AVC - Is it right for me ?

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mjames16
Sun, 06/01/2008 - 12:33

Having read the 'Pension' article in January's issue of MONEYWISE (p 77:81) I am in a position of wanting to retire in 5 years time, I am in a final salary scheme but am looking to increase my monthly pension by contributing to an 'in-house' AVC, (no charges attached) which is administered by the Prudential.

Is this the best way to do this as in the article it states that "there's no great benefit. AVC's were more valuable before April 2006"?

I am unable to purchase additional years in the scheme so AVC's appeared to be the option because of the limited time I have to save.

‹ Planning for the big 'R'
Dean:

Knowing I was likely to have an option to retire this summer I started an AVC in the final months of the last tax year using a small endowment that had matured (should have been a much larger endowment but that's another story) I continued paying into the AVC for the few months until I retired then took the whole lot with my lump sum within the 25% allowance. The effect was that for each £800 I put in I got £1000 back. My only regret is that I didn't put more in whilst I could.

Tue, 08/01/2008 - 12:01
lmsm9:

in april 2010 a pension rules change means you can not draw your pension till age 55 does this apply to both private and company pensions or are company pension schemes still free to set there own rules ie still take your pension at 50?

Tue, 08/01/2008 - 14:01
mjames16:

I understand that the money paid into an AVC is 'tax free', the downside is that after the 25% lump sum is taken you then have to place the rest of the money into an annuity.  At present the average annual income that you can generate from an annuity is approx. £660 per £10,000 which is then taxed at your rate !

The real question is if I put aside £100 per week to save towards my pension should I go down the AVC route, invest in a stocks & shares ISA or put £50 in each ? 

I suppose a further method is to save into an ISA then in the final year before retirement place all the money into an AVC ?

 Any opinons would be appreciated. 

Tue, 08/01/2008 - 16:52
Dean:

I am in a public sector pension scheme so the annuity trap didn't apply to me but aren't you going to be faced with that whether or not you go for AVC. My lump sum without the AVC was well under the 25% limit so it just seemed a no brainer 

Tue, 08/01/2008 - 20:30