AVC or Vanguard

Jupiter55

Hello
I am higher tax bracket , Scotland , £46k  . Working for the NHS I have my superann pension but I have recently  taken out a Vanguard pension with it having a mixture of risk from blended funds of 20 to 60. The vanguard is funded from my net wages manually

 I understand I  can get AVC through prudential or standard life

My question relates to a colleague advising I should take out the AVC instead of vanguard as it is taken from wages before tax therefore you pay less tax on your income.
both manual putting into vanguard and the avc from wages gets tax relief.
having had a quick look the prudential seems to be higher charges than vanguard so I am wondering if there is a huge benefit to the AVC

the prud and standard life sites are not as user friendly as vanguard so I am ploughing my way through it to help me make an informed choice as best I can. I would however appreciate any information from the forum 

kind regards

Roygroyg

I don't know anything about the particular schemes but your AVC's should be on a salary sacrifice basis and so you should save your 41% income tax and 12% NI (NI rate assumes your income is split evenly over the year) on at least some contributions. Depending on how much you pay in you might fall into 21% income tax (for this year you can pay in £46k - £43,430 = £2,570 or adjust to your exact earnings).

With any pension contributions outside of salary sacrifice you will be limited to income tax relief only and I would expect the pension scheme to only top up the base 20% so you would have to claim the extra 21% from taxman such as through self assessment at end of year.

I'm not an expert on AVCs but from own experience employer sometimes adds a further top up as they save employer NI when you do salary sacrifice.
Also in my case I can use my AVCs when I retire to take as part or all of the tax free lump sum which saves reducing the regular pension which is often done at an onerous rate. Whether you can do this will depend on your scheme rules though so may well not apply.

Whether the NI and simpler tax relief make it worth the additional charges depends on how much they are and how much you are putting in. If smaller amounts then the AVC might be simpler. I personally wouldn't pay in to pension more than the £2,570 per year (or whatever figure your exact salary calculates as) assuming that is even an option! When I became a higher rate tax payer I got in to habit of paying in everything above that threshold (currently £43,430) and so never got used to the extra income - was more of a struggle when the SNP fixed it for years as inflation meant I had less and less spending power but is a good habit to form if you want to build a tax effective pension.

saucer

Roygroyg said:

I don't know anything about the particular schemes but your AVC's should be on a salary sacrifice basis and so you should save your 41% income tax and 12% NI (NI rate assumes your income is split evenly over the year) on at least some contributions. Depending on how much you pay in you might fall into 21% income tax (for this year you can pay in £46k - £43,430 = £2,570 or adjust to your exact earnings).

NHS AVC’s are not salary sacrifice and therefore do not benefit from NI savings.  https://www.nhsbsa.nhs.uk/sites/default/files/2017-04/Money%20Purchase%20Additional%20Voluntary%20Contributions%20factsheet%20%2803.2017%29%20V3.pdf  The usual way of increasing NHS pension benefits is through Additional Pension https://www.nhsbsa.nhs.uk/member-hub/increasing-your-pension/additional-pension This is good value and will work alongside your existing pension with the same retirement age.

 If you want more flexibility about when you can access you might be better advised to look at a SIPP.

Jupiter55

thanks for the replies

the additional pension would not be an option as I only have 4 years until NPA
I have a SIPP just now with vanguard at the 20 and 40 % risk 
the prudential seem to have nhsavc -  with default or lifestyle , I am looking at just now to interpret the funds just now which seem to be a mixture of 
Prudential Dynamic Growth IV Fund – Medium
 Prudential Dynamic Growth II Fund – Lower to Medium
 Prudential Cash Fund – Minimal 

still cant seem to see anything on nhs avc on standard life , doesnt seem to be a user friendly web site, may just to used to the ease of vanguard 

thanks again

Nurse2047

@Jupiter55 did you manage to sort out the NHS AVC- I pay into the prudential avc at the mo on their lifestyle fund.  Trying to figure out if worth paying more into this at the moment rather than a SIPP ? I all-ready pay additional payments also. 

dunstonh

AVCs are largely obsolete or poor value unless they have significant discounts and/or can be used with the main scheme to divert the tax free cash.   Sometimes salary sacrifice, when its available, can be useful but not if the investment choice is so limited that its not very good.

AVCs have largely not been updated since 2006 when the requirement to offer an AVC was abolished.   In the meantime, the retail individual market (stakeholder pension, personal pension, SIPP, Master trust schemes etc) have got cheaper and better.