Advise on either adding AVC or put in a savings account.

[postiewhite]

Which is a better return over 5 yrs. Putting in £100 a week into AVC over that period or saving £100 a week into a 5yr fixed 5% savings account which will give me around £28,000.
I want to save this amount for my last 5yrs at RM and then take the money in a lump sum

[david3595]

I was only able to fund my 3yr and 5yr fixed rate savings accounts for a limited period after opening, a deposit window I think it’s called ?

[yellowbelly]

Which is a better return over 5 yrs. Putting in £100 a week into AVC over that period or saving £100 a week into a 5yr fixed 5% savings account which will give me around £28,000.
I want to save this amount for my last 5yrs at RM and then take the money in a lump sum

Well with the fixed rate savings account you can reasonably forecast what you'll get - but unless it's in an ISA you'll end up paying tax on your interest.

With the AVC you'll get the tax relief on contributions but you don't know how the underlying investments are going to perform though. Also
generally the wisdom for equity investments (which your pension funds will probably be invested in) should be looked at as at least plus five year investments to avoid cashing in when there's a drama in the equity markets.

Also as David said above it's a bit unusual for an account at 5% over 5 years that lets you contribute monthly throughout the whole period. Is it a 'regular saver' account of some sort? Have you checked the expected monetary amount that the provider says you will get at the end?

For example First Direct's Regular Saver (quote below) says you'll get 7% interest on 300 a month for 12 months. So taking that at face value 7% of 3600 you'd expect to get 252 but you don't because you actually get 136.50 which is actually about 3.7% (because your contribution in month 6 is only earning interest for the last 6 months of the year and so on until the last contribution is only earning interest for 1/12 of the year) - effectively you only earn half the headline interest rate.

Interest example: If you save £300 every month for 12 months and qualify for the 7.00% AER/Gross p.a. interest rate, you'll earn approximately £136.50 interest (gross).

[cheerful]

Generally you keep the first £12k you earn in a year, then you get hit with 20% tax and 12% National Insurance.

That's what makes putting as much as you can (after your first £12k) into a salary sacrifice pension so amazing.

If you use salary sacrifice to bring yourself below minimum wage, then you no longer qualify for salary sacrifice and get taxed on your full earnings that week (I had it happen a few times when I got zero hours OT on weeks off).

For every £1 you earn, you'd get 68p in your bank account. That sounds like you're losing 32%, but to put it another way, you can pick between 68p in your savings account or £1 in your pension. It's already 47% higher.

A normal savings account will take 6 years at 7% growth to go from 68p to £1 (and as was mentioned by others, you're unlikely to get 7% for on a savings account without strings attached. And by that time you'd hope the £1 in the pension would've grown too).

But the downsides of a pension...

Individual shares have very random pricing, but almost all pension funds spread the investment out over thousands of shares, in multiple industries and countries.

It's still random, but generally trends upwards. However, something it can take a few years for the markets to recover from something like 9/11 or the 2008 Global Financial Crash. And no-one can predict the future, weird stuff in Japan's economy led to stagnant markets for many, many years.

And the downside of spreading the investments out over many countries - the value of your fund becomes dependant on the value of the pound vs the euro and dollar. You end up losing money if the pound gains value, and gaining money when the pound tanks.

That sounds like a typo, but it's because if your pension has shares worth £5k + €5k + $5k it'll have a value today of £5k + €5k (£4378) + $5k (£4013) = £13k, but if Theresa May does one of her special budgets or we do MegaBrexit and fall out with our neighbours causing the pound to lose 30% of its value then the value of the euros and dollars of your pension would increase: £5k + €5k (£5700) + $5k (£5200) = £16k.

So, weirdly, if the country gets a wise, insightful leader the year before you retire, you'll lose money. If we get a windowlicker, you'll gain money (as will any billionaires who could see it coming and shifted their assets away from the pound before the crash, to make a killing buying it back afterwards).

Until only this year, conventional wisdom was that bonds were a much safer, boring way to invest, and pension funds would usually automatically shift people from the higher risk funds into lower risk bonds as they neared retirement, but bonds have been going weird too.

Pension funds also have fees, but they should be low (0.5% or less per year is usually considered acceptable).

When I started using my AVC's I just blindly trusted that RM had the interests of the staff at heart, so was happy to put a bunch of my wages into the RM pension, so I've not looked at what the conditions are on withdrawals or getting a lump sum. Considering how much RM have changed over the past 18 months I wouldn't be surprised if bosses would put us in a really high fee, badly managed pension fund if they were offered a nice car (or a even a fiver).

tl,dr;
Typically, putting your wages into AVC will give a much better return, but it's also quite risky. I've no clue about lumps sums and taking the money out.

[postiewhite]

Which is a better return over 5 yrs. Putting in £100 a week into AVC over that period or saving £100 a week into a 5yr fixed 5% savings account which will give me around £28,000.
I want to save this amount for my last 5yrs at RM and then take the money in a lump sum

Well with the fixed rate savings account you can reasonably forecast what you'll get - but unless it's in an ISA you'll end up paying tax on your interest.

With the AVC you'll get the tax relief on contributions but you don't know how the underlying investments are going to perform though. Also
generally the wisdom for equity investments (which your pension funds will probably be invested in) should be looked at as at least plus five year investments to avoid cashing in when there's a drama in the equity markets.

Also as David said above it's a bit unusual for an account at 5% over 5 years that lets you contribute monthly throughout the whole period. Is it a 'regular saver' account of some sort? Have you checked the expected monetary amount that the provider says you will get at the end?

For example First Direct's Regular Saver (quote below) says you'll get 7% interest on 300 a month for 12 months. So taking that at face value 7% of 3600 you'd expect to get 252 but you don't because you actually get 136.50 which is actually about 3.7% (because your contribution in month 6 is only earning interest for the last 6 months of the year and so on until the last contribution is only earning interest for 1/12 of the year) - effectively you only earn half the headline interest rate.

Interest example: If you save £300 every month for 12 months and qualify for the 7.00% AER/Gross p.a. interest rate, you'll earn approximately £136.50 interest (gross).

What I want to do is save around 60k in the next 12 yrs (so basically around £100 a week for 12yrs) so I can perhaps have that extra money available to me when I'm 63yrs old to draw out. If I save this up in an AVC instead can I take out that £60k that I've saved or will I be subject to bigger taxes compared to saving it in a bank?
So taking into consideration I want to put £100 a week away for 12yrs until I'm 63 is the AVC still a better option than a savings bank?

[mrcurve]

tricky to answer this it would be close if not financial advice.

think the avc scheme is going to change when the new scheme comes in, and its tied to taking your pensions.

If you use PSE it goes into the avc tax and ni free so its quite a good boost currently, but if you pay too much into the avc you may fall below the minimum wage and lose the PSE, £!00 may well be too much a week, and with a new minimum wage in April every year the figures will change.

https://www.royalmailpensionplan.co.uk/ ... sp_1-1.pdf

[RobertT]

think the avc scheme is going to change when the new scheme comes in, and its tied to taking your pensions.

No more contributions will be allowed into the current AVC's(Bonusplan & Flexiplan) when the new CDC pension scheme starts. But they can still be used in the same way as now.

The usual use of AVC's via the RMPP, is to fund the tax free lump sum with particularly NRA60 benefits.
But they can also be transferred out to a personal pension independently and accessed from there.

The CDC scheme will have it's own AVC arrangements - the Lump Sum Booster and a DC AVC.

[BenacreNick]

RobertT, this will mean even more pension pots and additional AVC pots as well.

The list is ever-growing my friend.

[NWpostie]

The CDC scheme will have it's own AVC arrangements - the Lump Sum Booster and a DC AVC.

Is there any further details on these two set ups ?

By the time it comes in I would probably be 3 and a half years away from retirement.

[RobertT]

The CDC scheme will have it's own AVC arrangements - the Lump Sum Booster and a DC AVC.

Is there any further details on these two set ups ?

By the time it comes in I would probably be 3 and a half years away from retirement.

I have no more info other that what's already available here: https://www.myroyalmail.com/collective-plan/costs

I'm sure you'll get more in due course.