AVC's into Final salary pension scheme or SIPP?

chunkytfg

I've searched and found some help but I thought I'd ask anyway.

I'm 43 with 25 years into a final salary pension scheme.

My salary is approaching the £100k point with overtime and I'm thinking about using additional pension contributions to help keep me under that point and save me some loss of tax allowance.  

I have the option of AVC's direct from my salary via a Standard life plan which only offers 9 fund options.

Would it be worth sticking with the AVC's for simplicity sake or open a SIPP to give me more options with the investing of it?

My issue is that I'm not really sure what I will want to do when it comes time to retire.  Do I want  to commute the AVC's and a portion of the pension as a lump sum or do I want to roll it into an additional pension?  If I want to roll it into a pension then the SIPP is a viable choice but if I want to take it a lump sum then is that even an option via a SIPP or do I have to stick to a S+S ISA route and accept the loss of the 40% uplift?

Its all very confusing and I never thought it would be something to consider as I've spent the last 27 years in this job(started at 16 and didnt pay into the pension till 18) thinking the pension alone would be enough and I didnt need to worry.  Now times moved on and I'm starting to worry if it's too late to make any significant gains and I'm just a bit all over the place with my thoughts/ideas!

Any help/views would be muchly appreciated.  

Brie

2 views.....

• Getting payroll to pay extra into your pension is easy and then you don't need to think about it.

• Paying instead into a SIPP of some sort gives you more flexibility as you can take the SIPP at 55 or 58 or similar and likely can't take the DB payment at full whack until you are 60 or 65.  

So I would check if there is a maximum AVC you can pay, see if there's anything matching from your employer and see what you can maximise that way and give you a stable base.  And then pay extra amounts into a SIPP, setting up a standing order the week after you get paid for a easily doable amount and then throw some extras at it is needed to ensure you get the best tax advantages.  Also double check what beneficiaries you have as pensions wouldn't be included in any IHT calculations so, should the worse happen, you can get tax free money to loved ones in a tidy manner.

Also check with your state pension forecast says.  I suspect it will be a minor portion of your retirement plan but it's good to get these things on to a spreadsheet so you can think it through and tweak as required. 

AlanP_2

What scheme is it and what are the options on what you can do with the AVC when you take it?

For example the local gov scheme let's you use the AVC as part of your lump sum without commuting any main pension - tax relief at 40% on way in and tax free on way out for you 

Other schemes don't so you need to check the rules of yours.

How do you pay AVCs through payroll? If it's salary sacrifice you'll save NI as well.

chunkytfg

Thats a really helpful view Brie, thank you.  

I pay 5% pension contributions currently and I'm allowed a max of 15% total into the pot so I'm limited to a 10% AVC contribution.  My employer already pays a mental amount onto of my 5% so they dont have any match with the AVC.

I'm new to this so not 100% sure of what DB means?

State pension forecast is showing as £221 pw if I put in 10 more years by 2049.

The IHT thing is something I never even considered and I'm not really sure how it works tbh.  I'm soon to be married and have no kids or plans for any so my only beneficiary would be my wife.

chunkytfg

AlanP_2 said:

What scheme is it and what are the options on what you can do with the AVC when you take it?

For example the local gov scheme let's you use the AVC as part of your lump sum without commuting any main pension - tax relief at 40% on way in and tax free on way out for you 

Other schemes don't so you need to check the rules of yours.

How do you pay AVCs through payroll? If it's salary sacrifice you'll save NI as well.

It's the TFL pension scheme. I believe the AVC's can form part of the lump sum you can commute from the pension.

Other than taking it as a lump sum the paperwork from them says I can get an annuity though Standard life, by taking the 'open market option' I can shop around for essentially the same thing or I can defer it.

  

It would be through salary sacrifice yes.  Again NI contributions hadn't even been thought about.   

AlanP_2

Logically any AVC pot should REDUCE the amount of pension commuted as it coming from your specific "pot" rather than being funded by the main scheme. The intention of commutation is to be broadly cost neutral over average pensioner lifetime.

Don't rely on "believe", read the scheme rules and check.

DB is defined benefit, a final salary scheme is a subset of DB.

Given your salary you will need to ensure that any additional pension contributions don't get you to a level where you exceed the Annual Allowance (£60k).

That sounds a lot but for a DB scheme it is calculated on the increase in annual benefits * 20 with an adjustment for inflation.

Your annual statement should give you that, either as a percentage or as a monetary value.

chunkytfg

Thank you Alan.  Much appreciated.  I will try and find those details and see what they say.

Albermarle

I have the option of AVC's direct from my salary via a Standard life plan which only offers 9 fund options.

More experienced investors would see that choice as too limited, although it depends to some extent on what the funds are.

However for your average pension investor , that is 8 too many as > 95% have no idea about investing/can't be bothered to think about it, and just let the pension provider put their money in the default fund. 

Many newer auto enrolment pensions often have the choice of around 10 funds, and I think I read comments from one the other day that 99% of their clients make no choice, and end up in the default fund.

So the question is that is it a real issue for you that it only has 9 funds?