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AVCs or additional pension?

Discussion in 'Retirement' started by zondacat, Oct 24, 2017.

  1. zondacat

    zondacat New commenter

    This seems a selfish question as I am quite a high earner - however...

    I am 49 and on point 21 of the leadership scale (£64k).

    I have been buying AVCs for a while but want to invest another £500 per month in a pension pot of some sort. This will also help to reduce my income so that I can keep some of my child benefit (I have 2 chn aged 11 and 15)

    I started teaching in 1992. I want to retire early if possible - 55ish and maybe do something part time.

    However - I really don't have a clue.

    Should I buy additional pension? More AVCs? Can anyone unpick this for me before I blow my extra cash on prosecco and fast food!

  2. lindenlea

    lindenlea Star commenter

    Additional pension is valuable - does TP still do this, if they do it will be expensive but it is index linked. AVCs aren't as terrible as many teachers think, they just aren't as good as teacher's pension at how much monthly income they will buy, but you can take the cash out when the time comes and that becomes part of your estate and you can use it for anything - eg to pass on to your offspring, while with TP you get your tax free lump sum but it mainly converts into taxable monthly income. Your wife will receive a pension (50%) if you pop your clogs first but then when you've both gone, the payments stop and that's it.

    Other people will have more up to date info and be better at explaining it - also I may be incorrect. Remember though, the bottom line is that tying up your money in a pension that pays a monthly income is a gamble on how long you will live. The longer you live, the better investment it will have been. AVCs generally do not buy as much monthly pension but you can release the cash from the fund and pass it on to your children, or spend it on whatever you like, which might be good if you don't plan to live too long.
    emerald52 likes this.
  3. Sundaytrekker

    Sundaytrekker Star commenter

    I agree with lindenlea’s points. I did both AVCs and additional pension. I have got more monthly income from my additional pension than AVCs so I am pleased with that and would recommend this route. Yes, AVCs are now more flexible so you can make different decisions with them.

    Don’t apologise for the question. I deliberately used pension savings to minimise the amount of higher rate tax I paid. It was a good deal. Watch out for possible rule changes in the forthcoming budget.
    Shedman and emerald52 like this.
  4. sci

    sci New commenter

    Don't forget faster accrual within teacher pension.
    emerald52 likes this.
  5. PeterQuint

    PeterQuint Lead commenter

    You'll have to forgive me, I couldn't help myself.

    I've put your details (based on what you've said above) into the Teachers' Pension Calculator, and at 55 you'll come out with around £20,500 a year (you'd net around £1,575 a month after tax) and a £43,000 tax free lump sum.

    At 60 that'd be £32,000 a year and a £54,000 lump sum. Roughly, that pension goes up around £2,000 a year, as does the lump sum.

    This is not including the AVCs.

    How much more did you need?
    catmother likes this.
  6. lindenlea

    lindenlea Star commenter

    "You can never be too rich or too thin"
    Zoot, Sundaytrekker and PeterQuint like this.
  7. MadHatter1985

    MadHatter1985 New commenter

    I recently bought some additional pension. I was really pleased with how much yearly income I managed to buy. If I were to try to buy the same income with an annuity from a private pension pot, it would have costed me about 3 times more.

    Another option could be a SIPP. These are similar to the AVCs but some new ones on the market have very low charges and a wider selection of funds than the Prudential AVC. AVCs and SIPPs could be useful to fund a pot of money for early retirement and you could then leave your TP until nearer your normal retirement age.
  8. holdingon

    holdingon Occasional commenter

    My wife and I are stopping next summer. We will run down our sipps and savings to see us through to teachers pension at 60. Slips have been planned so that we won't pay tax on them.
  9. zondacat

    zondacat New commenter

    True - must cut down on jaffa cakes
    Last edited: Nov 4, 2017
    lindenlea likes this.
  10. zondacat

    zondacat New commenter

    Right - it's all very confusing!
    I rang pensions. I have a mix of final and average salary pension. GRRR!

    I have also been told ( not by pensions ) that I should try to reduce my taxable income or lose my child benefit.

    I can buy £250 per year of additional pension for £2800ish or £2900 if I want it to benefit my spouse if I die.

    I can do this by monthly payments and they will charge about £90 for this service (robbers!) or I can sell a kidney and buy it in a lump sum. Obviously monthly payments would reduce my taxable income but what about a lump sum? They will send me an invoice and I'll have to claim the tax back but would this then be taken into account in reducing my taxable income or will I have to pay back my child benefit? Maybe I can sell the children for more ( the 15 year old is costing quite a bit)

    My partner wants me to retire early but to be honest I don't think I'll have grown up by then!

    What should I do? ... about the pension?

    ..and now I suspect my GPS in this post is below the standard for "secondary ready."
  11. zondacat

    zondacat New commenter

    Well - I think I'm going to need a huge stash of money to see my children through further education for starters. Plus I have an ageing dependent mother with no assets and a father who has made himself homeless - it's like Eastenders only less fun.
    I used the calculator and came up with less but will check again. Thanks for your help.
  12. lindenlea

    lindenlea Star commenter

    I'd pay the fee and set up the extra pension payments. Like the poor, financial services fees are always with us.
    emerald52 likes this.
  13. Sundaytrekker

    Sundaytrekker Star commenter

    If you’re buying additional pension through TPS it is taken before tax is applied and I didn’t have to fill in a form or claim tax back later. That was with monthly payments so lump sum payments might be different. I still think it’s the best extra to do. No other additional fees involved. I paid the small amount extra for my spouse to be covered too. When I retired I was given the option to take a part of it as a lump sum. I didn’t do this as I had a decent lump sum anyway and I wanted to maximise my monthly income. My advice is to go for it.
    lindenlea likes this.
  14. zondacat

    zondacat New commenter

    I was thinking I might just pay the monthly fee and then I can forget about it.
    lindenlea likes this.
  15. lindenlea

    lindenlea Star commenter

    Surely it's a monthly contribution not a monthly fee.
    Sundaytrekker likes this.
  16. sci

    sci New commenter

    Incidently I have worked out that the one off fee of 3k for an additional pension of 250 only starts paying off if you are claiming it for more than 12 years. I know I plan to be!
  17. zondacat

    zondacat New commenter

    I know. I too plan to be but you never know...years of teaching year 6 have taken their toll!
    RSEsling likes this.

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