AVC and SIPP: can't quite get my head around

robaber

Hello

I am a higher rate tax payer. 

I make Additional Voluntary Contributions (AVC) through my employer. These are taken through a third party provider. This is taken before my 40% tax.

I also have a Self Investigated Personal Pension (SIPP) which I pay into each month. My provider claims 20% from the government. I claim an additional 20% on a tax self assessment.

Can't quite get my head around. Which gives me more money?

The AVC taken, before 40% tax or my SIPP, to which the government adds 40%?

AlanP_2

Tax and therefore cost neutral. The tax/pension scheme does not disadvantage anyone due to how they contribute.

Can you imagine the uproar if it did?

 Although salary sacrifice comes close to that I suppose.

 You may well end up with different amounts inside the pension but nett effect is it all balances out (assuming tax rate is consistent across the comparisons being made).

dunstonh

Does the AVC use salary sacrifice?
if yes, the AVC is better, if no, then there is no difference other than the admin inf claiming the extra relief.

Marcon

robaber said:

Hello

I am a higher rate tax payer. 

I make Additional Voluntary Contributions (AVC) through my employer. These are taken through a third party provider. This is taken before my 40% tax.

I also have a Self Investigated Personal Pension (SIPP) which I pay into each month. My provider claims 20% from the government. I claim an additional 20% on a tax self assessment.

Can't quite get my head around. Which gives me more money?

The AVC taken, before 40% tax or my SIPP, to which the government adds 40%?

It doesn't add 40%. A SIPP has basic rate tax relief added and any higher rate relief needs to be claimed by you - it doesn't get added to your SIPP.

More info: https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

robaber

AlanP_2 said:

Tax and therefore cost neutral. The tax/pension scheme does not disadvantage anyone due to how they contribute.

Can you imagine the uproar if it did?

 Although salary sacrifice comes close to that I suppose.

 You may well end up with different amounts inside the pension but nett effect is it all balances out (assuming tax rate is consistent across the comparisons being made).

The AVC isn't salary sacrifice. 

That is very helpful. 

I think I will focus on the SIPP, as I prefer the platform, it is lower fee and has more control over funds. 

Thank you all. 

dunstonh

robaber said:

AlanP_2 said:

Tax and therefore cost neutral. The tax/pension scheme does not disadvantage anyone due to how they contribute.

Can you imagine the uproar if it did?

 Although salary sacrifice comes close to that I suppose.

 You may well end up with different amounts inside the pension but nett effect is it all balances out (assuming tax rate is consistent across the comparisons being made).

The AVC isn't salary sacrifice. 

That is very helpful. 

I think I will focus on the SIPP, as I prefer the platform, it is lower fee and has more control over funds. 

Thank you all. 

The other issue that may favour an AVC is if the AVC can be used in conjunction with the main scheme where the tax free cash is diverted to the AVC.    

pterri

dunstonh said:

robaber said:

AlanP_2 said:

Tax and therefore cost neutral. The tax/pension scheme does not disadvantage anyone due to how they contribute.

Can you imagine the uproar if it did?

 Although salary sacrifice comes close to that I suppose.

 You may well end up with different amounts inside the pension but nett effect is it all balances out (assuming tax rate is consistent across the comparisons being made).

The AVC isn't salary sacrifice. 

That is very helpful. 

I think I will focus on the SIPP, as I prefer the platform, it is lower fee and has more control over funds. 

Thank you all. 

The other issue that may favour an AVC is if the AVC can be used in conjunction with the main scheme where the tax free cash is diverted to the AVC.    

Yep, my AVC is attached to the DB so I can take that tax free. I’ll pop £20k straight in an ISA and the rest in a GIA and move that to the ISA over a few years is the current plan. Worth checking. 

robaber

pterri said:

dunstonh said:

robaber said:

AlanP_2 said:

Tax and therefore cost neutral. The tax/pension scheme does not disadvantage anyone due to how they contribute.

Can you imagine the uproar if it did?

 Although salary sacrifice comes close to that I suppose.

 You may well end up with different amounts inside the pension but nett effect is it all balances out (assuming tax rate is consistent across the comparisons being made).

The AVC isn't salary sacrifice. 

That is very helpful. 

I think I will focus on the SIPP, as I prefer the platform, it is lower fee and has more control over funds. 

Thank you all. 

The other issue that may favour an AVC is if the AVC can be used in conjunction with the main scheme where the tax free cash is diverted to the AVC.    

Yep, my AVC is attached to the DB so I can take that tax free. I’ll pop £20k straight in an ISA and the rest in a GIA and move that to the ISA over a few years is the current plan. Worth checking. 

Thanks. 

I will check this.

If I can take the AVC tax free, then this sounds like a good option. Missing the 40% tax on the way in and tax free on the way out. 

I will still keep my SIPP and S&S ISA going, as it is nice to have options. 

cfw1994

Don’t SalSac payments also reduce the NI payments taken, whereas AVC is done after that?

robaber

cfw1994 said:

Don’t SalSac payments also reduce the NI payments taken, whereas AVC is done after that?

 That is my understanding. 

However, I'm afraid my employer doesn't offer Salary Sacrifice. Which is a shame.