be a hindrance.

robin61

greenglide wrote: »

Can the AVCs be used to fund a lump sum without reducing the pension? Is is then AVCs can be an excellent idea, especially if the pension contributions are paid by salary sacrifice, otherwise the link between the AVC and the main scheme can be a hindrance.

Yes if the AVC works like this he will get the benefit of both income tax and National Insurance relief. Not to be sneezed at.

jamesd

What happens with the AVCs is the key thing here. What can he do with them? Particularly important is if they are allowed to be used to fund the 25% tax free lump sum from the whole pension pot value, including the defined benefit part.

Pension is good but the AVCs might be better or worse than a personal pension set up independently from work, depending on just what they allow.

Mr.Generous

avc much much better than a private pension - and unless he has 2 incomes he cant get one anyway. Show me a private pension with zero fees. AVC far better paid into when you are young, but better late than never. They can be used towards the tax free lump sum. IMO take the max lump sum you can - you don't know how long your going to live and it takes a good few years to even out.

jamesd

Mr.Generous wrote: »

AVC ... can be used towards the tax free lump sum.

Only for some schemes. That's why it's necessary to check for this one.

AVCs aren't free of charges either and might come with restrictions that a private pension doesn't have.

Those two things mean it's necessary first to find out what the AVC allows before making a decision. Pension yes, definitely, but AVCs or not need more info.

LHW99

Would you be able to live on the redundancy payment + part time earnings for a few years?
That could reduce the number of years before NPA that he draws the main pension and could thereby lessen the actuarial reduction.

cdbhel

Thanks all - need to read all your replies and do some digging about the AVC rules.

AlanP_2

If you tell us what the scheme is there may well be someone on here who knows it and can offer useful comment.

AlanP_2

Mr.Generous wrote: »

avc much much better than a private pension - and unless he has 2 incomes he cant get one anyway.

Why not? Plenty of people have a combination of FS scheme(s), AVC pot(s) and Private Pension pots(s).

robin61

AlanP wrote: »

Why not? Plenty of people have a combination of FS scheme(s), AVC pot(s) and Private Pension pots(s).

Yes me. I have a DB scheme with an AVC linked to it which will fund the maximum PCLS when I take the DB scheme. It isn' t a great idea to put much more than this amount into the AVC as there are restrictions on what you can do with any residual AVC fund.
I am also paying into a SIPP and can use that to live on while deferring my DB scheme to normal retirement age if I retire early. If I don' t then it will provide a nice extra pension and also helps shield some of my money from IHT hopefully providing my daughter with a pension.

Having a combination gives you some nice options.