NHS pension scheme...AVCs...are they worth it?

marky2027

Hi everyone. I'm 35 now and have been paying into NHS scheme for 3 years although I've worked for NHS a lot longer and just put the pension thing off. What a FOOL!! Anyway to make up for some of the years I hadn't been contributing I am paying into AVCs and pay £32 /month (£25 difference at the end of the day in my wages). At the time of deciding to do this I could not get any sound advice form my employer as to the best way to top my pension up. I'm more interested in increasing my monthly pension as opposed to a greater lump sum. I aim to retire around the age of 57 giving me 25 years membership. I have just received my yearly forecast for the AVCs and this works out at £445 per year. This doesn't sound like a lot to me and was wondering whether this was the best thing to do with my money? I will hopefully increase the amount I contribute slowly each year. Is there anything else out there that could provide a better return than this? If i just put £25 per month in an account for 25 years it would leave a pot of £7500. Any help would be great.

dunstonh

t the time of deciding to do this I could not get any sound advice form my employer as to the best way to top my pension up.

To give advice you have to be regulated and authorised by the FSA. Occ scheme administrators can give you information about the options on the occ scheme but they couldnt tell you if better options are out there.

I have just received my yearly forecast for the AVCs and this works out at £445 per year.

Thats about right on a sample illustration.

This doesn't sound like a lot to me

You have to be realistic. You want to contribute for 25 years but chances are you will live longer than 25 years after retiring at 57. So, a monthly contribution of £32 isnt going to give you much more than £32 in real terms as income. The short term you are contributing over and the small amount are your main problem.

marky2027

dunstonh wrote: »

You have to be realistic. You want to contribute for 25 years but chances are you will live longer than 25 years after retiring at 57. So, a monthly contribution of £32 isnt going to give you much more than £32 in real terms as income. The short term you are contributing over and the small amount are your main problem.

When you put it like that I suppose you're right!! The thing is I don't want to get to retirement and then realise when it's too late that I should have put my money (all be it a small amount!!) somewhere else. Also when I get a yearly rise I want to increase the monthly amount bit by bit so I don't really miss it. Do you think it's best to pay for advice from an advisor? Do free indpendant advisors only advise on products where they would receive commission?

dunstonh

Do you think it's best to pay for advice from an advisor?

If you are only going to use the AVC then then an adviser is not much use to you as we would all say the same thing. Pay more into the pension and more into ISAs.

Do free indpendant advisors only advise on products where they would receive commission?

No. We frequently recommend products that dont pay us. NS&I products for example where the NS&I even given us our own extranet link as we pass so much business to them despite them not paying a penny.

marky2027

dunstonh wrote: »

If you are only going to use the AVC then then an adviser is not much use to you as we would all say the same thing. Pay more into the pension and more into ISAs.

I think what I am asking is there any other type of scheme similar to AVC where I could contribute to build up a pot and then buy a pension?? Does the tax and NI relief on an AVC make it better than other things available? From what I understand an ISA is just a tax free way of saving up a tidy lump sum. Is that right?? I'm sorry if I'm asking daft questions but I'm really not that clued up about pensions

paparossco

Most NHS Unions have access to IFAs that know the NHS scheme. Try talking to a local workplace rep as they should be able to put you in contact.

dunstonh

I think what I am asking is there any other type of scheme similar to AVC where I could contribute to build up a pot and then buy a pension??

Yes. AVCs are largely obsolete nowadays. Only where there are enhanced contributions or can be used in conjunction with the occ scheme for the lump sum calculation are worth it. Apart from those, stakeholder, personal pensions, SIPP, S&S ISA etc are all alternative options which may be better.

Does the tax and NI relief on an AVC make it better than other things available?

You dont get NI relief. Only tax relief on contributions which is equal to other pensions. Also, you shouldnt plan your retirement provision on tax relief.

From what I understand an ISA is just a tax free way of saving up a tidy lump sum. Is that right??

More or less. However, the tax free growth of a pension is identical to an ISA. ISAs dont get tax relief on contributions but then they dont pay income tax on the income you draw from them. So, you have to look at what you are after in retirement and what your overall provision is going to be. A pension could be best, an ISA could be best. For most, a combination of the two is best.