Avc's

garrob

looking for some advice regarding avc's.
I have been paying avc's alongside my works DC pension. I pay£150 per month since April 2016, my DC contribution is 10% from me and 15% from my work. I have a final salary pension worth £260,000 with the same company as they stopped it in 2016 and put us on a DC one instead.
Should I stick to paying avc's? or is there a more beneficial way to use that £150.
How do the avc's get paid when you decide to retire?
I am 59 on February 2019 and was hoping to retire around 62/63.
My wife is working full time as a civil servant. I have no mortgage and 2 teenagers aged 16 and 15.
Thanks in advance.

dunstonh

AVCs largely went obsolete in 2006. Occupational pensions were no longer required to offer them after that date and retail pensions were starting to come in cheaper than AVCs and offer greater functionality and investment choice. So, in most cases, it was really only if the AVC allowed the payment of the tax free cash from the main scheme to be taken from it that made an AVC the best option.

Should I stick to paying avc's? or is there a more beneficial way to use that £150.

If the AVC is the best option then use it. if its not then use the alternative.

How do the avc's get paid when you decide to retire?

Depends on the AVC. There are some hybrid workplace schemes, particularly in the public sector, which are not AVCs as such but can be taken under pension rules.

If you want drawdown, then its likely it means transferring out when you get to retirement.

garrob

Thanks for that Dunstonh. Still not any of the wiser.

xylophone

What is scheme pension age for your DB pension (or the age at which you can take it without actuarial reduction if different?

You say that you are making AVCs to your DC pension.

Do you mean simply that you are contributing more than is required just to get the maximum employer's contribution?

Are you permitted to use the AVC pension against your DB scheme PCLS?

Have you and your wife checked your state pension situation?

https://www.gov.uk/check-state-pension

greatkingrat

Are you sure it is a separate scheme? If the scheme is now DC, then it is likely all the contributions end up in the same pot.

garrob

Many thanks for all your replies, I really appreciate it. The DB pension is closed and we can't contribute any more to it.
I am paying £150 pounds to boost the amount of money I will have when I retire.
I will get the full gov pension and my wife too.

MallyGirl

It gets confusing as AVCs mean something very specific to some people - like Dunstonh. My DC pensions scheme just calls 'anything extra I pay in over the 5% that gets me 10% from the employer' an AVC. It all goes in to the same DC pot and is allocated to whatever choices of investment you have made.
If your DC scheme is like mine then you just look at the overall pot at the time of retirement. As to whether you should carry on paying - you need to look at how much you need to live on / enjoy retirement. You need to factor in needing to fund all of this from the DC until the DB and state pensions kick in. That is step 1 and will tell you if you should have enough to do this. It will depend on when your DB pension pays out and what you will get. Lots of questions need to be answered before anyone can comment really.

dunstonh

Its a good point. An AVC is a product under pensions legislation. My comments reflect that.

garrob

Thank you for all the pointers - greatly appreciated. I have for some time been thinking about transferring my DB pension out. The scheme has stopped - has been for 2 years and no contributions have gone in since then. My idea of transferring was to try and gain some extra money for my retirement, because it is just sitting in a fund not making any investment. Would I be right in saying that?
I am aged 59 on Feb and was hoping to retire around 62/63. am I too late to increase this pot if I transfer out? I have been paying into my works DC pension with an average £1000 per month going in that - mine and works contribution, plus £150 per month AVC'S. I will get the full state pension at 66. Looking for some pointers as I am slowly learning about pensions and have been reading a lot of posts, blogs etc to try and gain more information. Thanks again

Alexland

MallyGirl wrote: »

It gets confusing as AVCs mean something very specific to some people - like Dunstonh. My DC pensions scheme just calls 'anything extra I pay in over the 5% that gets me 10% from the employer' an AVC. It all goes in to the same DC pot and is allocated to whatever choices of investment you have made.

My workplace pension also considers anything above their minimum to be an AVC however with salary swap they switched us all to ASCs a few years ago. We can change our AVCs at any time but can only change our ASCs once a year, when bonuses are due or on a qualifying life event.

Alex

Alexland

garrob wrote: »

I have for some time been thinking about transferring my DB pension out. The scheme has stopped - has been for 2 years and no contributions have gone in since then. My idea of transferring was to try and gain some extra money for my retirement, because it is just sitting in a fund not making any investment. Would I be right in saying that?

Your DB contributions are not just sitting there they are actively working trying to generate sufficient inflation linked return for the defined benefit your scheme has promised you.

The main advantage of your DB scheme is that it is guaranteed income (above state pension) for the rest of your life regardless of how your investments perform or how long you live. You are very fortunate to have such a pension so think very carefully before taking any steps to change it.

Alex