Is it worth paying AVCs into work pension, I am 53?

Charlotte456

I already make 5% contribution to my company pension (DC Scheme) and my employer makes a 10% contribution. As I am a basic rate taxpayer, I am wondering whether it is worth making AVCs into the company pension at my age?

Thanks for any advice.

PeacefulWaters

The more you put in, the more you get out.

Thrugelmir

Will you reach your desired level of retirement income based on making contributions at the current level?

In life. There's no such thing as a free lunch.

Andy_L

Unless the employer has negotiated a discount from the AVC provider then it is unlikely to offer any advantage, other than convenience, over an extra personal pension.

As peaceful waters says the more you put in, the more you get out. The question is would the more you put in be best as more pension or or other investments such as an ISA. There are numerous threads on that question, the short answer is "a bit if both" but the precise mix is very sensitive to your circumstance.

tigerspill

If your employer offers salary sacrifice, then yes, it may be worth it as you will save NIC as well as tax.

Bravepants

I think the main concern about AVCs is how much tax you save, and what funds the AVC invests in. If you are a higher rate tax payer (40%+) AVCs make sense, however if you are a lower rate (20%) you may not benefit that much. See this for example, which demonstrates the tax equivalance between ISA and AVC for a 20% tax rate payer:

http://monevator.com/pensions-versus-isas/

However, if your AVC allows you to take a 25% tax free lump sum out of it, so effectively making your tax rate 15% in drawdown for the AVC, then it is probably worth doing for the 5% tax saving. Another "however" is that you could probably achieve the same 15% tax rate with a SIPP and choose the investment funds yourself.

Another benefit of an AVC or SIPP is that once you have put the money in it is locked away until you are 55, so negates the ability (and temptation) to spend it before you need it!

Number75

In my company scheme, you cannot take your AVCs until you take your main pension.

In my case, I wanted my AVC saving to fund years BEFORE I took my main pension. So a completely separate private personal pension was a better option.

greenglide

In my company scheme, you cannot take your AVCs until you take your main pension.

This OP is talking about a DC scheme so these aren't "proper" AVCs.

It is entirely possible that the contributions are invested in the same funds as the rest of the scheme. Since there is no DB scheme their isn't the same concept of "main pension".

tigerspill

Number75 wrote: »

In my company scheme, you cannot take your AVCs until you take your main pension.

In my case, I wanted my AVC saving to fund years BEFORE I took my main pension. So a completely separate private personal pension was a better option.

My company is the same (I am guessing we are in the same company). If so, the big benefit go linking the two is that the 25% TFLS is based on the FULL pension value and not just the DC part. This plays a huge part in my calculations as it means that all my AVCs will be paid tax free.

Number75

Thanks for the correction greenglide! I re-read and OP did say DC - I got distracted by them also saying AVCs!