AVC's - Pension

essex-commuter

Any pension / finance experts here?

I know very little about pensions and at the age of 50 next year it is more and more on my mind.

Does anyone know much about AVC's and if they are worth doing?

surrey_commuter

it is a very complicated subject with ever moving goalposts. The answer to your question will depend on a lot of variables such as your other pension provisions.

Do you work for a company that will match your contributions?
The higher your marginal tax rate the better - you pay contributions net (ie if you are a 40% taxpayer then you only pay £60 to make a £100 contribution.

Now you don't have to buy annuities it is almost certainly a good idea

essex-commuter

My Company will not match contributions.
I am a 40% tax payer.
I have a final salary pension, 25 years service to date.

Does that help?

dhope

My OH works on the govt policy side.
Give Pensionwise a buzz. It's free.
https://www.pensionwise.gov.uk

Oddly my brother works for a writing consultancy who wrote a response to some of the Govt policy (made for some 'fun' chats between the Mrs and little bro discussing pension policy over sunday lunch), commenting that the language could be clearer. They put this out
https://quietroom.co.uk/discuss/3pensionoptions/

But yeah, phone Pensionwise and arrange to talk to someone. They may just tell you to speak to an advisor but you'll not lose anything, and while an internet bike forum is absolutely the best place to get advice, someone trained/qualified is probably a close second

shycho

essex-commuter wrote:

I am a 40% tax payer.
I have a final salary pension, 25 years service to date.

In layman terms (based only on the 2 points above) you'll get a big bag of money each month once you retire.

Congratulations!

surrey_commuter

essex-commuter wrote:

My Company will not match contributions.
I am a 40% tax payer.
I have a final salary pension, 25 years service to date.

Does that help?

that does help - you get hammered for tax after your pension pot reaches £1m. From memory that calculated as 20 times your pension entitlement (ie don't go above £50K). Your pension administrator will be able to get you a valuation (but are not allowed to advise)

kajjal

For final salary pensions be very careful about contribution levels and speak to your pensions team to understand clearly your current position and the impact of possible actions.

essex-commuter

Thanks for the pointers guys, much appreciated as always!

Dougal_bug

I work for a third party pension administrator, have been in industry 20 years, --as others say complicated but basics are below. No advice just in simplest form basic rules that apply to most

Things to think about. Pension wise cannot give advise can only tell you what your possible options are. Be aware that some options may not be available, not all legilsation changes are compulsory, such as the full encashment at retirement.

Avc paymnets, basics are, you cannot contribute more than 40k in a tax year that is you and your employer. However, as a higher tax payer this starts to get more complex. Even more so if your salary hits the threshold of 110,000. As a higher tax payer, my recommendation is ask your administrator for a pensions saving statement. This will tell you how much annual allowance you have used, and if you can 'carry forward' anything from the last 3 years that wasn't used if you have hit your limit this year. They have to legally provide within a month of your asking, if you do go over, in the tax year this should be sent automatically to you no later than 5 Oct year after. If your salary is over threshold then poss your limit could be reduced to as low as 10,000. Final salary calc to determine annual allowance used is complicated, so better asking for than trying to calculate yourself as there are a number of variables in there and is not the actual contribution you or your employer make to the scheme.

It also gets a bit more complicated than that, because rules changed in 15/16 and you have a pre/post alignment period for that tax year, so for some this could increase your allowance as a one off to 80k. Your administrators statement should take that all in to account though.

The 1million rule someone mentioned earlier relates to when you retire and take your benefits, referred to as crystallisation. If you have not applied for any protection certificates and you would know this because you have to send an online application to HMRC, then you capital value ith no tax charges will be currently no more than £1m. This is known as your lifetime allowance(lta). For final salary u convert the full pension at retirement, before any cash, by a factor of 20 to determine the lta (as a standard rule). Anything over is still payable but will be subject to extra tax. The value of the benefits over the 1million can be paid as a taxed cash lump sum or taxed pension (additonal tax over marginal rate). Again ask your administrator for a current illustration specifically stating that you want to know what your lifetime allowance value is and this should be provided. They will either state it as a monetary value or as a % of the current limit which is £1m.

And you wander why folk dont understand.

Hope helps and not confused

FishFish

No, does not help and yes, it confuses. But mostly it is not wanted.

essex-commuter

Thank you for the detailed explanation. Sorry, but I'm totally confused now!

dhope

essex-commuter wrote:

Thank you for the detailed explanation. Sorry, but I'm totally confused now!

Call pensionwise to begin with. You'll get a better idea whether you need an advisor

essex-commuter

dhope wrote:

essex-commuter wrote:

Thank you for the detailed explanation. Sorry, but I'm totally confused now!

Call pensionwise to begin with. You'll get a better idea whether you need an advisor

Will do. As you said, it's a good second option

vimfuego

As above, I've been in the industry for years (compliance rather than advisory) & unfortunately pensions are very complex things thanks to constant political and legislative tinkering over the years. Pension Wise is pretty much concerned with how you take your pension benefits (set up to help people following the recent changes in accessibility at retirement) rather than helping you in the pre retirement accumulation phase. So, they may not be of much use to you here, but they might at least flag your options when you come to retire, point you in the direction of tools that may help you work out how much you are on target to have when you get there etc. Short answer though, if you are unsure after speaking to them, you either need to do loads of research and get comfortable with your options & the associated benefits & risks, or seek professional financial advice (though clearly there's a cost involved with that). Worth doing the job properly and investing some time in though. Good luck with it.

confused@BR

A word from the other side. I finished working nearly nine years ago and had my 70th birthday last month. My (late) father-in-law said "pensions are easy, provided you know how long you are going to live" and they haven't got any easier since he died. You will need advice and you will need to pay for it. That way you can be confident that the guidance is free from bias. (We hope)

Once you reach that happy place we call retirement you will be surprised how soon your views change. The amount of your pension will matter less (past the point when ends meet) and quality will be the abiding issue. Your health and that of your partner will dominate. It will affect avery decision you make and set the tone for the years ahead.

If you are free from debt and you should be, family matters will dominate. Grandchildren are the greatest pleasure and the gift you have for them is time.

These days, as a male, you should last past eighty and hope for another ten years, the last few will be less pleasant ant the last year will be grim.

I shall end with another quote, this time from a distant relative who was a Welsh hill farmer in his nineties-
"Old age, not for the faint hearted".>

essex-commuter

confused@BR wrote:

A word from the other side. I finished working nearly nine years ago and had my 70th birthday last month. My (late) father-in-law said "pensions are easy, provided you know how long you are going to live" and they haven't got any easier since he died. You will need advice and you will need to pay for it. That way you can be confident that the guidance is free from bias. (We hope)

Once you reach that happy place we call retirement you will be surprised how soon your views change. The amount of your pension will matter less (past the point when ends meet) and quality will be the abiding issue. Your health and that of your partner will dominate. It will affect avery decision you make and set the tone for the years ahead.

If you are free from debt and you should be, family matters will dominate. Grandchildren are the greatest pleasure and the gift you have for them is time.

These days, as a male, you should last past eighty and hope for another ten years, the last few will be less pleasant ant the last year will be grim.

I shall end with another quote, this time from a distant relative who was a Welsh hill farmer in his nineties-
"Old age, not for the faint hearted".>

Great post, thank you.

navt

Should you? If you can afford it now and you haven't breached your annual allowance, then yes.

Personally, I'd take the pain now and the gain later rather than vice versa. It all depends on what your goals are. For me, I try and minimize the amount of tax I pay (I do my bit already, thank you very much) and for now, AVC seems the most obvious way of doing so.