AVC's or SIPP?

Luckybonus

Hi,

I just wondered if anyone can offer me any advice. I have a SPP with around £6K in it that I stopped investing in a few years ago. I have been offered a Local Govt AVC with Prudential, it works via salary sacrifice and plan to put £50 in there a month. I understand you get tax relief and NI relief. The Money Helper site advisor said AVC was better than a SPP due to tax relief.

But with a SIPP, you don't pay NI and you still get tax relief I understand. I guess with a AVC as it's via salary sacrifice maybe I am saving something in NI, but I have no idea what this is!

I picked two medium risk funds to invest in the AVC, but the descriptions (headings of the funds on the Prudential website seemed basic) and when I tried to search with Prudential how these funds have performed, I couldn't match like with like, so I have no idea how the funds are performing! I don't even remember seeing what the fees are for the Prudential fund either?

Now I am regretting signing up for the AVC (and don't know whether to cancel it), as I don't know whether it would better to pay the £50 into my SIPP Instead and choose some low cost EFT's for example.

No wonder people are put off investing in a Pension, Stocks and Shares ISA's or a SIPP, I feel I have read a lot over the years, but there is so much to learn and take in! I understand some things, but at times I am still hesitant what to do for the best

Any advice and thoughts would be most gratefully received.

Thankyou,

Warm wishes,

dunstonh

The Money Helper site advisor said AVC was better than a SPP due to tax relief.

They both get tax relief.

But with a SIPP, you don't pay NI and you still get tax relief I understand. I guess with a AVC as it's via salary sacrifice maybe I am saving something in NI, but I have no idea what this is!

A SIPP doesnt change your NI.

Not all LGPS are salary sacrifice. You would need to check. If yours mentions shared cost, then it does.

No wonder people are put off investing in a Pension, Stocks and Shares ISA's or a SIPP, I feel I have read a lot over the years, but there is so much to learn and take in! I understand some things, but at times I am still hesitant what to do for the best

You have a fantastic pension scheme available to you and choices that the private sector can only dream of. So, moaning about being put off due the options is a bit off.

Why have you ruled out the AVC option? Pound for pound, that is often the best option.

daveyjp

Salary sacrifice AVC option very much depends on your salary. If you are on a low hourly rate there may not be much headroom before you go below minimum wage, which isn't permitted.

For basic rate taxpayers £10 of AVC contributions will only cost you about £7 - the £3 is tax and NI saving. So your £50 contribution will reduce your salary by about £35 - £15 'free' contribution.

The one downside with AVCs is they have to be taken at the same time as you main pension, however upsides are they are paid out 100% tax free (subject to a generous limit) and can be used to buy extra LGPS pension, so don't forget to factor that in to the decision making.

Silvertabby

Most people take out LGPS AVCs for the tax free cash benefits - tax relief in, tax free (within HMRC limits) out. But there is the also the option of using some or all of your AVC pot to buy additional fully index linked LGPS benefits.

Linton

A separate SIPP or paying more into AVCs may each have advantages, so it depens on how important those advantages are to you….

1)Your DB pension scheme may allow the tax free lump sum due from your DB pension to be actually taken from the AVC component thus maximising the ongoing DB pension. You would need to check the scheme rules.

2) You can take a SIPP completely independently of the DB pension. So, for example if you retire early you could live off your SIPP for the first few years without suffering a major income reduction from taking your DB pension early.

Albermarle

But with a SIPP, you don't pay NI and you still get tax relief I understand. I guess with a AVC as it's via salary sacrifice maybe I am saving something in NI, but I have no idea what this is!

With salary sacrifice, your salary is reduced as a way of paying the pension contribution. So you never pay tax or NI on that contribution.

If you contribute to a pension from your take home pay ( that you have paid tax and NI on) - then you get the tax back but not the NI. So the advantage of salary sacrifice is you save paying a bit of NI.

As mentioned above there can be some tax advantages when you retire, by having the money in an AVC linked to your LGPS scheme, rather than a stand alone pot.

On the other hand a separate pension out could mean you would have more flexibility when to take it, and you have noticed that the Pru is not the most up to date provider.

Veloflyer

You have a fantastic pension scheme available to you and choices that the private sector can only dream of. So, moaning about being put off due the options is a bit off

Blinking right! ….If I were in the OPs shoes I'd be AVC for that reason.

Luckybonus

Thankyou so much Dunstoph, Daveysp, Silverby and Albermarle for your very helpful, informative and kindness in reply, I really appreciate your advice :)

I wasn't aware they may be advantages to have money in an AVC linked to my Pension pot, or the option to buy LGPS Pension, this is really interesting. When choosing the AVC fund it says nothing about what each individual fund it invested in and what their performance is, which feels a bit like making a decision in the dark! The Prudential website listed some of their funds, but you couldn't compare like with like! Prudential have basic descriptions of the fund name, but on their website they are divided into passive, active, passive +, passive ++, or +++ and you can't be sure through the AVC site which one you are investing in that gives the best performance.

I appreciate all your help, it all feels a mindfield though and not suprised people are put off making any decision and investing!

Thankyou for all your help and good luck everyone with your goals! :)

King Regards

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81960038#Comment_81960038

I can understand your frustration with the Pru website, but your decision about AVC vs SIPP should not be swayed by this.

Luckybonus

Thankyou Albermale, this is really interesting and I am so thankful for your advice. Have a good day:)

Kind Wishes,

Aylesbury_Duck

I have a Pru AVC linked to an LGPS. There's a fund guide you can read online or download, I found it helpful. I'm confident enough to have picked three funds myself, but there are lifestyling options for those that aren't, and who want a fund that will automatically adjust investments to reduce risk as you near retirement age, from something like 10-15 years out. From memory there are three lifestyling options, one for those targeting drawdown, one for annuity and an 'unsure' options that presumably sits somewhere between those two.

Google/AI search for the fund guide if you can't locate it on the Pru website, but do make sure it's the Pru guide, is the current one, and that the fund options are available in your scheme.