AVC's - Company Pension Scheme

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
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Legacy_userLegacy_user Forumite
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MoneySaving Newbie
Got to start this by saying I'm fortunate.

Im in a final salary pension scheme.

3 years ago the company changed the "th's" from 60th's to 80th's.

I was in line to retire at 60 (still 25 years away), with 39/60th's, now it will leave a deficit, which I'm advised by our companies pension consultants, is equivilent to £5000 per annum at today's salary level.

I've had a quotation from Scottish Equitable (my Company Scheme's AVC provider), they advise that I contribute £215/month to make up the difference - i.e. I retire with 2/3rd's my final salary.

Questions:
  • Is it just me, or is this a huge amount of money?
    My current contributions are 7.5% of my salary to my company scheme, will I get tax relief on my AVC's
    I really think I ought to consult an IFA, any idea what this should cost?
Finally any other tips?

Replies

  • dunstonhdunstonh Forumite
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    AVC is not the only option. You have FSAVC or stakeholder pensions potentially available (note potentially).

    £215 seems ok assuming that Scot eq have aimed to give like for like. ie, spouses pension of 50%, increasing income in retirement and 5yr guarantee. All those increase the fund value required and therefore the premium.

    In reality, you may or may not want a spouses pension and you probably want a level pension rather than increasing (in most cases it takes increasing pensions about 13 years to equal a level pension and then another 12 years to pay out what you didnt get in the first place).

    There are other means of saving for retirement too, such as ISAs.

    An IFA can be fee based or remunerated by the provider (commission). Most IFAs will leave the choice to you.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • SystemSystem Forumite
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    Cheers DD,

    Stakeholder is not an option, I'm over the threshold.

    FSAVC - if I understand the correctly, this is outside any "company" scheme.

    I thought that it would be easier to go with the AVC, contributions would be deducted before tax, through the payroll. Therefore I "save" tax monthly rather than through my tax return - DOES THIS MAKE SENSE?

    Ball park cost of an IFA? Are they like solicitors c £120/hour? I appreciate that I can opt for commission, I'm just trying to get a feel for their rates?

    Finally, just looked at the small print from Scottish Equitable:

    Charge of 0.75% from the retirement fund EACH YEAR
    in addition to 1.0% "fund management charge".
    Not to mention commission @ £5.38 for each policy from month 28 until retirement age? (£1420?)

    this looks like a lot?

    Funnily enough I've got the "Money Diet" in my hands as we speak...

    Thanks for your advise so far, hope it's not too much trouble to clarify the above
  • dunstonhdunstonh Forumite
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    Ok, seems like you have covered the basics fine.

    AVC off payslip is convenient for higher rate tax payers and does save reclaiming tax via tax return like you would do with an FSAVC.

    IFA hourly cost is about £100-£250 depending on who you see. A partner/director IFA would usually be more expensive than an employee IFA. In a similar vein to accountants.

    It looks like the Scot Eq AVC is based on "old fashioned" pension charges. Prior to stakeholder, that would have been competitive but now that seems expensive. However, that is in line with FSAVCs. There has been no real alignment of AVC/FSVAC charges since stakeholder. Probably due to the lack of business in that area as stakeholder gets all the premiums where eligible. Plus we have pension "A" day coming which is going to impact on AVC/FSAVC so the providers are not going to spend millions on revamping and launching a plan with a limited lifespan and which traditionally gets smaller premiums. They are going to wait until A day.

    If i was to make a suggestion, it would be that you should perhaps wait until April 2006 when pensions simplification comes in (A day). Your options are going to be different and should be much improved. In the meantime you could put the amount to one side and when A day comes, you can place a single amount in. Single contributions also tend to get better terms than regular as well.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • PalPal Forumite
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    Just a small point but worth considering:  Many final salary AVC schemes allow you to convert the final amount into a pension when you retire within the same final salary scheme, usually at rates better than the annuity market will provide (because they are not building in the profit margin that an annuity provider would want to make).

    In general I would suggest in-house AVCs are usually better, as long as you are happy with the investment options available to you, as you do not have the same freedom of choice as you have with an FSAVC.  It depends what is important to you.
  • SystemSystem Forumite
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    PAL & DD

    Many thanks.
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