avc one off payment or percentage?

[silver_fox]

hi
if i request a one off avc payment it says i can choose up to 85% of the basic pay so thats £441 is there any problems with this method compared to a regular overpayment of say 20% every week?
thanks

[RobertT]

One of the main advantages of paying AVC's is the benefit of salary sacrifice(PSE), which along with tax relief, means each £1 gross contribution(the amount on your payslip) only costs 68p. Because your income tax bill will be reduced by 20p and your NIC's by 12p.

But to benefit from PSE, once you've paid your extra payment, your remaining basic pay needs to be above the minimum wage.
For a full timer that equates to approximately £100 per week in AVC payments, assuming you're not already making other tax efficient payments such as the Partnership & Matching share scheme.

If you make AVC payments above the PSE limit, you would forgo that benefit altogether. But you'd still get the tax relief, meaning each £1 gross would cost you 80p instead.

You'd be better off setting up a regular amount to be taken from your wages each week, of no more than £100 gross.

[silver_fox]

so even one one off payment of say £300 would put me below the min wage, whereas a regular 20% ( approx £88) would be safe and not lose any benefits?

[RobertT]

Yes!
You would drop below the minimum wage for that week and therefore miss out on the benefit of PSE on that contribution.
So paying in weekly and staying within PSE limits is a better financial decision.

Although if all you want to do is pay in a total of £300 gross, then you're only really saving yourself £36.

[Jefferson Starfish]

£300 isn't going to get you very far.

[silver_fox]

thanks so makes sense to pay £100 over 3 weeks instead of £300 in one go.
i understand a new cdc plan is going to take over the rmdcp at some point, will this affect the 62p to £1 avc uplift? ie is it worth piling money in while we still can?

[RobertT]

The £1 gross only costing 68p applies to all RM pension contributions, basic and AVC's, as long as you're within PSE limits.

I don't see why RM will stop PSE when the new CDC scheme starts, because they introduced it in the first place primarily to reduce their own NIC's. We happen to benefit too!
They're not going to want to increase their tax bill if they don't have to!

The general rule of workplace pensions is always pay in as much as it takes to get the maximum employer contribution, which I assume you're already doing(you-6%, RM-10%).

But if you can get an extra uplift along the way in the form of salary sacrifice(PSE), then generally speaking it makes sense to do that.
*All pension payments benefit from tax relief!

CDC 'might' be with us later this year, and there may be limited opportunity to pay extra into that scheme, so you might not get another chance to pay in as much as you can now.

I would say taking advantage of any 'free money' now, makes perfect sense, and your future self might be grateful too!

[Hawkey99]

Is it worth piling in whilst we can......Yep 100%

When should I start......Yesterday....

How much.....Everything you can plus a bit more.....

Top Tip in life.......Always Pay your self first....ie savings etc....There wiil never be enough if we “wait and see what’s allowed at the end of the month”....

Insure your self....Your earning capacity is one of the most important thing you have.

Pay your self first.

Diversify your investments

[RobertT]

I agree with all of the above!

Personally I've always seen saving/investing as something I want to do today, because things can change and I might not be able to tomorrow.

Obviously not everyone can save huge amounts, but it's surprising how much you can stash away if you put your mind to it.
And nothing really beats pensions, due to the tax breaks and employer contributions.

The OP is in the RMDCP, and assuming they're paying the max 6% gross contribution of roughly £26.50 per week for a full timer. That will only be costing £18 net, plus another £44(10%) from RM.
Where else can you pay in £18 and get over £52 added on for nothing?
That's nearly 200% before any interest or investment growth!

My advice would be to:

Start ASAP, even small amounts will make a difference.
Take the long term view.
Have a plan and try to stick to it.
Don't be scared by the stock market as that's the best place to make your money grow.

[silver_fox]

thanks im already at the 6% but considering more, as i am nearly 40 and my total pensions are about 15k.

[RobertT]

£15k is quite a low amount for a 40 year old, assuming it's all in DC schemes, so paying in more is definitely a good move.

I'm sure you know, you won't get any more contributions from RM, as you're already on the 6% max, but as already mentioned, the tax relief and salary sacrifice(PSE) is still a good incentive to pay extra and still represents a 47% increase on your money for doing nothing.

You might as well take advantage while you can, as there might not be the same opportunity to pay in as much extra into the CDC scheme?
Although that is a different kind of pension designed to provide an income for life, plus a lump sum.

Go for it!

[streets97]

I pay £40 per week into the flexiplan and £2.88 into bonus plan.
I also pay for a car £85, some technology £23, partnership and matching £23. According to my bundle I am allowed to spend another £5 or so a week, does this mean that all of my pension payments are getting the full tax relief.

[RobertT]

I pay £40 per week into the flexiplan and £2.88 into bonus plan.
I also pay for a car £85, some technology £23, partnership and matching £23. According to my bundle I am allowed to spend another £5 or so a week, does this mean that all of my pension payments are getting the full tax relief.

There are people on this forum that pay close to the maximum in AVC payments who might be able to answer this better, as they have experience of dipping in and out of PSE.
But I think the easiest way to know is to look at your payslip.

If your pension payments are on the left hand side, you're getting the benefit of PSE, mine say:

PSE Adj RMPP DBCBS C
PSE Adj Sect C Bonus Plan CSP

If they're on the right hand side, you're not.

[streets97]

I pay £40 per week into the flexiplan and £2.88 into bonus plan.
I also pay for a car £85, some technology £23, partnership and matching £23. According to my bundle I am allowed to spend another £5 or so a week, does this mean that all of my pension payments are getting the full tax relief.

There are people on this forum that pay close to the maximum in AVC payments who might be able to answer this better, as they have experience of dipping in and out of PSE.
But I think the easiest way to know is to look at your payslip.

If your pension payments are on the left hand side, you're getting the benefit of PSE, mine say:

PSE Adj RMPP DBCBS C
PSE Adj Sect C Bonus Plan CSP

If they're on the right hand side, you're not.

All my payments are on the left

[silver_fox]

so would you prioritise increasing avc to 20% or £100 a week ahead of overpaying on your mortgage?