Very Small AVC transferred 20 years ago

bilbobagginz71

I had an AVC from a previous employer worth £400. I transferred it my new employer when I started with them 20 years ago. It’s worth about £500 now. I get a yearly update letter saying when I retire at 65 in 18 years time I will receive a pension of £14 per year. I would need to live to another 35 years to get anywhere near the amount the fund is worth. My question is are AVCs worth it? Is there anything I can do with this instead of such a small return? Can I take a 25% lump sum, would that be roughly £125 based on its current value? I was thinking to start paying into a new AVC but don’t think it’s worth it even with tax relief on contributions. Any inputs appreciated.

FatherAbraham

bilbobagginz71 wrote: »

I had an AVC from a previous employer worth £400. I transferred it my new employer when I started with them 20 years ago. It’s worth about £500 now. I get a yearly update letter saying when I retire at 65 in 18 years time I will receive a pension of £14 per year. I would need to live to another 35 years to get anywhere near the amount the fund is worth. My question is are AVCs worth it? Is there anything I can do with this instead of such a small return? Can I take a 25% lump sum, would that be roughly £125 based on its current value? I was thinking to start paying into a new AVC but don’t think it’s worth it even with tax relief on contributions. Any inputs appreciated.

What assets have you got the AVC fund invested in? Perhaps you need to move it to a higher return, higher risk investment.

bilbobagginz71

It’s spread across uk, us, Europe, and a couple of other funds. I just wonder is it normal for whatever the total is to only get a return of 3% of it when I retire? I’ll look to other funds, the management fees chew up most of the gains. Can I just withdraw it all at age 65?

MallyGirl

You can withdraw it all but only 25% would be tax free. The remaining 75% would be added to any other income/ pension and would be liable for tax.

Projections are always pessimistic and based on the returns from an annuity bought with the money. 3ish % is a reasonable figure to work on as income without eroding the capital but the numbers are so small that it just needs to be added in to your overall pension portfolio and treated the same as the rest.

FatherAbraham

bilbobagginz71 wrote: »

It’s spread across uk, us, Europe, and a couple of other funds. I just wonder is it normal for whatever the total is to only get a return of 3% of it when I retire? I’ll look to other funds, the management fees chew up most of the gains. Can I just withdraw it all at age 65?

Withdraw it?

Don't you need it, as part of your overall retirement-income provision?

jaybeetoo

FatherAbraham wrote: »

Withdraw it?

Don't you need it, as part of your overall retirement-income provision?

I don’t think £500 is going to make much difference to his retirement lifestyle!

bilbobagginz71

Thanks for the clarification and responses. I had assumed I’d get capital and gains, say over a 20ish year period (based on some pre-determined male life expectancy nearer the retirement date) as opposed to building a pot and earning an annuity/interest on that.
Is the tax if all withdrawn instead of just 25% based on your income earned in that year? (If you don’t earn above your personal tax allowance then you don’t pay tax on the 75%?)

Apologies for the extra question!

Thanks
Bill