Retirement Planning - AVCs or LISA
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FIRSTTIMER wrote: »I have now also opened a SIPP with H&L paying £100 in per month and will probably do a LISA with £100 a month in next couple of years too. (So £250 going in per month with tax relief).FIRSTTIMER wrote: »LISA/SIPP - £250 a month = I want some cash so I can stop working between 58-65 and potentially not have so much lump sum from TPS.
In your shoes I would be making all contributions to the LISA not the SIPP as it gives more benefit. Sure under current rules it might be possible to access the SIPP a bit earlier but the dates might be pushed back further so you cannot access either until 60. Once you turn 50 you will no longer be able to contribute into a LISA so you could switch to either S&S ISA or SIPP contributions (if still appropriate) to give you some early-access money.
Alex0 -
Agreed - might just do that actually - knowing I have a full cash pot at age 60 tax free0
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They said they were independent!
No they weren't. Anything that restricts the options available cannot be considered independent. From my experience with teachers I have spoken with, it is usually a Prudential rep carrying them out. They try to get you to pay into the Pru AVC whilst not overtly bad mouthing the other options. i.e. there are you options but with a very very subtle push towards the AVC. Barely noticeable push as they are not allowed to favour one option.
If you are under 40, you should start a LISA. Even at worst, it is just for a few pounds initially, to ensure you can keep paying into it beyond age 40. It keeps that door open.
If you are a higher rate taxpayer, pension usually wins (SIPP, PPP or SHP over in-house AVC on most occasions nowadays). However, a basic rate taxpayer will find LISA can be favourable as long as the later age is not an issue. Or there is a risk of benefits being required. LISAs are included in means testing. Pensions are not (until retirement and then its only the notional income. Not the capital value).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.0 -
No they weren't. Anything that restricts the options available cannot be considered independent. From my experience with teachers I have spoken with, it is usually a Prudential rep carrying them out. They try to get you to pay into the Pru AVC whilst not overtly bad mouthing the other options. i.e. there are you options but with a very very subtle push towards the AVC. Barely noticeable push as they are not allowed to favour one option.
If you are under 40, you should start a LISA. Even at worst, it is just for a few pounds initially, to ensure you can keep paying into it beyond age 40. It keeps that door open.
If you are a higher rate taxpayer, pension usually wins (SIPP, PPP or SHP over in-house AVC on most occasions nowadays). However, a basic rate taxpayer will find LISA can be favourable as long as the later age is not an issue. Or there is a risk of benefits being required. LISAs are included in means testing. Pensions are not (until retirement and then its only the notional income. Not the capital value).
Thank you - they really were pushing the AVC and when I mentioned LISAs they were very reluctant to explore them or even acknowledge them. I’ll have a look into SI, PPP and SHP - why would you recommend these over AVCs?'The journey home, is never too far...'
'Wasting money is an insult to people who don't have any'
Reducing my spending, one month at a time...0 -
FIRSTTIMER wrote: »I havnt technically done AVC with TPS
Buy Out = So I can go 3 years early with no reduction
Faster Accrual = Started doing 1/45 because can afford to and also want to get the maximum TPS defined scheme benefit I can.
LISA/SIPP - £250 a month = I want some cash so I can stop working between 58-65 and potentially not have so much lump sum from TPS
Old Defined Scheme £100k = another cash lump/drawdown. So can have more salary on TPS instead of more lump sum. Depending on what’s best.
Thank you this seems like a more sensible approach than an AVC. I’ve done a bit of research but still confused. If you don’t mind could you elaborate a bit further?
Faster Accural - Let’s you pay more pension into your pot? Does your employer therefore pay more in?
Buy Out - so you can retire earlier? Online it said you had to opt in within six months. Is this still the case?
Additional Pension - I found this on the “Flexibilities Application” form which you can purchase in blocks of £250. How does this differ from the above?
Thank you - all of this advice has been really appreciated. My ultimate aim is to be able to retire at 60 without loss of benefits.'The journey home, is never too far...'
'Wasting money is an insult to people who don't have any'
Reducing my spending, one month at a time...0 -
FA - I bank 1/45 of my annual salary as pension benefit instead of 1/57, done yearly, increases by cpi +1.6% yearly, just like normal TPS.
Buy Out - Correct, have to opt in within 6 months of joining service, you pay a % yearly fixed for the rest of the time you are in service, around 2%. Means I can take my full pension 3 years prior to state pension age (currently 65) without any reduction.
APB - Pay for chunks of extra pensions to be taken at retirement, increases in value by cpi only and is separate to main scheme. I have opted against this in favour of a private LISA/SIPP.
Ultimately all flexibilities have a limit of £6800 extra pension in todays money which I can buy. My buy out is costing me a good £3.5k so I only have around £3.3k to play with and have opted for FA, as I will reach that limit in say 8/9 years they told me. So then I will only be able to continue with Buy Out until retirement or until I leave service. If this happens, I will probably ring and find out if I can buy any more and do a lump sum before leaving. I think I will have maxed out by then though.
I am using TPS as main income and LISA/SIPP (£200 a month) from now to age 58/60 as a big cash lump sum to use and bridge the gap between 58 (current earliest can take SIPP) and 65. I will then assess whether wise to take another lump sum of 25% from TPS to ensure minimal tax depending on tax bands and how big my TPS pension is by then.0 -
Having said all this, my self pension contributions are huge, around 20% a year before taxation. I just think suffer now as I am quite stable and can survive as still have a good chunk of income and know that if the s**t hits the fan I have banked a good chunk over the next 10-15 years. Rather than wait until age 50, think I want to stop working and have no back up plan and everything is double in price to buy (increased pension etc)0
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FIRSTTIMER wrote: »FA - I bank 1/45 of my annual salary as pension benefit instead of 1/57, done yearly, increases by cpi +1.6% yearly, just like normal TPS.
Buy Out - Correct, have to opt in within 6 months of joining service, you pay a % yearly fixed for the rest of the time you are in service, around 2%. Means I can take my full pension 3 years prior to state pension age (currently 65) without any reduction.
APB - Pay for chunks of extra pensions to be taken at retirement, increases in value by cpi only and is separate to main scheme. I have opted against this in favour of a private LISA/SIPP.
Ultimately all flexibilities have a limit of £6800 extra pension in todays money which I can buy. My buy out is costing me a good £3.5k so I only have around £3.3k to play with and have opted for FA, as I will reach that limit in say 8/9 years they told me. So then I will only be able to continue with Buy Out until retirement or until I leave service. If this happens, I will probably ring and find out if I can buy any more and do a lump sum before leaving. I think I will have maxed out by then though.
I am using TPS as main income and LISA/SIPP (£200 a month) from now to age 58/60 as a big cash lump sum to use and bridge the gap between 58 (current earliest can take SIPP) and 65. I will then assess whether wise to take another lump sum of 25% from TPS to ensure minimal tax depending on tax bands and how big my TPS pension is by then.
Thanks for that info! So it seems I am unable to opt-into buy-out as I am 13 years into service.
To be honest, I’m not hugely concerned/focused on maxing out my pension. I just don’t want to work post-60. I love my job but it is intense and I know I won’t be able to hack it physically or mentally post 60. I am even considering dropping a day over the next few years as it is so intense. I’d happily reduce my income/pension if I thought it would give me a better quality of life.
I’m also quite conscious that I want to live for today and not worry about tomorrow - there will be enough worries when it arrives! I do really value my holidays with Mrs McCreary and wouldn’t want to sacrifice things and struggle. We have a lot we want to do on our house etc but have made savings and reduced bills etc. We should have our mortgage paid off by the time I am 47 so that means we’ll have more to save between the age of 47 and 50. Although I’d onlt have three years of LISA contributions left!
To be honest, by-out is what I needed but when I entered TPS at 21 I wasn’t even thinking about retirement or that pensions could be flexible.
I’ll continue to put money in my LISA and have a look at Faster Accural and read up on SIPPs - general consensus is to avoid AVCs it seems!
Thanks for your help it’s really appreciated.'The journey home, is never too far...'
'Wasting money is an insult to people who don't have any'
Reducing my spending, one month at a time...0 -
No worries, glad it has given you some info. I don't plan to work past 55-58 hence want to make sure I am ok in doing that. Most FA's have just said max out company pensions first and then LISA and then SIPP. Even though I could pay in more at a later age - the bigger and cheaper benefit is maxing out now.0
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