Teachers AVC with Prudential

TartanTweed

Hi, I am considering making AVCs of around 5% of my monthly salary (£220 approximately) with Prudential.
I also have my Teachers Pension. I have just turned 30 will reach normal pension age for the AVC in 2058.
Can someone please explain the pros and cons to making such contributions? Is it worth it? What kind of return can I expect?
Any advice welcome.

xylophone

Have you read this?
https://www.pru.co.uk/pdf/TAVK0789.pdf

See also
https://www.teacherspensions.co.uk/-/media/documents/member/factsheets/managing-your-pension/increasing-your-pension-benefits-factsheet.ashx?rev=0b88c4dd2c2a44a7a35978ca3c3c5f12&hash=1B93CE2E8CCA6499A3F6164F7CBA1DBB

Or you could consider opening a personal pension.

OldBeanz

Depends what you are trying to achieve and what your attitude to risk is. There are other options available through the TPS.

IAMIAM

I would just buy additional pension via TPS

zagubov

IAMIAM said:

I would just buy additional pension via TPS

I did both. Found the AVC quite pricey compared with the TPS additional and, after about 10 years or so, stopped paying into it but then paid the a bit more into the TPS. 
I think the AVC is more flexible ( can maybe take it earlier than the TPS and its more heritable). You should check this and the different ways of getting the money afterwards. Some may require you getting financial advice which they can provide, and you'd be charged for.

[Deleted User]

I started paying AVCs into a With Profits Fund during the second year of my career. 

Years later, when I looked at the AVC annual statements, I was disappointed in that, from what I could see, there didn't seem to be much in the way of growth (we had originally chosen the cautious fund) and if I remember correctly, I was paying an on-going 1% commission (I think).  I stopped paying AVCs for a few years, and then looked into it all again, read all the policies and really didn't like the bit about market value reduction/smoothing and purchase of an annuity as I didn't feel I understood it all and so felt it made it difficult to work out what I'd actually get/plan my future.. 

So I transferred it to a SIPP and chose to invest it in VLS60Acc and started making regular monthly payments again.  I believe I miss out in terms of National Insurance (as I make my SIPP payments myself from my net pay) but I'm much happier as I feel more in control.  I now have most of my SIPP invested in VLS60Acc which I hope is relatively "safe" to cover my living expenses from 55 (so I can leave claiming the occupational pension until I'm 60) and I'm investing new money that I don't think I'll have such an immediate need for, into a global index fund.  I never really understood the options for purchasing extra years/faster accrual etc.

OldBeanz

TartanTweed said:

Hi, I am considering making AVCs of around 5% of my monthly salary (£220 approximately) with Prudential.
I also have my Teachers Pension. I have just turned 30 will reach normal pension age for the AVC in 2058.
Can someone please explain the pros and cons to making such contributions? Is it worth it? What kind of return can I expect?
Any advice welcome.

With a salary of £ 44k pa (220*20*12) at 30 be aware that paying into a pension becomes more attractive when you become a  higher rate tax payer.
Having a son who has just started as a teacher I have just been through this with him.
First you need to look at your risk appetite. With 38 years until retirement it would not matter if your pension investments halved next year because more than likely they would more than bounce back over the following few years (when by buying monthly you would have been buying more units when cheap) but you would have 36 years to recover. So you can be heavily into shares at this time if needs be. Conversely you do not want to be 100% in shares the year before you start drawing the pension.
Buying extra TPS pension is expensive but you are buying into a gold pension and the pension will be valued as being payable at 68 if your state pension is moved back again. The price of extra pension goes up as you get older. There is little risk unless the Government defaults on its debts in which case a pension may be the last of your worries.
An AVC restricts you in what you can chose to invest in but as there are thousands of funds you could invest in, this might be seen as an advantage. At this stage of your career you would to take higher investment risks. The AVC and SIPP can be taken at any time after you hit 58. Money is taken from your pay so while not benefitting from cheaper NI contributions you do not need to worry about any tax issues.
A SIPP will give you far more opportunity to invest but you would need to read up about investing and diversity. In the short to medium term you might want to consider investing in an AVC then read more when you could transfer it to a SIPP if you felt that was appropriate. 
It is up to you which option to take but most folk on here with regrets are the ones who did not start saving into a pension early enough.

TartanTweed

OldBeanz said:

TartanTweed said:

Hi, I am considering making AVCs of around 5% of my monthly salary (£220 approximately) with Prudential.
I also have my Teachers Pension. I have just turned 30 will reach normal pension age for the AVC in 2058.
Can someone please explain the pros and cons to making such contributions? Is it worth it? What kind of return can I expect?
Any advice welcome.

With a salary of £ 44k pa (220*20*12) at 30 be aware that paying into a pension becomes more attractive when you become a  higher rate tax payer.
Having a son who has just started as a teacher I have just been through this with him.
First you need to look at your risk appetite. With 38 years until retirement it would not matter if your pension investments halved next year because more than likely they would more than bounce back over the following few years (when by buying monthly you would have been buying more units when cheap) but you would have 36 years to recover. So you can be heavily into shares at this time if needs be. Conversely you do not want to be 100% in shares the year before you start drawing the pension.
Buying extra TPS pension is expensive but you are buying into a gold pension and the pension will be valued as being payable at 68 if your state pension is moved back again. The price of extra pension goes up as you get older. There is little risk unless the Government defaults on its debts in which case a pension may be the last of your worries.
An AVC restricts you in what you can chose to invest in but as there are thousands of funds you could invest in, this might be seen as an advantage. At this stage of your career you would to take higher investment risks. The AVC and SIPP can be taken at any time after you hit 58. Money is taken from your pay so while not benefitting from cheaper NI contributions you do not need to worry about any tax issues.
A SIPP will give you far more opportunity to invest but you would need to read up about investing and diversity. In the short to medium term you might want to consider investing in an AVC then read more when you could transfer it to a SIPP if you felt that was appropriate. 
It is up to you which option to take but most folk on here with regrets are the ones who did not start saving into a pension early enough.

OldBeanz said:

TartanTweed said:

Hi, I am considering making AVCs of around 5% of my monthly salary (£220 approximately) with Prudential.
I also have my Teachers Pension. I have just turned 30 will reach normal pension age for the AVC in 2058.
Can someone please explain the pros and cons to making such contributions? Is it worth it? What kind of return can I expect?
Any advice welcome.

With a salary of £ 44k pa (220*20*12) at 30 be aware that paying into a pension becomes more attractive when you become a  higher rate tax payer.
Having a son who has just started as a teacher I have just been through this with him.
First you need to look at your risk appetite. With 38 years until retirement it would not matter if your pension investments halved next year because more than likely they would more than bounce back over the following few years (when by buying monthly you would have been buying more units when cheap) but you would have 36 years to recover. So you can be heavily into shares at this time if needs be. Conversely you do not want to be 100% in shares the year before you start drawing the pension.
Buying extra TPS pension is expensive but you are buying into a gold pension and the pension will be valued as being payable at 68 if your state pension is moved back again. The price of extra pension goes up as you get older. There is little risk unless the Government defaults on its debts in which case a pension may be the last of your worries.
An AVC restricts you in what you can chose to invest in but as there are thousands of funds you could invest in, this might be seen as an advantage. At this stage of your career you would to take higher investment risks. The AVC and SIPP can be taken at any time after you hit 58. Money is taken from your pay so while not benefitting from cheaper NI contributions you do not need to worry about any tax issues.
A SIPP will give you far more opportunity to invest but you would need to read up about investing and diversity. In the short to medium term you might want to consider investing in an AVC then read more when you could transfer it to a SIPP if you felt that was appropriate. 
It is up to you which option to take but most folk on here with regrets are the ones who did not start saving into a pension early enough.

OldBeanz said:

TartanTweed said:

Hi, I am considering making AVCs of around 5% of my monthly salary (£220 approximately) with Prudential.
I also have my Teachers Pension. I have just turned 30 will reach normal pension age for the AVC in 2058.
Can someone please explain the pros and cons to making such contributions? Is it worth it? What kind of return can I expect?
Any advice welcome.

With a salary of £ 44k pa (220*20*12) at 30 be aware that paying into a pension becomes more attractive when you become a  higher rate tax payer.
Having a son who has just started as a teacher I have just been through this with him.
First you need to look at your risk appetite. With 38 years until retirement it would not matter if your pension investments halved next year because more than likely they would more than bounce back over the following few years (when by buying monthly you would have been buying more units when cheap) but you would have 36 years to recover. So you can be heavily into shares at this time if needs be. Conversely you do not want to be 100% in shares the year before you start drawing the pension.
Buying extra TPS pension is expensive but you are buying into a gold pension and the pension will be valued as being payable at 68 if your state pension is moved back again. The price of extra pension goes up as you get older. There is little risk unless the Government defaults on its debts in which case a pension may be the last of your worries.
An AVC restricts you in what you can chose to invest in but as there are thousands of funds you could invest in, this might be seen as an advantage. At this stage of your career you would to take higher investment risks. The AVC and SIPP can be taken at any time after you hit 58. Money is taken from your pay so while not benefitting from cheaper NI contributions you do not need to worry about any tax issues.
A SIPP will give you far more opportunity to invest but you would need to read up about investing and diversity. In the short to medium term you might want to consider investing in an AVC then read more when you could transfer it to a SIPP if you felt that was appropriate. 
It is up to you which option to take but most folk on here with regrets are the ones who did not start saving into a pension early enough.

Thank you for such a detailed response.
I think I will put the AVC on hold for now. I like the sound of buying extra pension through TPS.

OldBeanz

Thank you for such a detailed response.
I think I will put the AVC on hold for now. I like the sound of buying extra pension through TPS.

OK best to be aware that the lump sum you buy is index linked from the beginning so for example if you bought £200 over 1 yr at 30, £200 over 1 year at 31 etc for 5 years then that would be slightly cheaper than buying £1000 over 5 years at 30 (the TPS calculator will let you see this if you play with your dob). The reason being that inflation (CPI +1.5%) will have pushed the initial £1k higher than the 5 x £200 steps.  The upswing in value makes the 2nd option the better value as far as I can see.
You can also see that the cost of pension is re-costed on your birthday so best to start before your next one. 

traceyaj

On the subject of AVC's. Asking for my husband who took early retirement during February 2019 when he was 61 years old. He now receives his occupational pension from the Local Government Pension Scheme as his sole income. He also received £32,000 from AVCs at the time he retired. He will probably be starting work again quite soon with the same local authority for 18 hours per week. He is interested in taking out AVC's again but has already invested £2880 in a SIPP during May 2020. We believe there are restrictions on when and how much he can invest in AVC's due to his payment during February 2019. Any advice would be very welcome.  

OldBeanz

traceyaj said:

On the subject of AVC's. Asking for my husband who took early retirement during February 2019 when he was 61 years old. He now receives his occupational pension from the Local Government Pension Scheme as his sole income. He also received £32,000 from AVCs at the time he retired. He will probably be starting work again quite soon with the same local authority for 18 hours per week. He is interested in taking out AVC's again but has already invested £2880 in a SIPP during May 2020. We believe there are restrictions on when and how much he can invest in AVC's due to his payment during February 2019. Any advice would be very welcome.  

Restricted to £4k (assuming he earns at least £4k) in a year and he has already contributed £3.6k. Best starting next FY. The Prudential should be aware of any limits and allow him to pay in £333 pcm.