Teachers AVC

tony4147

My wife is in the teachers pension scheme. For the last 4 years she has being paying £100/month AVC's which is with the Pru.
I don't know how this works but every year she gets a statement and this year the £1200 she has paid in has grown by £25, and this is no different than other years where the performance is poor.
I'm not sure if she selected funds when she started the AVC of whether she just went into the default funds but as far as I'm concerned the performace is very very poor.
As she is now 55 she wants to increase her contribution to £300 / month, but to me it looks like throwing good money after bad.

marlot

Removed, as I'm advised the AVC is not linked to the main pension - so my advice was wrong.

chucknorris

I much prefer buying additional pension in the TPC, I have bought the max allowed in the old pre-2015 scheme. I can start to buy more in the post 2015 scheme when I join it in Aug 2020, and if I am still working I definitely will buy as much as I can.

I have enough other investments relying upon performance, which is one of the reasons that I particularly like the generous additional pension purchase.

Fermion

My wife was in the same situation about 10 years ago. She decided to transfer the Pru AVCs into a SIPP with HL and to continue making regular payments into the SIPP. She is pleased that she moved into a SIPP. She drew her Teachers Pension 2 years ago but has not gone into Drawdown with her SIPP yet.

Having said that, she had Unit Trust based AVCs with the Pru - not sure if your wife has somehow got a "With profits" AVC policy.

jem16

marlot wrote: »

It could be a very wise move to continue to pay into the AVC, as I believe they are regarded as linked.

They're not linked in the Teachers' pension scheme.

tony4147

chucknorris wrote: »

I much prefer buying additional pension in the TPC, I have bought the max allowed in the old pre-2015 scheme. I can start to buy more in the post 2015 scheme when I join it in Aug 2020, and if I am still working I definitely will buy as much as I can.

I have enough other investments relying upon performance, which is one of the reasons that I particularly like the generous additional pension purchase.

It would cost my wife £85 / month for 5 years to get another £250 / year pension, not sure if that is worth it.

jamesd

She is now entitled to take a quarter of her pay on top of her personal allowance tax free...

Since she's now 55 or older she can pay into a personal pension, get the tax relief, take out 25% of the total as a tax free lump sum and leave the remaining 75% in a flexible drawdown pot untouched until she stops working. The effect is that if she pays in all of her taxable pay she gets to take out a quarter tax free and leave the rest for later.

If you have the savings to live on while doing this it can be lucrative.

There are two caps to annual pension contributions:

1. gross pay. No tax relief for paying in more than this. It is irrelevant whether the money being paid in is within the income tax personal allowance or not, it still qualifies for the relief.

2. the annual allowance of £40,000 a year, includes the value of employer contributions to any pension. For defined benefit the employer can tell you the value. Unused allowance from the last three years can be carried forward if you go over 40k.

The TPS AVCs probably don't allow putting money into drawdown like this.

Legally avoiding tax on a lot of pay is usually an excellent use of savings.

There are limits on recycling pension tax free lump sums into pension contributions for the same person. To reduce the potential for issues with this make most of the pension contributions monthly at an amount up to net pay before tax relief so it's easy to show HMRC that it's obvious that pay is funding the contributions. The easiest to follow recycling rule limits other than this are:

A. £7,500 of tax free lump sum per rolling twelve month period, not tax year.
B. Unlimited if the lump sum is from another person's pension. So you could have a tax free lump sum from one of your pensions paid into a bank account in your name and give it to her to use for pension contributions. The next tax year she can do the same for you, just be sure it doesn't look like obvious mutual gifts to evade the rules, different tax years is not law, just managing appearance.

It's really best to consider the whole house hold income, savings and work for this sort of planning so we can optimise for the whole household not just one person.

marlot

jem16 wrote: »

They're not linked in the Teachers' pension scheme.

Happy to stand corrected. I've just checked my wife's and can find nothing about them being linked.

Fermion

They are not linked TPS but they used to be marketed in TPS literature as an easy way to enhance your TPS via a separate Pru AVC

tigerspill

I looked at AVCs for my wife in the TPS.
The bit I couldn't work out is why because as far as I can see, this is not done by salter sacrifice hence you only save the tax and nit the NI. So would a SIPP not be better where we can choose a better set of funds?
Or have I got something wrong?

Fermion

3. In SIPP do people need to do tax self assemenet exercise ? Why is it better to transfer from Prudential AVC to SIPP Is it because the AVC in prudential performance is doing bad ?

Tax self assessment is not necessary unless you are a higher rate tax payer; the 20% relief is credited to a SIPP account 6-11 weeks after the nett investment.

There are a number of advantages of a SIPP compared to a Pru AVC:-
1. Lower charges for a SIPP
2. Pru AVC only has a very limited choice of funds
3. SIPP buy and sell transactions can be performed at a time to suit the client (normally within 24 hours), Pru AVC transaction take often weeks to be processed and the value of funds can rise and fall dramatically during that period.
4. Most SIPP providers have good online tools allowing self management of the SIPP - the Pru AVCs didn't used to provide this (they may have changed but I doubt it!)