AVC Wise

chriswa1

Hi
My employer (a local government authority in Wales) is offering a new AVC scheme via its current provider (Prudential) in April 2018, that we will all be auto enrolled into unless we opt out.

https://www.avcwise.co.uk/ gives details of the new salary sacrifice arrangements. We've been informed by an independent company and our payroll department, that for the vast majority (ie average income, not due to go on maternity leave), there are only benefits for joining.

Like many I joined the scheme prior to some changes in 2014.

For some reason Prudential have been asked to give a presentation after the auto-enrolment date. I also note that the trade unions have been silent regarding the changes. I also note very few authorities have entered into these arrangements. This all makes me and many colleagues rather sceptical, as if the AVC Wise scheme is good for employees and employers, I'd expect there to be more positive publicity.

Does anyone know of any potential disadvantages to the average employee? E.g. a delay in receiving benefits or not being able to take 100% of monies as a tax free lump sum?

Many thanks

Brynsam

The AVCWise website gives you a button to click for more info - maybe try that for your specific queries about delay in receiving benefits/taking them as 100% tax free lump sum.

chriswa1

Brynsam wrote: »

The AVCWise website gives you a button to click for more info - maybe try that for your specific queries about delay in receiving benefits/taking them as 100% tax free lump sum.

Thanks for your advice. I'm keen to obtain an independent answer.

Brynsam

chriswa1 wrote: »

Thanks for your advice. I'm keen to obtain an independent answer.

Completely understand that you would prefer independent opinions, but where you are looking for facts, independence is irrelevant. The 'help' facility should do the trick perfectly - just get them to confirm the answer in writing. You can rely on that, whereas a stranger's reply on an Internet forum doesn't bind AVCWise to anything.

hyubh

chriswa1 wrote: »

My employer (a local government authority in Wales) is offering a new AVC scheme via its current provider (Prudential) in April 2018, that we will all be auto enrolled into unless we opt out.

To be honest, your wording is a bit confused - you are auto-enrolled into the main LGPS scheme, not an AVC, which is an optional extra. Presumably your LGPS fund is changing its default AVC offering, and has agreed with the provider to automatically switch current open AVC contracts to it unless the AVC holder opts out.

I take it you do currently contribute to an AVC...?

For some reason Prudential have been asked to give a presentation after the auto-enrolment date.

An AVC provider wishing to sell their wares isn't unusual.

I also note that the trade unions have been silent regarding the changes.

Changes to main LGPS scheme - a big deal. Changes to one fund's LGPS provider? Not particularly.

I also note very few authorities have entered into these arrangements. This all makes me and many colleagues rather sceptical, as if the AVC Wise scheme is good for employees and employers, I'd expect there to be more positive publicity.

Browsing the website you linked to, it strikes me as a bit of a clever wheeze (which isn't to say the offering is wrong, or that it is bad for employee or employer). Ordinarily, 'Shared Cost' AVCs (i.e. AVCs where the employer pays at least part of the contributions) are very rare; further, salary sacrifice arrangements are practically unknown in the LGPS (it's moderately common for private sector DC schemes).

For an LGPS member with an AVC, paying for it under salary sacrifice terms would usually be preferable though, as it would lead to them paying a lower amount of National Insurance than otherwise. So, this AVC Wise outfit have the 'genius' idea of misusing the concept of a SCAVC to facilitate this.

Does anyone know of any potential disadvantages to the average employee? E.g. a delay in receiving benefits or not being able to take 100% of monies as a tax free lump sum?

The boundaries of what you can do with an LGPS AVC are fixed by the scheme regulations. Insofar as you can treat scheme pension and AVC as one for PCLS purposes (this benefit was supposed to disappear for new AVCs taken out under the CARE scheme, but the wording in the regulations was screwed up), this will stand irrespective of AVC provider.

chriswa1

Thanks Hyubh.

Current members of the AVC scheme will be auto-enrolled into the new arrangements, unless the opt out.

I intend opting out until the Prudential are willing to confirm there is no detriment. Its a shame they couldn't have made a presentation in advance of the new arrangements coming into place.

hyubh

chriswa1 wrote: »

Current members of the AVC scheme will be auto-enrolled into the new arrangements, unless the opt out.

OK, but 'auto-enrolled' nowadays has a technical meaning in pensions. From what you've said, you're being automatically transferred to the new plan, not enrolled.

I intend opting out until the Prudential are willing to confirm there is no detriment.

What exactly are you concerned about? It's a legal tax dodge, crudely put. Googling, the SCAVC wheeze seems looks to be getting more traction than I'd thought (the Prudential has to get employers not the pension funds on board, since SCAVCs are an employer discretion that the administering authority has no say on):

Dundee City Council: https://www.dundeecity.gov.uk/reports/reports/329-2016.pdf

Fife Council:
https://www.fifedirect.org.uk/topics/index.cfm?fuseaction=page.display&p2sid=313C473C-C357-3386-96140836979E4CF8&themeid=CF1A6730-CD2E-2956-93489E941E29AD03

Portsmouth City Council:
http://democracy.portsmouth.gov.uk/documents/s11335/AVC%20Salary%20Sacrifice%20Final%20Report%20to%20EC.pdf

Its a shame they couldn't have made a presentation in advance of the new arrangements coming into place.

Presumably you've had this booklet at least...?

https://www.eastsussex.gov.uk/media/9453/5-lgps-employer-forum-pack-prudential-for-east-sussex-31117-final.pdf

AVCs done via salary sacrifice on top of 1/49 CARE seems on the face of it quite outrageous from a general taxpayer point of view! So unless you have more specific concerns, in your position I'd be included to make hay while the sun shines.

AlanP_2

My wife and I are in the LGPS and I would be wary of paying in via Salary Sacrifice because:

• Pre-2014 Service - The DB benefit is against FINAL SALARY
• Redundancy - Based on SALARY
• Ill Health Retirement - Based on SALARY
• Death In Service Benefit - Based on SALARY

If you SS are you impacting on the actual / potential value of these?

chriswa1

AlanP wrote: »

My wife and I are in the LGPS and I would be wary of paying in via Salary Sacrifice because:

• Pre-2014 Service - The DB benefit is against FINAL SALARY
• Redundancy - Based on SALARY
• Ill Health Retirement - Based on SALARY
• Death In Service Benefit - Based on SALARY

If you SS are you impacting on the actual / potential value of these?

Many thanks. I've seen confirmation that redundancy won't be affected as they'll base that on your pre-salary sacrifice salary, but I'll have to check out the other matters.

hyubh

chriswa1 wrote: »

Many thanks. I've seen confirmation that redundancy won't be affected as they'll base that on your pre-salary sacrifice salary, but I'll have to check out the other matters.

Have you got (written) confirmation from the main scheme administrator? On reflection, there does seem to be a risk that somewhere down the line this misuse of SCAVCs is banned, and on the basis that it was always contrary to the rules in the first place. Perhaps this is not a likely happening, but I wouldn't just take the AVC provider's word for it. (Caveat: if I was the pension manager, I'd refuse to give any reassurance, for the same reason I'm suggesting you get it!)

chriswa1

hyubh wrote: »

Have you got (written) confirmation from the main scheme administrator? On reflection, there does seem to be a risk that somewhere down the line this misuse of SCAVCs is banned, and on the basis that it was always contrary to the rules in the first place. Perhaps this is not a likely happening, but I wouldn't just take the AVC provider's word for it. (Caveat: if I was the pension manager, I'd refuse to give any reassurance, for the same reason I'm suggesting you get it!)

We've had no such assurances, and it had dawned on me there could be a problem if there was a ban on such schemes. Indeed there's been either talk of or actual changes to salary sacrifice schemes generally. I've decided not to join the scheme for now. I don't use it significantly and don't intend to for at least another 10 years, by which time hopefully it would be clear if there are any potential problems or we have had satisfactory confirmation in relation to the scheme.