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AVC advice

Discussion in 'Retirement' started by RossSalmon, Sep 16, 2020.

  1. RossSalmon

    RossSalmon New commenter

    May I begin by saying thank you to diddydave for taking a look at my pension statement and pointing me in the right direction for when I retire.
    My question is about AVCs and if you’re able to offer some advice I’d appreciate it.
    I’ve been paying into a Prudential AVC since I started teaching 1995. I’ve got about 4 years left before I retire a few months before I’m 60.
    Should I put more money into my AVC pot for the next 4 years or are there better ways of generating some extra income for my retirement years?
  2. HannahD16

    HannahD16 New commenter

    I had same questions over last year or so and found this forum really helpful. The bottom line is though you will have to decide what is best for you. I have gone for a mixture of faster accrual, additional pension bought over ten years (if I make it that long!) and also AVC. I had started one years ago and then stopped as we needed the money each month when we had children. The AVC is to bridge the gap between final salary at 60 and leaving my CARE pension until 67. I will augment my pension for those 7 years with AVC money as I started a bit later than most in teaching career. I can increase or decrease my AVCs at any time depending on circumstances which I like plus the fact it is “topped up” before tax deduction so you get benefit of with 20% or 40%, at least until govt changes it’s mind on that one ‍♂️
    DIddydave is so helpful on here as are so many others.
    Good luck with you decisions

    I wish I had known then what I know now and I would have added just a little more earlier in my career. It would have made such a difference and hurt a little less
  3. RossSalmon

    RossSalmon New commenter

    Thanks HannahD16
    My plan is to do the same as you and use my AVCs to supplement my pension until I’m 67. When I first started paying them I wasn’t sure I’d done the right thing (several of my colleagues said they were a waste of money). Now that I’m nearer to retirement I think I made a good choice as I can choose to drawdown rather than buy an annuity. I think I’m edging towards upping my monthly payment unless others have any better suggestions. Thanks again.
  4. diddydave

    diddydave Lead commenter

    AVCs are much the same as any private pension but have the advantage/disadvantage of being taken out of your pay packet before income tax is charged.

    The advantage of this is that there is no difficulty with sorting out the tax position with HMRC, this is particularly handy if you have some income in the higher tax bracket(s) because otherwise you'd have to get that tax back from HMRC, probably by having to do a tax return.

    The disadvantage of them comes when you put in so much of your salary that your taxable income falls below the taxable allowance. I.e. if you were to put ALL of your salary into them (you are allowed to put in 100% of your salary - up to £40k - into the TP and other pensions). This is a disadvantage (I think) because you won't get tax relief on the last £12,500 whereas a private pension claims back the basic rate of tax on everything you put in...even the tax-free allowance part!
  5. pauljoecoe

    pauljoecoe Occasional commenter

    Paying into an AVC has the benefit of tax savings but I would suggest the growth over a short period would not be great with the Prudential.

    Might be better to open a SIPP which would still allow you the tax benefits of paying into a pension but would allow you to choose funds to invest in that 'may' have a better return than the Prudential AVC.

    Of course investments can go down aswell as up so if you are cautious the Prudential scheme whilst not great might be as good as any.
  6. frodo_magic

    frodo_magic Occasional commenter

    Personally, I wouldn't go down the SIPP route if you have just 4 years to retirement. SIPPs are for longer term investments and a crash, Black Monday, war, pandemic, natural disaster etc might slash the value of a portfolio overnight and give the uninitiated investor a heart attack. The general consensus is that the closer you get to retirement, the more you should move what you have into 'safer' more boring investments. I would stick to lobbing as much cash as you can muster into into a mix of Premium Bonds, extra pension, AVCs etc and be happy, relaxed and at one with your investments. The last thing you want is to be watching the stock market.
  7. Sundaytrekker

    Sundaytrekker Star commenter

    Prudential offers a choice of funds within their AVCs. When I first started it was just the With Profits Fund, which actually served me very well, but later you had more choice. The choice included a cash fund with a low interest rate but at least that didn’t go negative. Make sure you understand what the charges are.
  8. RossSalmon

    RossSalmon New commenter

    Thanks everyone.
    Very much appreciated.
  9. Prim

    Prim Occasional commenter

    I'm guessing you could just open a SIPP and not invest in anything just hold the money there? If you are a 40% tax payer then even that is benefical given the current climate :(

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