Prudential AVC / LGPS

AlanP_2

Your AVC contributions are invested in whichever of the Prudential funds on offer you choose.

Like all stock market / equity / bond investments they can go down in value although historically they have gone up over time.

Depending on when you want to take your LGPS you have between 4 years (if at 60) to 11 years (if at 67) for your AVC to grow. If you expect it to be nearer 4 years invest in a "lower volatility" option, if nearer 11 you can be a bit more aggressive if you want to be.

Have you worked out what income / cash lump sum you want, when over the retirement period?

If you don't need "growth" on the AVC fund just go for a near-cash (money market maybe?) option and take the tax saved as a bonus with minimal growth (possibly even losing out to inflation).

EP456

Hi AlanP - many thanks for your reply.

I need to do an in depth budget plan but ideally I would prefer to take the lump sums from both pensions and retire when I reach 60, unless there was a significant gain in deferring the LGPS one.

AVCs sound appealing, and so I think I will go ahead with this.

Many thanks again

AlanP_2

If you want to take the LGPS AVC as your tax free lump sum it must be taken at the same time as the main LGPS pension.

PoorPaul

AlanP wrote: »

Your AVC contributions are invested in whichever of the Prudential funds on offer you choose.
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If you expect it to be nearer 4 years invest in a "lower volatility" option, if nearer 11 you can be a bit more aggressive if you want to be.

Presumably the same rule of thumb applies to an existing AVC fund too? e.g. If my AVC is all in a higher risk fund, and I wish to take it as a lump sum in 5 years time, I should consider moving it to a lower risk fund soon-ish to protect it somewhat? New money going into the AVC could still be invested in a higher risk fund I guess to give a bit of balance?

OldBeanz

PoorPaul wrote: »

Presumably the same rule of thumb applies to an existing AVC fund too? e.g. If my AVC is all in a higher risk fund, and I wish to take it as a lump sum in 5 years time, I should consider moving it to a lower risk fund soon-ish to protect it somewhat? New money going into the AVC could still be invested in a higher risk fund I guess to give a bit of balance?

You should de-risk as you come to spend the money. So if you have no short - medium term plans for the money de-risking is leaving you open to losing out to inflation and profit. Selling then re-investing at the bottom of the market is not an issue.

AlanP_2

PoorPaul wrote: »

Presumably the same rule of thumb applies to an existing AVC fund too? e.g. If my AVC is all in a higher risk fund, and I wish to take it as a lump sum in 5 years time, I should consider moving it to a lower risk fund soon-ish to protect it somewhat? New money going into the AVC could still be invested in a higher risk fund I guess to give a bit of balance?

Intuitively that feels right doesn't it? As OldBeanz says however if all you are going to do is move it from LGPS AVC fund ABC to same / equivalent fund on HL or AJ Bell for 10-30 years then what's the point of de-risking?

My AVC was started later and is much smaller than my wife's (as she is HR taxpayer) and we plan on spending mine quite quickly after receipt whilst hers is intended to be for the longer term so different strategies for each of us.

PoorPaul

AlanP wrote: »

Intuitively that feels right doesn't it? As OldBeanz says however if all you are going to do is move it from LGPS AVC fund ABC to same / equivalent fund on HL or AJ Bell for 10-30 years then what's the point of de-risking?

My AVC was started later and is much smaller than my wife's (as she is HR taxpayer) and we plan on spending mine quite quickly after receipt whilst hers is intended to be for the longer term so different strategies for each of us.

Thanks, for the reply.
Rather than moving to a different provider, I actually meant the various options to choose from within the Pru AVC itself.
I understand my AVC is currently all in the 'Prudential UK Equity fund' which must have been the default option when taking it out, and its not been changed since.
The Pru classes this as a "Higher Risk" fund - it lists 2 others in this category, along with 2 options of "Medium to Higher Risk", 4 options of "Medium Risk", 2 options of "Lower to Medium Risk" and 1 of "Minimal Risk" !!
And there was me thinking an AVC was an AVC.... clearly not that easy :undecided

OldBeanz

Your risk appetite should depend on how much money you have and when you intend to spend it. If you are going to use the money to pay off a mortgage and you have no other cash then you want to be in minimal risk. On the other hand if you have no plans for the money and have money in low risk/gain eg the bank then you can have a higher risk attitude. There is also your optimism/pessimism outlook on life. If going for 5 years you could invest in a progressively lower risk fund each year.