Prudential Teachers' AVC's

SpinnerB

Hello there,

I am 45 and am in the Teachers' Pension Scheme with 14 years of Pensionable service so far. For the first time this year I have saved into both a Cash mini and S&S mini, and intend to do the max of 7.2k for the next few years, so this is not an ISA vs Pension question.

Today I received details of the Prudentials Teachers' AVC facility (wish I had bought extra years when you could 20:20 hindsight) The benefit of the AVC is really one of ease I think, straight out of salary before tax, & I presume, they sort out all the tax benefits regarding goverment contibutions at both 22% and 40% tax relief.

I have two quick questions
(i) is there really a benefit with the AVC's beyond the other options? I still have to pick the Funds - Mind you a choice of 10 is less daunting than 2000 or could just go for the 'with profits' default, or should I be considering looking at a stakeholder, SIPP or other Private Pension provider.

(ii) My Feb 2007 statement said the value of the scheme as a proportion of lifetime allowance was 9.21% what sort of extra payments into the AVC or other option should I be looking at.

Thanks for any experience people may have re AVC's or do I need to give more information?

SpinnerB

seven-day-weekend

I do not understand the number-crunching concerned with AVCs.

But I can tell you some actual figures.

My husband paid into the Teachers' AVC with Prudential and got a 'pot' of £10k. He took early retirement at 55 in 2004 and the AVC pot pays out the grand sum of £49 per month (this is not index-linked but this was our choice, there was an index-linked option which started lower). He did not take any lump sum; I do not think that was an option in 2004.

Not worth it imho.

Hope this helps.

jem16

Far better to buy the "added pension" (which has replaced the extra years) than AVCs.

Either that or go for a personal pension where you will probably get a far greater choice of funds.

SpinnerB

Thanks seven-day-weekend, that doesn't sound great ...

Hi Jem16 I'll ask about that option ... have you anymore details about it, can imagine being told it doesn't exist ... , they didn't mention it when I asked them to send me details about the AVCs. Thanks

Will let you know ... would like to have an equivalent to 'extra years' linked to the pension, can't work out when I made the query why they needed to know which pension I had as it seems that AVCs are just like any investment and have no real link to the original product ... yet they do different AVCs for different pensions ... can anybody explain that one?

regards

SpinnerB

jem16

AVCs used to be linked to the occupational pension but are not necessarily linked now - it depends on the scheme.

Additional pension info can be found here;

http://www.teacherspensions.co.uk/resources/factsheet5.htm

SpinnerB

Thank you for the link jem16, I could buy the extra 5k for a lump sum of 60k'ish is this a good idea compared to say putting 60k into a personel pension- seems that as I am single, it would all be lost when I die - not good for the nieces and nephews, can't quite get by head around the Tax relief and how that works, spoke to a nice lady in Cardiff who just confussed me more, I think I might need to talk to an IFA

Thanks again for the help

jem16

SpinnerB wrote: »

Thank you for the link jem16, I could buy the extra 5k for a lump sum of 60k'ish is this a good idea compared to say putting 60k into a personel pension- seems that as I am single, it would all be lost when I die - not good for the nieces and nephews,

I think you need to work out what you need in retirement rather than thinking about relatives after you die - you want a comfortable retirement. However I really couldn't say which is best for you.

can't quite get by head around the Tax relief and how that works, spoke to a nice lady in Cardiff who just confussed me more, I think I might need to talk to an IFA

Thanks again for the help

Might be a good idea to talk over all the options with an IFA.

skjchance1

Hi Spinner,
You should definately speak to an IFA but make sure that they specialise in pensions and if poss. the Teachers Scheme and Pru AVC scheme. I spoke to a couple who really didn't know much about the Pru AVC before finding a company that actually specialise in the area called Surrey Independent. They were fab and explained how everything works and the pros and cons of the AVC scheme. In the end I transferred mine away from the Pru as was in the With Profits fund and it wasn't paying out much in bonuses compared to what it was getting in growth. An IFA should discuss the best thing for you and your circumstances so what was right for me may not be for you though. Good luck

dunstonh

In the end I transferred mine away from the Pru as was in the With Profits fund and it wasn't paying out much in bonuses compared to what it was getting in growth.

That doesnt sound like the Pru teachers AVC but more like the old Pru FSAVC. The teachers AVC with Pru allows use of the unit linked funds as well as the with profits funds. The Pru FSAVCs often only had the with profits fund available when sold by a Pru tied agent.

There is also a £300 charge to transfer the in-house AVC and the charges of the scheme are 0.75% p.a. So most alternatives would be more expensive. So, most of the time you would tend to leave the in-house AVC where it is. The Pru FSAVC usually has no exit charge and is technically a personal pension since April 2006 so falls under personal pension rules and not AVC rules.

New money would typically go to the TAPS or a personal pension/SIPP or stocks and shares ISA as they are the better modern options for most.

Prudent

Your teaching union can usually provide financial advice. I looked at buying extra years sometime ago, but concluded it wsn't worth it because I didn't get the benefit of my employers contribution. At the time I did nothing further with regard to a pension due to some unexpected changes in my personal circumstances.

Earlier this year, I looked into it all again and after weighing up all the options, decided to put £300 a month into a personal pension. Then added to this is a further £75 in tax relief. I organised this through the financial advisor from my union. I am 42, so a similar age to yourself. I also had almost the same length of service. Obviously, what you decide on very much depends on how much income you want in retirement. I also have other investments and have paid off the mortgage, so £300 seemed to be enough to meet my needs.

EdInvestor

One other thing worth bearing in mind is the tax position after retirement. Pension income (incl state pension) is taxable. Income from ISAs is tax free and some direct income (eg dividends ) can be tax free to those on basic rate.There is a large annual capital gains tax free allowance.

The tax free old age allowance is going up to 10k, so all income below that will be tax free.
At around the 22k income level, that tax free allowance starts to get clawed back so you eventually end up with the ordinary personal allowance, and the rate applied over the progressive withdrawal is something like 33%.

So it is worth looking at your projected pension income in the light of proximity to these tax thresholds, as a little bit of tax wrapper tweaking as regards investing in pension or ISA or direct can make quite a difference.

In particular (though not in this case) anyone who has not been contracted out of SERPS/S2P should check their state pension entitlement, as it may be much larger than thought and eat up most of the 10k allowance before you eve start totting up company or other pensions.