AVC Pru options and the different funds from LGA scheme

jamjar92

I am planning to retire in about 8 years and will be getting DB pension consisting of a lump sum and yearly pension. The scheme as an AVC option which I am contributing a small amount but look to contribute more in a few years time. I can get this added to min pot to offset the reduction of retiring early.

When I joined the default option was to pay into the PRU with profits fund, which  has fees up to 2% which the majority of the pot is invested, there are other funds available and they charge between 0.55% and 0.85%, from low-medium risk to high. With the recent downturn in the world market, the with profits value has not dropped according to the current valuation.

So do I invest in the with profits and risk the MVR, or try, Prudential Dynamic Growth II S3 with a AMT of 0.65%, which says no more 40% equities (isin Code GB00BSPBV885)

Bobziz

What is the benefit of going with the AVC option rather than your own SIPP or managed alternative ? I ask because I'm in a similar situation and didn't find any of the AVC options immediately attractive.

jamjar92

Bobziz said:

What is the benefit of going with the AVC option rather than your own SIPP or managed alternative ? I ask because I'm in a similar situation and didn't find any of the AVC options immediately attractive.

The AVC pot of money can be added to your main scheme pot, which you can convert to some to get the max 25% tax free. So without the an AVC  it would be 20 times your pension plus your lump sum, divided by 4 to give your tax free lump sum after conversion of pension to max lump sum. With an AVC this is added to the same "pot" figure and divided by 4, so you get the max lump (tax free 25%) you can while retaining a higher DB pension for life. So the in scheme AVC still seem the best vehicle in my view, I am looking for other peoples views on picking the with profit fund or one of the other unitised funds. With the AVC it net at source, so no need to claim the tax back.

jamjar92

Bobzi you need to remember the remaining DB pension figure will increase each year in line with CPI

Bobziz

jamjar92 said:

Bobziz said:

What is the benefit of going with the AVC option rather than your own SIPP or managed alternative ? I ask because I'm in a similar situation and didn't find any of the AVC options immediately attractive.

The AVC pot of money can be added to your main scheme pot, which you can convert to some to get the max 25% tax free. So without the an AVC  it would be 20 times your pension plus your lump sum, divided by 4 to give your tax free lump sum after conversion of pension to max lump sum. With an AVC this is added to the same "pot" figure and divided by 4, so you get the max lump (tax free 25%) you can while retaining a higher DB pension for life. So the in scheme AVC still seem the best vehicle in my view, I am looking for other peoples views on picking the with profit fund or one of the other unitised funds. With the AVC it net at source, so no need to claim the tax back.

ah, thanks. Thats does make a difference. So in effect, you get tax relief on the avc's going in and tax relief coming out on the lump sum, which could in effect be made up of your avc contributions and the 20% tax on top ?

Bobziz

presumably although the Pru with profits fund hasn't dropped much, they're currently applying quite a hefty MVR ? is there any point at which they guarantee not to make a MVR?
2% fee seems high. I'd probably go for the dynamic growth fund because I struggle to understand how they apply the MRV policy on the with profits fund and I like to know what my investment is doing and what I'll get back. I'm conscious that this may not be a very good reason though...

OldBeanz

The Pru are not paying out from their property fund but the high risk funds which my wife invested in dropped 20% at the end of year (31/3/20 from memory) valuation but had recovered by the time we received the paperwork.

marycanary

Hi
Could you leave the money in the with profits where it is and put new money in a different fund?
Mary

jamjar92

marycanary said:

Hi
Could you leave the money in the with profits where it is and put new money in a different fund?
Mary

Mary that was the plan, the MVR they say is currently zero, but thats been invested for a long time

jamjar92

OldBeanz said:

The Pru are not paying out from their property fund but the high risk funds which my wife invested in dropped 20% at the end of year (31/3/20 from memory) valuation but had recovered by the time we received the paperwork.

Oldbeanz ignoring the Covid drop, whats funds is your wife investing in you seem good realterm returns and have you a plan to switch them to less risky ones closer to retirement age.