AVC/new investor help please

AliceBanned

daveyjp said:

Is the AVC provided via a third party as a Shared Cost AVC? 

If so you will benefit from both tax relief and national insurance reduction which can also be paid into the fund, so a significant potential uplift.

If not ask your payroll/finance director why it isn't offered as an employee benefit.

dunstonh said:

Thanks Dunstonh, didn't really think about the APC, but it is better in terms of returns as you say. I think I am confusing pension and savings as I don't have a clear enough plan.

At 55 you need a plan as the pension wrapper is not just about income provision in retirement.  It is also a tax efficient investment wrapper.   It beats S&S ISAs for most people.

Looking at it again maybe I could think about paying something into the APC, say £150pm which should take me below the 40% rate, and then save/invest completely separately. 

That may well be the best option.   APC to take advantage of the generous terms and then excess to a pension.

Whilst you are thinking about tax on the way in, you also need to think of tax on the way out.    If you retire before taking the scheme pension/state pension, you will have a number of years where you have your personal allowance available to you.    So, a pension gaining relief going in, wouldn't have tax coming out upto just over £16k  (25% tax free, 75% falling fully within the personal allowance)

So, a bit of mix and match is likely to be in order.       But make sure your priority is your objectives.  The APC is generous financially but if you go too heavy into that and not enough into building a pot to use for the 5-7 year gap, it could stop you from achieving your objective.

Thanks Dunstonh and Daveyjp, so helpful and interesting.

The AVC is not shared cost - if you mean the employer would also pay in? It is provided via Prudential - am just looking into it now so will try to find out whether it is Shared Cost - if you mean just the actual charges?

Dunstonh - I will do a bit more research on the APC. It's all about the tax then..I could retire early that way or go part time, by taking out under £16k. I think I do need a financial advisor at some point! Or can you recommend any links or books that I can get more up to speed on pensions and investments? thanks!

MX5huggy

AVC “shared cost” is playing the system to a degree the shared bit is that employer pays in just £1 no matter what you pay in so. This opens up the NI savings for them and you. 

So I pay £699 a month they pay £1 i don’t pay tax (or NI) on the £699, they pay £1 but don’t have to pay employers NI on the £699.

MX5huggy

AliceBanned said:

So I do think I'm financially a bit illiterate - it takes me a while to understand these things! I've just put this in as a hypothetical payment for the APC: 

This was the result:

Results

Total extra pension	£ 2,939.02
Years of agreement	11
Regular Cost to you before tax relief	£ 400.00
Regular Cost to your employer	£ 0.00
Total Regular cost	£ 400.00
Extra pension bought each year of agreement	£ 267.18
Your Normal Pension Age (NPA)	67
Based on a Regular cost of £13.61 (before tax relief) per £100 of extra pension. Does this mean in real terms I pay £267.18 per month, over 11 years (my maximum, to get £2,939.02 at today's value? Thanks

No, you’re paying £400 per month for 11 years (£52800) in return you get £2939 per year of income (which would be taxed) for life from 67 it is index linked so worth a lot more in 11 year time. But I think it’s expensive (compared with the AVC option, which £400 per month at 5% growth would be worth £71000 but not index linked). When I say expensive it’s probably a fair price for what it is, a valuable benefit if you live to 97 definitely worth it, slip off at 75 you’ll be spitting feathers (except you won’t). 

The £267 is simply the final annual pension £2939 divided by 11 years, showing that each year you pay the £400 per month earns you £267 of index linked annual pension. 

AliceBanned

MX5huggy said:

AVC “shared cost” is playing the system to a degree the shared bit is that employer pays in just £1 no matter what you pay in so. This opens up the NI savings for them and you. 

So I pay £699 a month they pay £1 i don’t pay tax (or NI) on the £699, they pay £1 but don’t have to pay employers NI on the £699.

OK, thanks MX5huggy, I will find out whether my employer does it in that case!

AliceBanned

AliceBanned said:

MX5huggy said:

AVC “shared cost” is playing the system to a degree the shared bit is that employer pays in just £1 no matter what you pay in so. This opens up the NI savings for them and you. 

So I pay £699 a month they pay £1 i don’t pay tax (or NI) on the £699, they pay £1 but don’t have to pay employers NI on the £699.

OK, thanks MX5huggy, I will find out whether my employer does it in that case!

I've just found it on the Prudential page - Salary Sacrifice Shared Cost Local Gov AVC scheme. In that case I will start with maybe  £150 per month into it and then should be able to set up APC if I want to as well. I need to complete a medical form so that will take longer, but think it may be worth my while paying into both schemes. Thanks everyone. 

AliceBanned

Ok so I've made a start by today by setting up a transfer of 4% of salary into LGPS Prudential AVC. I've started with mostly cash fund and am going to decide my own funds..leave the money in for as long as I can, maybe 10 years. I'll also be using it to educate myself for future savings and investments, if that makes sense as I am not familiar with investing or even saving for that matter. I need to overpay my mortgage so for the foreseeable future, depending on salary, may not be able to also have an ISA or pay into the APC yet, but would like to have more savings too - I only have a small amount in premium bonds so far.

AliceBanned

Another question is when I applied for the overtime (just completed) I was in the 20% tax bracket, but in between starting and finishing it I also got promoted, so am now earning £51k. The overtime is going to pay about £1500 gross. Will the tax rate be worked out by HMRC over the next few weeks and be adjusted? Or will I need to notify them? I am hoping to avoid 40% rate on both salary and overtime but the AVC payments won't start until about the same time as the overtime pay, or later!

Dazed_and_C0nfused

AliceBanned said:

Another question is when I applied for the overtime (just completed) I was in the 20% tax bracket, but in between starting and finishing it I also got promoted, so am now earning £51k. The overtime is going to pay about £1500 gross. Will the tax rate be worked out by HMRC over the next few weeks and be adjusted? Or will I need to notify them? I am hoping to avoid 40% rate on both salary and overtime but the AVC payments won't start until about the same time as the overtime pay, or later!

There can be a big difference between what you earn and what is taxable.

A £51k salary could easily equal taxable pay of only say £45k.

What does your end of October payslip (or November if available) show your taxable pay for the (tax) year to date as?

AliceBanned

Dazed_and_C0nfused said:

AliceBanned said:

Another question is when I applied for the overtime (just completed) I was in the 20% tax bracket, but in between starting and finishing it I also got promoted, so am now earning £51k. The overtime is going to pay about £1500 gross. Will the tax rate be worked out by HMRC over the next few weeks and be adjusted? Or will I need to notify them? I am hoping to avoid 40% rate on both salary and overtime but the AVC payments won't start until about the same time as the overtime pay, or later!

There can be a big difference between what you earn and what is taxable.

A £51k salary could easily equal taxable pay of only say £45k.

What does your end of October payslip (or November if available) show your taxable pay for the (tax) year to date as?

Ah ok I will get back to you as November payslip may be issued shortly. I hadn’t factored in other payments eg my main pension scheme payments, is that what you mean?

Dazed_and_C0nfused

AliceBanned said:

Dazed_and_C0nfused said:

AliceBanned said:

Another question is when I applied for the overtime (just completed) I was in the 20% tax bracket, but in between starting and finishing it I also got promoted, so am now earning £51k. The overtime is going to pay about £1500 gross. Will the tax rate be worked out by HMRC over the next few weeks and be adjusted? Or will I need to notify them? I am hoping to avoid 40% rate on both salary and overtime but the AVC payments won't start until about the same time as the overtime pay, or later!

There can be a big difference between what you earn and what is taxable.

A £51k salary could easily equal taxable pay of only say £45k.

What does your end of October payslip (or November if available) show your taxable pay for the (tax) year to date as?

Ah ok I will get back to you as November payslip may be issued shortly. I hadn’t factored in other payments eg my main pension scheme payments, is that what you mean?

Yes, if you're in a net pay scheme then no tax relief gets added to those contributions, the tax benefit is from your salary being say £50,000 but after 10% pension contribution you only have £45,000 of taxable income.