Cdc and Avc

[rkss]

Hello, if Avc scheme is closed once CDC comes in, is it possible one can continue paying into it privately and get playgroup to set up payment direct from your wages? At present my avc payments go to Scottish Widows as does all, what will happen to the fund if it were to close?

[RobertT]

Personally I strongly suspect we won't be able to pay into the current AVC's(Flexiplan & Bonusplan) once the CDC scheme starts. But we've had no confirmation either way at the moment.

If no further contributions are allowed, the money will still be invested with SW until you decide to access it.

The only way you would be able to continue paying in, is if you transfer it to another DC pension arrangement. In which case you wouldn't be able to use it to fund your tax free lump sum when taking your NRA60/65 benefits. Nor would you be able to pay into it via your RM wages.

[rkss]

Mm. That's not good, main aim was to keep on paying into avc and avoid paying 40%tax earnings from property rental, I know I would still pay 20%tax when I retire on it but nasically save myself 20%tax.

[heapsy]

Earlier this week I rang pensions and asked for a new Flexi plan AVC form. I mentioned the possibility that the AVCs might close. The bloke on the other end told me that AVCs will be available with the CDC pension. Unfortunately, I forgot to ask if they could still be taken at 60, my preferred retirement age. It might be worth considering paying into a low cost S&S ISA via Vanguard. They have really low charges if you are not bothered about investing in any other funds and just want things simple. You could amass MORE money that way, than through AVCs, which would only be tax free if they were no more than 25% of the pot. Just a thought. I've just added another fund to my S&S ISA with a view to using it along side my AVCs.

[RobertT]

Mm. That's not good, main aim was to keep on paying into avc and avoid paying 40%tax earnings from property rental, I know I would still pay 20%tax when I retire on it but nasically save myself 20%tax.

You may be able to use a personal pension to similarly reduce your tax liability, but you won't get the benefit of PSE.

[RobertT]

Earlier this week I rang pensions and asked for a new Flexi plan AVC form. I mentioned the possibility that the AVCs might close. The bloke on the other end told me that AVCs will be available with the CDC pension. Unfortunately, I forgot to ask if they could still be taken at 60, my preferred retirement age.

The only official mention of CDC AVC's was when CDC was first announced in 2018. They said there would be the ability to pay an extra 1% of pensionable pay into the DBLSS, which would be matched by RM.

It might be worth considering paying into a low cost S&S ISA via Vanguard. They have really low charges if you are not bothered about investing in any other funds and just want things simple. You could amass MORE money that way, than through AVCs, which would only be tax free if they were no more than 25% of the pot. Just a thought. I've just added another fund to my S&S ISA with a view to using it along side my AVCs.

An ISA would need to increase in value by 47% just to keep pace with the benefit of AVC's and by 25% to keep pace with a personal pension, when factoring in the tax breaks.
So on the way in, pensions are far better than ISA's.

But if you're likely to pay tax on your AVC's, after the 25% lump sum, then ISA's could well be an alternative.
In practice it's likely to be a bit of a balancing act between the two, and as always will depend on other income and individual circumstances to one degree or another.

In my case I have AVC's of well over the 25% tax free pot value, but am planning on transferring my Bonusplan over to my personal pension at some point which will alleviate the tax situation to some degree and also help to fund my early retirement.

The Flexiplan and DBCBS will still be over 25% and I expect to lose about 5-6% of the total Flexiplan value to the tax man. Which considering it's grown about 200% from the net amount I've paid in myself, I'm not too worried to be honest.
In my case, I'm still likely to have more in my pocket than if I'd stuck to 25% AVC pot value and put some in ISA's instead, assuming similar investment performance.
But that may be different for others?

[rkss]

Thanks for all your Info, if possible of course I'd like to continue with Avc so as to pay directly from my wages and benefit from the tax relief, also allows me to keep under the 50k threshold for partners child benefit, yes I'm late Father.
I calculated I save apprix 4k by this method. Taking into account at todays levels of basic rate tax being 20% I would still pay 20% once I leave work at 67 (aiming to)
Already have taken nra60, so next one to take will be my nra65. I think as someone stated they called pensions, I will give them a call.
I only started paying into Avc 7 months ago so only paying into cash funds as its short term (7 years)
I plan to transfer the funds into some kind of annuity? Where by I can withdraw the funds over short number of years.

[rkss]

Sorry I forgot to ask, I take it that the pension pot for nra65 is seperate from the nra60? As I have already taken 25% as tax free from nra60.

[RobertT]

I only started paying into Avc 7 months ago so only paying into cash funds as its short term (7 years)
I plan to transfer the funds into some kind of annuity? Where by I can withdraw the funds over short number of years.

I hope you're factoring inflation into your plans, as the returns from the cash fund are very low and currently mean your money is effectively going down in value.

An annuity usually provides an income for life!

It sounds like you actually want to drawdown your cash?
If so, you'll haver to transfer your AVC's to a DC pension where only 25% of that will be guaranteed to be tax free, with the remainder being classed as income.
If you take your AVC's with your NRA65, more or possibly all of it will be tax free.

Sorry I forgot to ask, I take it that the pension pot for nra65 is seperate from the nra60? As I have already taken 25% as tax free from nra60.

You can also take 25% of your NRA65/DBCBS/AVC pot as tax free cash.

[rkss]

Yes, sorry meant drawdown, so that I can drawdown over just 2 or 3 years.
Yes therebis issue of losing money value over the 7 years, but is it not the safer method for short term, or I could gamble and try investing half of it in other areas, all a gamble really.

[RobertT]

Yes, it is all a gamble at the end of the day!
There's an inflation risk in cash and an investment risk with equities.

Personally I would say 7 years is more mid term than short term, and therefore would want to invest in mid risk, or at least spread it about a bit between risk levels.
But obviously it's always down to personal preference, etc.

[mrcurve]

I don't know what on earth they are doing with cash, but over the last year any money I have had in cash has gone down, not by much, but every month its gone down.

[Steve_claret]

I don't know what on earth they are doing with cash, but over the last year any money I have had in cash has gone down, not by much, but every month its gone down.

I think all of your fund based charges are paid from your cash scheme each month.

[RobertT]

I don't know what on earth they are doing with cash, but over the last year any money I have had in cash has gone down, not by much, but every month its gone down.

I think all of your fund based charges are paid from your cash scheme each month.

Why do you think that is the case? And what do you think would happen for someone who doesn't invest via the Cash fund?

In practice all investments can go down, and that is true of the Cash fund too, as it isn't the same as a cash savings account you might have with a bank.
It won't increase by much either.

[Steve_claret]

I don't know what on earth they are doing with cash, but over the last year any money I have had in cash has gone down, not by much, but every month its gone down.

I think all of your fund based charges are paid from your cash scheme each month.

Why do you think that is the case? And what do you think would happen for someone who doesn't invest via the Cash fund?

In practice all investments can go down, and that is true of the Cash fund too, as it isn't the same as a cash savings account you might have with a bank.
It won't increase by much either.

Robert, see below. If you have a cash fund then it is all taken from the cash fund. This is explained on the Investment Charges document you get when you open your account.

Yearly Scottish Widows fund based charge
We take a fund based charge calculated on the value of each of your investments. The charge is calculated daily and taken each month by selling units or shares held in line with the disinvestment strategy outlined below

Disinvestment strategy
Although charges are calculated based on the value of individual investments, the actual charge is taken from your investments in a specified order. Charges will be taken from cash held in your account then, if there isn't enough cash to cover the charges, from the least volatile fund you are invested in.