Continue with AVC or Transfer to SIPP

Bravepants

Hello,

I wonder if I could please ask for a comment or two...

I have contributed to a Civil Service AVC since 2010, paying 10% of gross salary each month. I am in the 40% tax bracket so this level of contribution saves me tax.

The AVC is provided by Scottish Widows and I opted for the Cautious investment approach, which means I am invested in Scottish Widows Pension Portfolio 3. This is made of index tracker funds (which I have learned are great for the passive investor and low cost - infact Scottish Widows and Civil Service have a special low rate). According to Trustnet this seems to be performing very well (at the moment!).

The transfer value of my fund currently stands at about £52.6k. The AVC is not linked to my main occupational pension, and I can take its benefits separately from the age of 55. I am currently 48. The AVC is subject to the new pension freedoms, which means I can take the benefits in various ways from 55, including drawdown, cash transfer to another provider etc.

I have heard in other threads that AVCs are obsolete now and that I might be better transferring it to a SIPP. I would probably invest in something like Vanguard Life Strategy 60% if I did, as I have heard good things about this, especially auto-rebalancing, index trackers etc. I am slowly moving over to VGLS 60 in my ISA.

I am yet to research whether I can invest in the same portfolio of index trackers as in the Scottish Widows fund.

Given the above, what really would be the benefits of my transferring my AVC to a SIPP?

Kind regards,
Paul

AlanP_2

AVCs have become less useful to many employees than they were with the advent of low cost consumer platforms for unit trusts and the like as well as the pension freedoms and the reduction in the number of Defined Benefit schemes offered by employers.

If you have an employer Defined Contribution scheme why would you wand an AVC?

Some DB schemes, for example Local Gov, had (until the 2014 changes) the benefit that the associated AVC pot could be used to fund the 25% tax free lump sum of ((Annual DB pension *20) + AVC Pot).

For a lot of people this means the AVC pot will be taken entirely tax free and they have no need to commute any of their annual pension into a lump sum.

Disadvantage is that it is tied to main pension (at the moment) and needs to be started / taken at same time so less flexibility.

From what you have said neither of these links apply to you so essentially I guess it comes down to the availability of your preferred underlying investments and the relative costs of doing through employer's chosen provider (SW) or one of the DIY platforms.

The Civil Service low rate may be better than a standalone DIY option.