AVC For a year. Worth it?

[chuzzwuzzer]

Hi. I am in the rmppc. Started in 1988. Left Royal mail after 15 years but came back and have now done another 20 years so 35 years in total working in Devon. First pension is just sitting there. At the time should have joined the first pension with the second but didnt know much about it and at the time was told I had missed the opportunity to join the two together. I am full time. Like many of us have not got a clue about pensions. Is it worth paying the max into an AVC every week if I was hoping on leaving in a years time at 55 ? I previously paid into an AVC in my first 15 years service but never bothered second time around. I recently received a letter from Scottish Widows RMPP Bonusplan telling me I have 563 units worth £ 3171 that will pay me a grand total of £172 a year when I'm 60.

[RobertT]

The normal use of AVC's(Bonusplan & Flexiplan) is to fund the tax free lump sum when taking NRA60 benefits. So you'll be able to take your £3k or so in full and there is no need to buy an annuity(income for life).

Pensions which includes AVC's, are the best way to save money due to the tax breaks you receive along the way. With tax relief and salary sacrifice(PSE), each £1 gross(the amount on your payslip) is only actually costing you 72p, with the taxman paying the rest. That's an immediate uplift of nearly 39% on your money and beats any other savings vehicle hands down.
It's never too late to take advantage of that!

Bear in mind there are limits to how much you can save to benefit from PSE – there's lots of threads on here giving more info.
And the current AVC's will stop and be replaced by others when the new CDC pension starts.

[chuzzwuzzer]

Thanks for the reply. When you say ' Bear in mind there are limits to how much you can save to benefit from PSE' , how do you work out what the limits are?

[RobertT]

Thanks for the reply. When you say ' Bear in mind there are limits to how much you can save to benefit from PSE' , how do you work out what the limits are?

You need to know how much you earn per hour(just basic pay, no allowances or OT) and the hourly rate for the minimum wage. Then do this bit of maths:

Basic RM hourly rate – minimum wage hourly rate x contracted hours = max to stay within PSE

Any other payments you make that benefit from salary sacrifice(PSE) will also have to be factored in, like the P&M share scheme or cycle to work, etc.

[chuzzwuzzer]

Many thanks Robert. Much appreciated. Just been on the people app under the pensions collective plan tab and it asks either you enter a value or a percentage for Scottish widows avc. You would think the app would just tell you the max that you can invest into the avc.

[Kaiser_soze]

Many thanks Robert. Much appreciated. Just been on the people app under the pensions collective plan tab and it asks either you enter a value or a percentage for Scottish widows avc. You would think the app would just tell you the max that you can invest into the avc.

If you select a % greater than 85% it will allow you but states that it will be reviewed by HR

[chuzzwuzzer]

So if I've worked this out correctly, hourly rate is 13.65 I think. Minimum wage is 11.44 with a difference of 2.21. Times 37 hrs equals a possible max of 81.77 per week into avc"s without any tax implications Does this seem correct?

[RobertT]

So if I've worked this out correctly, hourly rate is 13.65 I think. Minimum wage is 11.44 with a difference of 2.21. Times 37 hrs equals a possible max of 81.77 per week into avc"s without any tax implications Does this seem correct?

It sounds right to me, but someone else might be along soon to confirm.