AVC advice 8 years to go.

cleverdic

Hi,
I am in a final salary scheme and I plan to retire in 8 years time. I have also been contributing to in house AVC's for the last 15 years and have over 30K in funds. I cannot buy added years from my main pension.
The company has advised that they are closing down the current AVC scheme and I plan to transfer my current funds to a different provider. I will lose about 700 pounds due to the MVR reduction.

This new provider has a number of different products to choose from. Can anyone suggest a website I can visit to help me choose which funds to invest in?

Secondly, right now I have stopped making AVC payments. I get 40% tax relief. Should I automatically restart or should I be looking elsewhere to make the equivalent investment bearing in mind it would be after tax cash that I am investing.

Thanks,
confused....

dunstonh

Companies must offer an in-house AVC if there is an occupational pension scheme in place. What alternative is being offered? (you say products which doesnt give as much to go on).

As for funds, its a personal choice and a selection should be chosen with percentages weighted towards your attitude to investment risk. No-one here can tell you what funds to choose. Only an IFA can do that (tied agents are not allowed either) and even we cannot do that here as it would be a breach of rules.

Pension fund information is not as readily available as unit trust/OEIC funds. Trustnet or morningstar will have a limited range of funds listed but it will not be complete. The product provider will be able to supply full fund information and that may be your best bet. (The best tools for information cost money and it only tends to be the financial services companies/advice companies that pay this)

Secondly, right now I have stopped making AVC payments. I get 40% tax relief. Should I automatically restart or should I be looking elsewhere to make the equivalent investment bearing in mind it would be after tax cash that I am investing.

I'm not a fan of in-house AVCs. This year alone I have had clients with problems due to retiring early and not being able to access the AVC because the main scheme couldnt be taken. That would not have happened with an FSAVC, personal pension or ISA. In one case I put the request in front of the trustees at their monthly meeting and they agreed to release it but in the other, they wouldnt budge.

So, in your case, AVC, FSAVC, personal pension (all varients - maybe not this tax year but next tax year when new rules come in) or ISA are all potential products available to you. Which one is best for you will depend on when you want to retire, how you want the money, how much other income will be there in retirement and what flexibility or options you need (in addition to what you have said already).

EdInvestor

Hi cleverdic

Who's the new provider and what funds are on offer? Also, has your company negotiated low charges? This is relevant to whether or not you wanted to put new money in.I agree with dunstonh that AVCs have big disadvantages compared with other products, not least that the company controls when you can take the income.

Will you be able to take advantage of the planned changes next year so as to get tax free cash from the AVC, do you know? If this is not decided and unless the AVC offers superior fund choice and very low fees, you may be better to seek another wrapper.

cleverdic

EdInvestor wrote:

Hi cleverdic

Who's the new provider and what funds are on offer? Also, has your company negotiated low charges? .

The new provider is L & G
The products are;

Global Equity 60/40
Global Equity 70/30
over 15 year gilts
annuity protection
consensus index
cash
ethical equity

Yes the company has negotiated very low rates which are significantly less than any FSAVC quote I have seen.

dunstonh

Is that all that is being offered? L&G have a much larger range so it appears that this is a cut down version. The fund range is not exactly ideal IMO.

As for FSAVC quotes, where and more importantly when, did you see any quotes. FSAVCs are not exactly a mainstream product any more and its damned hard to get quotes from anyone other than an IFA. Even then, they may be wary in proceeding. FSAVCs would generally be priced in line with stakeholders nowadays.

cleverdic

dunstonh wrote:

Is that all that is being offered? L&G have a much larger range so it appears that this is a cut down version. The fund range is not exactly ideal IMO.

Mmmm that doesn't inspire me with confidence.

I was aware of legislation changes taking place after April 6th next year but I didn't think it would affect me except for a period of time between age 53 and 55 when I will not be able to take the company pension. However, digging around suggests that I may be able to take out a stakeholder pension instead of investing in AVC's

Is it possible to compare AVC's with stakeholder pensions and is it worth investigating for me, particularly as I plan to retire in 8 years time?

dunstonh

However, digging around suggests that I may be able to take out a stakeholder pension instead of investing in AVC's

Correct

Is it possible to compare AVC's with stakeholder pensions and is it worth investigating for me, particularly as I plan to retire in 8 years time?

Yes it is as.

cleverdic

Even more digging suggests that most stakeholder pensions are passive charging up to 1% whereas my AVC options, although also passive, are only charging on average 0.085%. I'm not convinced there is a clear benefit in waiting for stakeholder pensions to become available.

I'm off to an IFA to help me sort this out as I believe that for my circumstances described above, there are no clear winners in terms of which direction to follow. I need financial advice which I fully appreciate cannot be provided here.

dunstonh

Even more digging suggests that most stakeholder pensions are passive charging up to 1% whereas my AVC options, although also passive, are only charging on average 0.085%. I'm not convinced there is a clear benefit in waiting for stakeholder pensions to become available.

Possibly not. However, is it better to invest in a portfolio costing 1% but with a decent fund range or in funds costing 0.085% with relatively poor funds? Also, depending on the amount you can get cheaper than 1%, although probably no cheaper than 0.4% which would leave you still some way short.

You are correct in saying that there is no one absolute answer though. Each has its pros and cons and the advice would probably match that. Its more a case of which pros and which cons are or are not important to you.