AVC Worth It?

Dillshad

Hi,

I am hoping for some guidance on the below scenario for a family member.

56 year old hoping to retire within 5 years. He has a small pension worth approx 90k being generous. Basic rate tax payer.

No mortgage & £20k in savings. He can afford to pay up to £500 per month into his Royal Mail pension in AVC's, are a basic rate taxpayer is it worth doing this when retirement is only 5 years away?

He also thought about not taking the 25% lump sum to bolster the monthly pension amount but again my (limited) experience tells me it's always worth taking 25% tax free and trying to gain some income from that elsewhere if no mortgage to pay....low risk S&S ISA invested for income possibly?

The aim is to try and achieve around £500pcm in income.

Would appreciate any help. thanks

atush

Yes, it is worth it.

And no, if it is a DB pension taking the TFLS isnt a good idea, but taking it from an AVC can be. it depends.

Even if a DC pension, it can be worth leaving the TFLS in the pension, and taking it by fractions when you withdraw- such as withdraw 10K get 2.5K tax free and 7.5K taxed.

Dillshad

Hi,

Thank you for the reply. Unsure ATM if the pension is DB or not, will ask him to confirm.

xylophone

Does your husband have both a personal pension and a RM pension?

In which section of the RM Scheme is his pension held?

https://www.royalmailpensionplan.co.uk/

SonOf

He can afford to pay up to £500 per month into his Royal Mail pension in AVC's, are a basic rate taxpayer is it worth doing this when retirement is only 5 years away?

Is their AVC any good?

Certainly paying more is a good thing but AVCs are not the only option. You have PPP or SIPPs or S&S ISAs and some schemes have hybrid additional options. I dont know about Royal Mail.

gain my (limited) experience tells me it's always worth taking 25% tax free and trying to gain some income from that elsewhere if no mortgage to pay....low risk S&S ISA invested for income possibly?

That is no longer correct. It never was with Defined benefit schemes as it would depend on the scheme. It is a rule of thumb that existed with defined contribution schemes where you would be buying an annuity. But not many do that nowadays.

dasherman

As an employee of RM myself, the first question is which scheme is he in, DB or DC?
If he joined RM or his pension scheme after 1st April 2008 he'll be in the DC plan. If beforehand it'll be the DB scheme.

RM offers salary sacrifice, which they call Pension salary Exchange(PSE), which means each £1 gross contribution into his RM pension arrangement/s only actually costs 68p. So well worth paying the extra cash!

If he's in the DB scheme his AVC's will help to fund some or all of his tax free cash. If it's DC then obviously a bigger pot to play with.

Take a look at the three relevant websites:

RMSPS(pre 2012 DB benefits) - https://www.royalmailsps.co.uk/
RMPP(post 2012 DB benefits) - https://www.royalmailpensionplan.co.uk/
RMDCP - https://www.scottishwidows.co.uk/save/royalmaildcplan/