TPS AVCs or Alternative DC?

OldSmithy

My wife works part time and contributes to the TPS as part of her employment. 

We looked at options to put additional pensions money aside and build up her pension so that we may retire a little earlier hopefully. As a result, two years ago I set up a vanguard pension for her as a separate DC scheme and although not significant at present, she has been paying an amount each month into this and gets the 20% tax relief added too. 

I’ve suddenly realised that we didn’t consider AVCs as an option with TPS. Having had a look this morning, it seems that as it is run as a separate scheme by prudential, effectively as a DC scheme, I can’t immediately see any benefit to it above that of the vanguard option. 

However, I just wanted to check my understanding in case there are additional benefits of the scheme and AVCs with TPS that perhaps I’ve not thought through?

 Thanks in advance for any views that may confirm my thinking or challenge it. 

Dazed_and_C0nfused

Does she currently pay tax?

What method is used to get money into the TPS AVC?

Net pay

Relief at source 
Salary sacrifice

OldBeanz

There is no great advantage of the AVC as unlike the LGPS the benefits cannot be used to enhance a separate lump sum. The downside for a part timer is that if she does not pay tax then any relief at source pension does not attract tax relief. If on the other hand she goes into the 40% tax bracket then she would not have to reclaim the extra tax relief as it would already been applied. This would change if she was able to contribute through Salary Sacrifice as NI savings could be made although I have not heard of teachers being able to do this. 

OldSmithy

She does pay tax at 20% but she’s a long way off the next bracket. 

I’m not sure how the AVC is taken but it’s beginning to feel like my thoughts are correct in that there is little advantage to it. Hence, we will keep the payments into the vanguard pension going. 

Thanks for the input. 

Albermarle

OldSmithy said:

She does pay tax at 20% but she’s a long way off the next bracket. 

I’m not sure how the AVC is taken but it’s beginning to feel like my thoughts are correct in that there is little advantage to it. Hence, we will keep the payments into the vanguard pension going. 

Thanks for the input. 

Also she will most probably find it a lot easier dealing with Vanguard than the Pru, when it comes to withdrawing from the pension.

zagubov

Another vote for avoiding the AVC. Been there, done that.

SwiftS

I’m part of TPS and paying into AVCs with Prudential. Prudential are awful to deal with. The only advantage is if you’re on the margins of entitlement to tax credits/universal credit. Your p60 at the end of the year shows your taxable gross (ie less tps contributions and AVC contributions) which would make a claim easier. 

Brie

The benefit of the having the DC scheme is that it is separate from TPS and can dealt with in a completely different way at a completely different time.  Not sure the AVC one could be.

phynix_uk

Vanguard Pro's

1. Probably a wider fund choice
2. Probably offers drawdown for flexible access in retirement
3. Probably easier to administer

AVC Pro's

1. Probably a lot cheaper
2. Benefits from salary sacrifice. This is key as this will save your wife 12% on the way in essentially meaning she'd be 12% better off on every single contribution. 

It is highly likely that the AVC is the better option, if you want flexibility at retirement, she can always transfer to a personal pension (SIPP) offering drawdown at that stage.

OldBeanz

phynix_uk said:

Vanguard Pro's

1. Probably a wider fund choice
2. Probably offers drawdown for flexible access in retirement
3. Probably easier to administer

AVC Pro's

1. Probably a lot cheaper
2. Benefits from salary sacrifice. This is key as this will save your wife 12% on the way in essentially meaning she'd be 12% better off on every single contribution. 

It is highly likely that the AVC is the better option, if you want flexibility at retirement, she can always transfer to a personal pension (SIPP) offering drawdown at that stage.

Of the major Govt funded pensions (Police, Military, NHS, Civil Service, Teachers) the only one that I know of that offers Salary Sacrifice is the NHS and with it any decrease in salary results in a similar cut in salary based pension benefits so an option that is only sensible for niche employees eg those approaching pension limits enabling them to have a cheap car and also reduce their contributions. 

OldSmithy

Thanks all. I think I’m going to stick with vanguard for now. We aren’t talking huge sums here but a steady monthly contribution and I don’t want to limit anything through an avc or affect the benefits being accrued under the TPS scheme by salary sacrifice “reducing” her salary even if it were available. 

Appreciate the input from all those that have taken time to reply. Many thanks.