Retirement Planning - AVCs or LISA

McCreary

Hello,

I am in a position where I am able to save a little bit more per month for my retirement as I do not plan on working until I am 68 which is the retirement age I have been given!

I am part of the Teachers’ Pension Scheme and have been for 12 years. Due to the changes to the scheme I have two parts to my pension - a small part of my pension that is final salary which has a retirement age of 65 and the rest is career average which has a retirement age of 68. As I mentioned, I don’t plan on working until my retirement age and plan on retiring at 60 at the latest.

I have the option of taking of taking an AVC through Prudential which will involve salary sacrifice. I’ve been through the website and it says it’s an investment account so could get less than I put in. I believe I would get 20% back and would be able to take from 55. However, this income would be taxable when I take it.

Another option because of my age (32) is to get a Lifetime ISA which I would get the 25% government bonus as well as any interest he LISA makes. I would be able to take it as a tax-free lump sum at the age of 60. I would go with a Cash LISA as I prefer to not have the risk.

I not currently a higher rate tax payer, although I will probably reach the limit over the next few years and end up paying the higher tax rate. I plan on saving an additional £100 per month in either a LISA or AVC but I will be completely honest in the fact that I know little about this and hope that you could offer some advice.

I’m happy to provide more information if required.

Thanks in advance!

Brynsam

Open a LISA (even if with only £1) just to make sure you do so while you are still eligible - you may have nearly 8 years to go under current legislation, but no harm making such a modest investment while you ponder.

You say you would 'go with a cash LISA as [you] prefer not to have the risk'. Presumably you mean risk of losing your capital - but that approach exposes you to other risks which are potentially at least, if not more, damaging - inflation risk being one of them. Given the length of time between now and retirement, you could end up seriously out of pocket.

Why not put £50 in an AVC and £50 in a LISA each month and see how the respective funds perform/how you feel about them? You can always change the amount/split going forward.

Zorillo

I'd try to make a concerted effort to learn about investment risk, you may kick yourself in 28 years time if you languish in a cash LISA.

dunstonh

Retirement Planning - AVCs or LISA

Why just those two options?
Why not stakeholder, personal pension, SIPP or S&S ISA or combination?

Just wondering why you have eliminated other options just for those two.

FIRSTTIMER

Very similar to yourself and similar age.

I have done Faster Accrual at the highest rate and 3 Year Buy Out for TPS. This equates to approx £1k per annum going into my pension pot in todays money. Plan to do this for the next 20-25 years or until I have totally maxed out all possibilities of paying any more into TPS voluntarily with its £6800 limit.

I have now also opened a SIPP with H&L paying £100 in per month and will probably do a LISA with £100 a month in next couple of years too. (So £250 going in per month with tax relief).

I plan to retire early, circa as early as possible around 58-60. I will use the SIPP and LISA to live on until I can draw TPS aged 65. I do not plan to over pay mortgage at all. In dire emergency I have income protection and life insurance fixed until aged 65 in case of ill or something serious.

I am also lucky that I have an old defined benefit pension which is now closed from a previous company with a CETV value of around £75k currently, hopefully that will be around £100k plus when I want to go, will also use this and drawdown between 58-65. Been getting yearly values of CETV for past 4 years and the value seems to increase around £3-4k yearly.

McCreary

dunstonh wrote: »

Why just those two options?
Why not stakeholder, personal pension, SIPP or S&S ISA or combination?

Just wondering why you have eliminated other options just for those two.

Those are the only two options that I have come across. We had a pension seminar at work and AVCs were mentioned. I will admit this is all very new to me.

McCreary

Brynsam wrote: »

Open a LISA (even if with only £1) just to make sure you do so while you are still eligible - you may have nearly 8 years to go under current legislation, but no harm making such a modest investment while you ponder.

You say you would 'go with a cash LISA as [you] prefer not to have the risk'. Presumably you mean risk of losing your capital - but that approach exposes you to other risks which are potentially at least, if not more, damaging - inflation risk being one of them. Given the length of time between now and retirement, you could end up seriously out of pocket.

Why not put £50 in an AVC and £50 in a LISA each month and see how the respective funds perform/how you feel about them? You can always change the amount/split going forward.

I’ve never done anything involving investment and have known people who have had poor results with AVCs i.e. barely getting back what they have put in. I know this isn’t the case put it put me off. Although, I know very little about them so happy to be advised or told otherwise.

McCreary

FIRSTTIMER wrote: »

Very similar to yourself and similar age.

I have done Faster Accrual at the highest rate and 3 Year Buy Out for TPS. This equates to approx £1k per annum going into my pension pot in todays money. Plan to do this for the next 20-25 years or until I have totally maxed out all possibilities of paying any more into TPS voluntarily with its £6800 limit.

I have now also opened a SIPP with H&L paying £100 in per month and will probably do a LISA with £100 a month in next couple of years too. (So £250 going in per month with tax relief).

I plan to retire early, circa as early as possible around 58-60. I will use the SIPP and LISA to live on until I can draw TPS aged 65. I do not plan to over pay mortgage at all. In dire emergency I have income protection and life insurance fixed until aged 65 in case of ill or something serious.

I am also lucky that I have an old defined benefit pension which is now closed from a previous company with a CETV value of around £75k currently, hopefully that will be around £100k plus when I want to go, will also use this and drawdown between 58-65. Been getting yearly values of CETV for past 4 years and the value seems to increase around £3-4k yearly.

That all sounds very impressive and I will admit a lot of it went over my head. Wasn’t aware of Faster Accural so may explore that. Interesting that you have not gone with an AVC - can I ask why?

dunstonh

We had a pension seminar at work and AVCs were mentioned.

Held or sponsored by the provider of the AVC by any chance?

McCreary

dunstonh wrote: »

Held or sponsored by the provider of the AVC by any chance?

They said they were independent!

FIRSTTIMER

I havnt technically done AVC with TPS

Buy Out = So I can go 3 years early with no reduction

Faster Accrual = Started doing 1/45 because can afford to and also want to get the maximum TPS defined scheme benefit I can.

LISA/SIPP - £250 a month = I want some cash so I can stop working between 58-65 and potentially not have so much lump sum from TPS

Old Defined Scheme £100k = another cash lump/drawdown. So can have more salary on TPS instead of more lump sum. Depending on what’s best.