AVC Contributions

Post by **postie2007** » 07 Jun 2018, 18:58

I have £15000 in my AVC pot, my question is it worth me carrying on paying at my current level or reduce contributions . AVC pot will probably be more than 25% of my total pension pot, i aim to retire in 4 years time aged 60 having completed 16 years in the business.

mark.cup · Post by **mark.cup** » 07 Jun 2018, 21:16

postie2007 wrote:I have £15000 in my AVC pot, my question is it worth me carrying on paying at my current level or reduce contributions . AVC pot will probably be more than 25% of my total pension pot, i aim to retire in 4 years time aged 60 having completed 16 years in the business.

You haven't said what your current level is?

Also with 16 years service you should have a reasonable pension value...

Let's just say you would get 3.5k a year pension that gives a pension value of 20x so 70k you can then pool your AVC money with it making 85k

You can then take 25% of the combined 85k which is 21.5k

I'm just giving these figures to give you an idea of how it works

Hope this helps

Post by **postie2007** » 08 Jun 2018, 10:30

Thank you, i will wait until pension update info due in Sept and make adjustment to AVC contribution if required.

Decky Boy · Post by **Decky Boy** » 08 Jun 2018, 19:34

That's a question that only you can answer and is dependant on a number of factors. At your age (56) saving into a pension makes absolute sense if you have disposable income that you wish to invest/save especially with Pension Salary Sacrafice (PSE) which we have at Royal Mail... as each £10 invested costs us just £6.80

Fund choice is also important as we get nearer retirement age so you may wish to review which fund(s) your invested in as some carry more risk than others. Ultimately what we receive from our AVC's depends on how the funds perform and as a general rule I've found the greater the investment... the greater the return ? ? ?

New pension rules allow us to keep our AVC pot(s) invested till age 75 and/or draw down amounts as we need them. As savvy pensioners best practice may be to draw down an amount just below our individual tax threshold which maximises our income by reducing or minimising the income tax we pay . . . this may not be great for NHS funding or the country's finances in general. . . but hey ho ! ! !

PS l am not a financial adviser and the above post in not advice.

heapsy · Post by **heapsy** » 08 Jun 2018, 22:42

Decky Boy wrote:That's a question that only you can answer and is dependant on a number of factors. At your age (56) saving into a pension makes absolute sense if you have disposable income that you wish to invest/save especially with Pension Salary Sacrafice (PSE) which we have at Royal Mail... as each £10 invested costs us just £6.80

Fund choice is also important as we get nearer retirement age so you may wish to review which fund(s) your invested in as some carry more risk than others. Ultimately what we receive from our AVC's depends on how the funds perform and as a general rule I've found the greater the investment... the greater the return ? ? ?

New pension rules allow us to keep our AVC pot(s) invested till age 75 and/or draw down amounts as we need them. As savvy pensioners best practice may be to draw down an amount just below our individual tax threshold which maximises our income by reducing or minimising the income tax we pay . . . this may not be great for NHS funding or the country's finances in general. . . but hey ho ! ! !

PS l am not a financial adviser and the above post in not advice.

Will Zurich allow draw down?

Post by **RobertT** » 09 Jun 2018, 05:02

heapsy wrote:Will Zurich allow draw down?

You can't do drawdown directly from your RM AVC funds, but Zurich do offer a drawdown product. Details here. So you may be able to transfer internally?

Otherwise you'll have to transfer to another provider.

There's some general drawdown info here.

The usual use for AVC's is of course to fund the tax free lump sum when taking your main RMPP/RMSPS pension benefits!

heapsy · Post by **heapsy** » 09 Jun 2018, 14:59

RobertT wrote:
heapsy wrote:Will Zurich allow draw down?
You can't do drawdown directly from your RM AVC funds, but Zurich do offer a drawdown product. Details here. So you may be able to transfer internally?

Otherwise you'll have to transfer to another provider.

There's some general drawdown info here.

The usual use for AVC's is of course to fund the tax free lump sum when taking your main RMPP/RMSPS pension benefits!

Yes, I'm planning on doing just that. I'm thinking about using my S&S ISA as a draw down type instrument. Possibly topping it up before I retire, using part or all of the AVCs. Investing into some corporate bonds as well as the funds I've chosen. Need to see where the earnings goes over the next few years. Also, I'm aware that I would need to reduce my AVC contributions, if I am to stay within PSE.

Hawkey99 · Post by **Hawkey99** » 09 Jun 2018, 17:11

I am struggling to understand how you would use your AVC in drawdown. Would you still use this to achieve your 25% tax free lump sum or something else.

Thanks

Post by **RobertT** » 09 Jun 2018, 17:29

Hawkey99 wrote:I am struggling to understand how you would use your AVC in drawdown. Would you still use this to achieve your 25% tax free lump sum or something else.

Thanks

If you wanted to use your AVC funds for income drawdown, you would transfer them into a drawdown product rather than use them to fund the tax free lump sum when taking your main benefits. Although tax is more likely to be payable when taking into account other income you may have.

Alternatively, if you had AVC's worth more than 25% you could transfer the excess and drawdown that, after taking your tax free cash.

Or as heapsy suggests, use the AVC's to fund the 25% lump sum, and put that into a savings account of some kind to dip into when you choose. In which case you're not really doing drawdown in the pension sense of the word.

BeamishStout · Post by **BeamishStout** » 23 Jun 2018, 17:29

postie2007 wrote:Thank you, i will wait until pension update info due in Sept and make adjustment to AVC contribution if required.

Why wait? You can see what your Zurich AVC contributions are worth right now so long as you have your password and user number (originally given with documentation).

Hawkey99 · Post by **Hawkey99** » 23 Jun 2018, 20:43

If I take all of my pension and the 25% tax free is made up entirely of my lump sum.

Is it then possible to actually take it for pension purposes but leave it invested in its current fund.

Thanks

Post by **RobertT** » 24 Jun 2018, 06:24

Hawkey99 wrote:If I take all of my pension and the 25% tax free is made up entirely of my lump sum.

Is it then possible to actually take it for pension purposes but leave it invested in its current fund.

Thanks

Not directly!

The Zurich AVC funds are really just wrappers that invest in other funds. The Growth fund for example, actually invests in 3:

Legal & General Global Equity Fixed Weights 50:50 Index (80.00%)
Legal & General Over 15 Years Gilt Index (16.00%)
Legal & General Over 5 Year IndexLinked Gilts Index (4.00%)

You should be able to take your tax free cash and then re-invest it in those 3 funds via a S&S ISA directly with L&G, or a fund supermarket such as Hargreaves Lansdown, etc.

But the only way to leave it invested exactly where it is, is to not take it in the first place!

Any attempt to put your tax free cash back into a pension may be seen as recycling!