Paying into AVC

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mncollyer
mncollyer Posts: 249 Forumite
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in Pensions, annuities & retirement planning
We have under 9 months left on our mortgage and we are going to put the money into my works AVC scheme, will this will be deducted before tax as somebody at work mentioned it.
If so as my earnings are close to but under the 40% tax limit am I correct in thinking I can still work overtime and not pay 40% tax so long as I don’t earn more than I put into AVC scheme.
Finally when would I be able to start taking money from the AVC pot.

Thanks Mark

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  • Brynsam
    Brynsam Posts: 3,643 Forumite
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    'Somebody at work mentioned it' isn't definitive! Have a word with the pension scheme administrator, HR or payroll person, who should be able to tell you immediately. They will also be able to confirm the tax position and when you can draw money from your AVC pot.
  • dunstonh
    dunstonh Posts: 116,387 Forumite
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    Did the person at work also mention that AVCs are largely obsolete nowadays and only a small number are worthwhile compared to retail personal pensions?

    in 2006, the rules changed allowing employers to end offering in-house AVCs. So, those AVCs that still exist have largely gone undeveloped since then. However, the retail market has thrived with features, investment options all improved and charges, importantly, fallen.

    This does not automatically mean your AVC is no good. You could be in the small range where there is a benefit. However, you need to do better than "somebody at work".
    Finally when would I be able to start taking money from the AVC pot.

    May be linked to the main scheme (which can be a good thing). Options may not be as flexible as retail pensions.
    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.
  • mncollyer
    mncollyer Posts: 249 Forumite
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    Brynsam wrote: »
    'Somebody at work mentioned it' isn't definitive! Have a word with the pension scheme administrator, HR or payroll person, who should be able to tell you immediately. They will also be able to confirm the tax position and when you can draw money from your AVC pot.

    It was while I was at work lat night so obviously nobody was available from the pensions dept so I was just asking a general question to get an idea of my options.
    I will be making an appointment with pensions in the near future to discuss my options before making a decision what we do with the money
  • mncollyer
    mncollyer Posts: 249 Forumite
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    dunstonh wrote: »
    Did the person at work also mention that AVCs are largely obsolete nowadays and only a small number are worthwhile compared to retail personal pensions?

    in 2006, the rules changed allowing employers to end offering in-house AVCs. So, those AVCs that still exist have largely gone undeveloped since then. However, the retail market has thrived with features, investment options all improved and charges, importantly, fallen.

    This does not automatically mean your AVC is no good. You could be in the small range where there is a benefit. However, you need to do better than "somebody at work".

    May be linked to the main scheme (which can be a good thing). Options may not be as flexible as retail pensions.

    I think our scheme is quite good as lots of people are paying into it
  • cloud_dog
    cloud_dog Posts: 6,044 Forumite
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    As an example...

    I am making AVC payments in to my company scheme. The reason I have chosen this route is that:
    1. My company pay salary via 'salary sacrifice', which saves me 2% NI contributions as a 40% tax payer and 12% NI contributions as a 20% tax payer.
    2. Downside is that the AVC scheme is linked to the main scheme (DB) and so AVCs cannot be taken outside of main scheme rules, i.e. my NRA (65).
    3. Upside is that I have now received written confirmation that should I leave the employment, prior to NRA, I would be able to transfer out the AVCs whilst leaving the DB scheme intact
    And, this is my plan at the moment to allow flexibility in retiring early if all other things pan out.

    You really need to clarify your own company's scheme rules.
    Personal Responsibility - Sad but True :D

    Sometimes.... I am like a dog with a bone
  • Brynsam
    Brynsam Posts: 3,643 Forumite
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    mncollyer wrote: »
    I think our scheme is quite good as lots of people are paying into it

    'Lots of people' - hmm. Half a dozen you know, 60% of the workforce...what constitutes 'lots' - and how many are paying to a personal pension rather than paying AVCs? Inertia is often the reason people pay/stay in company AVCs, so do your homework to ensure you get the best you can. Great that you can make an appointment to discuss it - face to face can get you a lot further in terms of understanding/action than any number of forum answers.
  • mncollyer
    mncollyer Posts: 249 Forumite
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    Was looking for an answer to the working overtime and not going into 40% tax bracket after paying into AVC, is the AVC contribution taken from my salary before tax
  • cloud_dog
    cloud_dog Posts: 6,044 Forumite
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    mncollyer wrote: »
    Was looking for an answer to the working overtime and not going into 40% tax bracket after paying into AVC, is the AVC contribution taken from my salary before tax
    There isn't a black and white answer. Usually it is, yes (usually with older school schemes). But, this cannot be guaranteed unless you confirm with your employer.

    Assuming it is, then obviously, you can only earn overtime up to the amount that your AVCs take you below the 40% tax bracket.
    Personal Responsibility - Sad but True :D

    Sometimes.... I am like a dog with a bone
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