Personal pension vs AVC contributions

Cf131

I am 31 years old and currently contribute 6.10% of my salary (£29k) to my workplace pension. This will increase to 8.5% in this new tax year.

I have just received a 6.5% pay rise which I want to put into my pension pot.

My workplace pension has an AVC scheme (standard life or prudential are the providers), however I am not sure if this is the best option, or if I should open a separate personal pension instead.

Any advice would be greatly appreciated.

cloud_dog

Cf131 wrote: »

I am 31 years old and currently contribute 6.10% of my salary (£29k) to my workplace pension. This will increase to 8.5% in this new tax year.

I have just received a 6.5% pay rise which I want to put into my pension pot.

My workplace pension has an AVC scheme (standard life or prudential are the providers), however I am not sure if this is the best option, or if I should open a separate personal pension instead.

Any advice would be greatly appreciated.

Is your current workplace pension a defined benefits (DB), a defined contribution (DC) scheme, or a local government or NHS PS?

DB is where you would be entitled to a percentage of your final salary (dependant on the scheme and years you work/contribute), and the DC is an accumulation of money (a pot of money to do something with at retirement).

Also, does your company operate salary sacrifice as part of the payroll?

dunstonh

Most AVCs are now obsolete compared to modern individual pensions. Many have not updated their pricing since 2006 when the need to provide an AVC was removed. So, they are more in line with that era's costs than current. However, there are some schemes that have discounted the charging very low and could be worthwhile. A very small number can be used in conjunction with the main scheme to pay the tax-free cash (rather than the main scheme paying it). That can be useful. If you are looking at early than scheme age retirement, then an individual plan may be a better option where the main scheme as an early commencement penalty.



edit: type not = now

JoeCrystal

dunstonh wrote: »

Most AVCs are not obsolete compared to modern individual pensions.

You mean most AVCs are obsolete?

Cf131

I'm in a local government pension scheme.

xylophone

https://www.lgpsmember.org/more/AVCoptions.php
may be worth a look.

cloud_dog

Cf131 wrote: »

I'm in a local government pension scheme.

Whilst I appreciate it is a long way away, do you feel that you may wish to retire earlier than your LGPS normal retirement age?

Cf131

Well my current normal retirement age is 65, however I have a feeling this will probably increase by the time I get there.

Ideally I would like to retire at 60.

dunstonh

JoeCrystal wrote: »

You mean most AVCs are obsolete?

not should be now. Corrected. Thanks.

Durban

Are you sure that your NRA is 65? You are only 31 and NRA in the LGPS is linked to SPA.

cloud_dog

Cf131 wrote: »

Well my current normal retirement age is 65, however I have a feeling this will probably increase by the time I get there.

Ideally I would like to retire at 60.

In which case you need to be thinking about flexibility and how best to fund the gap between 60 and 67.

I am aware the LGPS allows some flexibility in taking it early with reductions being applied but I am no expert. We need one of the LGPS experts to visit the thread....here silvertabby....

In addition to the above and the obvious personal pension contributions, you may want to consider using a LISA to help fund the gap between 60 and 67. As a basic rate tax payer you will benefit from the same amount of uplift/relief which means any contributions would benefit by a 25% HMRC relief/uplift. A LISA cannot be accessed until 60 (assuming you don't use it to buy your first house) but withdrawals are tax free.

If you were to become a HRT payer additional pension contributions would definitely be the way to go.