Should I take out an AVC/APC or save up for early retirement

Jonnyben

Hi,

I retired from a job after 30 years at the age of 55 years with a pension. I have since gone on to work part-time, working 22'5 hours weekly. I contribute to the TW PF which is a CARE pension. Contributions are at 5.8%. I would like to retire at 60 years, which would mean that I have contributed for 5 years. I would like to know if if would be worth my while taking out additional AVC or APC for the final 2 years. Can I pay in a lump sum? Or should I just save up?

Thanks

eskbanker

If you have surplus income then using a pension will be more tax-efficient than saving outside that wrapper - you can choose between doing so within your employer's scheme or simply opening a SIPP of your own. Your gross annual pension contributions can't exceed your taxable earnings though, so a lump sum won't be unconstrained….

Jonnyben

Thanks for that. Should I go for an APC?

dunstonh

 would like to know if if would be worth my while taking out additional AVC or APC for the final 2 years.

yes

Can I pay in a lump sum? 

yes (subject to limits as mentioned higher up)

Or should I just save up?

If you mean a savings account, then that would be the least tax-efficient option.

Thanks for that. Should I go for an APC?

if it is the best option that fits your circumstances, then yes. For some people it will be the best option. For others it may not. However, all options are better than doing nothing.

Yorkie1

For the curent pension, double check when you can take it, and the APC / AVC, without a reduction. It might not make sense to pay extra into a pension rather than other savings, if you want to take the pension early and the reduction for that early payment is larger than the initial benefit from paying into it.

Silvertabby

Tyne & Wear LGPS ?

APCs can be good value, but if you intend on taking them at 60 instead of SPA then the amount you have 'bought' will be reduced for early payment in the same way as your main scheme pension.

You may find AVCs to be more flexible for the short time you have left to work. Your CARE pension doesn't come with any automatic tax free cash - if you want that, you would have to commute (permanently give up) some of your annual pension at a very unfavourable rate. Which is where the AVCs come in. You would have the choice of taking them as tax free cash (within HMRC limits) or using them to buy additional index linked LGPS benefits.