[Closed] personal pensions.. AVC's.. what a con.

Bloody con - fell for it myself a couple of years ago.

Great if you think youll make it into your 90`s, worthless otherwise ..

3% ish or less is about the return on annuities at the moment, I don't think it's an AVC specific issue (but happy to be corrected)

These things normally come with small print. There also seems to be about 5 million financial advisors in this country. Checking with either would have helped. If she was 'mis-sold' then get busy and get the cash back together with any interest that you would have accrued on that amount. No large organisation wants anybody kicking up a public fuss about mis-sold products at the moment...

A while ago, my place got a financial adviser in to talk about topping up pensions.

His advice was, unless you have tons of cash you don't need and provided you have the discipline not to touch it, just stick everything into the best ISA you could find and keep moving it to chase the best rates.

This was 10/15 years ago though, when they were giving quite a good return. Wouldn't work now I suppose.

If you pump tax free money in to AVC, you can significantly increase your pension pot. I thought you can take up to 25% of you're pension pot (tax free) out when you retire can't you?, so if you work it that way you can take a nice lump sum.

I'm pretty much doing the ISA thing now.

Key difference is cash going in ISAs is after tax but income/gains aren't taxed. Pension money is pre tax but the income is taxed.

Wouldn't consider AVC's unless I was a higher rate tax payer, and not expecting to be one as a pensioner.
As Mattjg says, for a basic rate tax payer, the difference between pension and ISA is negligible,

And for the OP - if your mrs is 14 yrs till retirement I would worry bout annuity rates in about 13 yrs time, not now 🙂

[s]personal[/s] pensions.. [s]AVC's..[/s] what a con.

fixed it for you.

Agree that annuity rates are the thing at present.

Given that ISAs have a limit to how much can be put in, what are your (legal)alternative suggestions from AVCs for pension planning (unless you're one of the lucky ones working in the public sector)?

I'm not really up to speed on how SIPP works, but unless one has more to put away each year than the ISA limit, I don't think it matters.

What I like about ISA is I'm doing it myself, it's not getting skimmed each month/year by the "managers".

I know little about personal pensions other than they are a load of balls.
My dad emptied his when he realised how crap it was and bought a boat 🙂 Seems as good an option as any.

bought a boat

And what will he live on when he retires? I work in Pensions for one of the largest Pension providers in the UK and the lack of understanding on the benefits of Pension provision is staggering.

I work in Pensions for one of the largest Pension providers in the UK

If you pump tax free money in to AVC, you can significantly increase your pension pot. I thought you can take up to 25% of you're pension pot (tax free) out when you retire can't you?, so if you work it that way you can take a nice lump sum.

Only if you are in the Civil Service you can. Everyone else has to take a monthly payout. The change was in the 90's I think but I'm prepared to be corrected.

im 27 - ive paid into a company pension since i was 24 ...16% of my basic - 6% me and 10% company

i was seeing an IFA about mortgages and some other issues and he gave me the hardsell on a pension- let him fire on as i had time to kill

Came out with a figure of X for what i needed to live on when i was retired. X was a % of my final predicted salary.

So he did his sums and came up with that id have to put 1/3rd of my salary away for the next 40 years to attain that figure - when i pushed him on why i needed the value of X to live on he said - the average person today will still be requiring a wage similar to what they are on now to service the level of debt they have aquired over their life time.

quite a scary thought really.

i thanked him and went on my way in the knowledge that i was much better off paying off my mortgage than investing in an personal pension.

i thanked him and went on my way in the knowledge that i was much better off paying off my mortgage than investing in an personal pension.

Only if you are in the Civil Service you can. Everyone else has to take a monthly payout. The change was in the 90's I think but I'm prepared to be corrected.

It depends on the scheme, which is part of the problem it can be a minefield!
You can take a 25% tax free cash lump sum on retirement.

One of the benefits in my eyes is the tax relief on contributions, and potentially generous employer contributions, for example If I pay in 5% of salary my employer will pay in 10% of salary. Now I don't lose that if I leave.

Anyway pensions can be very confusing, happy to give general assistance if needed, but I am not authorised to give advice...

It depends on the scheme, which is part of the problem it can be a minefield!
You can take a 25% tax free cash lump sum on retirement.

Yes, mine isn't a civil service pension, although it is a reasonably good company scheme. I assumed the 25% applied to all pensions.

Blimey, hills of Somerset - 10per cent employer contributions! I thought mine were generous as they match mine.

I think the best advice you can give here is how to get a job at your place.....!

Mrs Rex and I are both self-employed (so no company contribution, just tax relief) and between us are putting 500quid into pensions each month, through our friendly IFA who charges 240quid a year to sell us the product he takes a cut from. Seriously thinking about binning it out and overpaying the money into the mortgage....

Seems to me to be a better idea to pay off existing debt that attracts interest, than accrue the measly gains our pensions appear to be making.

Anyone else thinking along similar lines?

i thanked him and went on my way in the knowledge that i was much better off paying off my mortgage than investing in an personal pension.

Actually, I have a question about this.

Once the mortgage is paid off. Then what? We have a pretty much bog standard three bed detached with garage and garden. Pretty much exactly the UK average price, so never going to have a need to invest in a bigger house. So chances are we will never be in any significant debt ever again. Between me and the missus we have some 70-75 working years left in us(in theory)

Assuming roughly UK income. What would you do?

At the minute most spare income has gone into savings. We are both quite keen on some sort of micro business for income generation. I've no real need to just stop and sit about, quite the opposite. I'd like to keep busy and generating income, at least to a degree. Looks risky, but the cost of the micro business should be pretty small. Asides from pensions and a little job to keep the brain working, what are the worthwhile options. (Assuming you accept a pension as a worthwhile option)

I used to work in pensions a long time ago (so don't remember that much) but with an AVC on a final salary scheme would your wife be purchasing additional years (in the final salary scheme) or was the AVC a separate money purchase scheme where the money was invested in a personal pension?

[i]Seems to me to be a better idea to pay off existing debt that attracts interest, than accrue the measly gains our pensions appear to be making.

Anyone else thinking along similar lines? [/i]

That's my view as well. The interest you pay on debts will (always?) be more than the interest you earn on savings and invetments.

Had an AVC letter yesterday, worth less now than I put in, 10-15 Years ago!! So pissed off I decided to ignore it for a day or two... Any recommendations?

Hmm. Been pondering this recently too. One idea I had heard about which might be of interest was to go interest only on the mortgage, and pay the capital repayment element into your pension.

That way it gets tax relief, so when/if you get your cash lump sum, the govt have contributed in a large way to your house.

Not sure the sums work for me, but it is an interesting idea.

Don't AVC's allow you to take it as tax free lump sum or as part of your annual pension and allows you to finish at 60 (well they do where I work)?

I wouldn't class them as a con and I think a lot of the employees where I work would disagree with the OP.
All those who choose not to contribute are not regretting it!

Legally, you are allowed to take 25% of your total pension pot in a scheme tax free as a lump. It's tax free, but you can only take the lump if the scheme rules permit it. On a final salary scheme, it means the pension provider has to stump up sooner, so some don't allow it.

If you have a final salary scheme, and the lump sum provided in the scheme is less than 25% of the total nominal pot, and the rules allow you to put in AVCs, it can be worth doing, to get the tax relief. Example, say your final salary annual pension was £10k (notional value is 20x that, £200k) with a lump sum of £30k. Total pot £230k, 25% is £57.5k, so you have £27.5k less tax free lump sum. So in the last few years before taking the pension, you put that in as AVC, get tax relief on the AVC, and take it back out as tax free lump, so saving the tax.

If the OP's Mrs' scheme rules allow it, and the base lump sum is less than 25%, she could convert the AVC into lump sum.

Seems to me to be a better idea to pay off existing debt that attracts interest, than accrue the measly gains our pensions appear to be making.

Anyone else thinking along similar lines?

Well it's certainly not what I'm thinking. My personal pension returned something like 16% of investment growth (i.e. excluding that years contributions from me) last year. What is really concerning is the lack of understanding of people who say that they won't invest in a pension because the returns are low but they will invest in an ISA. In terms of investment return there is little or no difference between the two products, assuming you are referring to a stocks and shares ISA.

What i always thought was a good % paid by the employer for the last 12 yrs seems to have amounted to less than the amount paid.

I have an option to take it in my salary (albeit minus tax) which Im now giving serious thought. .

I already make AVCs to my company pension but the IFA was suggesting i need to up my monthly payment by 2/3rds.
how ever i am in a similar situation to your self piemonster , 3 bed semi with garage and garden , mortgage at the moment is looking to be paid off in 10-15 years at current inputs (the money the ~IFAs suggesting i put into a pension)

once it is ill re-evaluate the market and see what is out there for my money.

Lets face it at the end of the day if i end up in care it doesnt matter where i put it , the government gets it all anyway.

I was talking to someone at work about AVC's yesterday, the way he explained it was if I put in £1000 a month I'd only be £600 worse off.
Sounded pretty good to me.
No mortgage and I've been paying into my final salary pension scheme for 38 years (2 years to go 😀 ).

dibbs he is right - but the question is - will you ever see it again ?

if its in an isa or other investment vehicles its yours to do as you wish with. if its in a pension you have to stick at least 75% dependant on your policy into a anuity and most folk never release whats been saved.

Stop moaning about your poor pensions returns and go and find a good one. I got 18% return one of my funds last year, 13% on the other and 15% on the last third.

Shop around, find a good advisor.

Leaving it alone in one place for years is a bit stupid.

Yeah a lot of people don't really get pensions - indeed I don't understand the state side of them and the implications of the recent changes to the state second pension - suspect I'm losing out though. As such I'm doing what I can control and understand. Any help in understanding the state stuff would be gratefully received!

I have a money purchase scheme with my company and a SIPP with Hargreaves Lansdown. Wouldn't bother if I was a low rate tax payer but I manage the money in both using research to pick my funds, both schemes are low cost so nothing to complain about - getting good growth but if I wasn't that would be my fault. Also got a good chunk in ISAs so covering that base too.

What is really concerning is the lack of understanding of people who say that they won't invest in a pension because the returns are low but they will invest in an ISA. In terms of investment return there is little or no difference between the two products, assuming you are referring to a stocks and shares ISA.

Fair point I think, ISA is no magic bullet. I think to make either work in the current conditions requires active management, but if left on remote control they're going to return roughly the same as they work through the same market.

Upside of an ISA though is immediate access if needed, and to me a degree of demystification. And pension fees seem pretty stiff to me. Pension companies don't exist to make money for the fund owners, they exist to make money for themselves.

(Which does raise the question, should we invest in pension fund managers? 😆 )

OP this just shows how generous final salary schemes are, why don't you try and work out how much cash you'd need in an AVC pot to buy a pension equivalent to your wifes final salary scheme ? This is why most companies stopped doing final salary, its just too costly

Don't forget you can take a chunk out as a tax free lump sum, I forget it's 25% or 30%, this reduces the pension of course but you have the cash tax free with some investment growth hopefully.

pension fees seem pretty stiff to me

The more people who have a SIPP the better, shame people find the whole thing so complicated, it really isn't. Just pay the minimum you need to into your company scheme to get the company's contribution and put extra into a SIPP, unless your company scheme is low cost - mine is fine really.

[I]And what will he live on when he retires? I work in Pensions for one of the largest Pension providers in the UK and the lack of understanding on the benefits of Pension provision is staggering.[/i]

And always has been, just in the past (post WW2) you just were enrolled into a company scheme and/or just paid your stamp.

Now the only advice I'd give is to have lots of different ways of saving so that even if a couple go 'pop' you'll at least have something to live on. So never merger pensions and ensure your Govt Pension data is correct and that all years are there.

Another approach, instead of hand wringing about a couple of percentage points in a system that appears, for most of us, not up to scratch, is to find a way to earn a shedload of money so it doesn't matter, or make a passive income some other way.

Easier said than done, but some people manage it. I think it's fair to ask oneself "what's the best thing I can do today to make sure I have adequate funds in the future?". There are more than one way to do that.

Buy lottery tickets 🙂

My stupid mate has no pension, even though our company puts in up to 10% if he wanted one, he has a family and buys lottery tickets all the time.

I worked out for him that he has spent over £7,500 in lottery tickets - in that time he can recall winning a tenner once or twice.

Perhaps he will have the last laugh and win - but I wouldnt bet on it.

He'll win if he can buy enough. Can he?

I've always liked the idea that lottery tickets should be bought only on draw day, because if bought at the start of the week the holder is more likely to die than make a big win.

Maybe it's an urban myth, but it's a fun idea.

i do the office syndicate lottery mainly because its 10 pounds every 8 weeks and mainly because i aint being the sad sack left in the office after the rest of them win it big.

but it aint my retirement plan.

Well the odds of winning (6 numbers) are 14m to 1 right? So yeah more likely to die.

14 million days = 38,356 years. (That's 511 75 year lifetimes). It's hopeless!

75 years = 27,375 days so the odds of dying on particular day are (very very crudely) 1 in 27,000.

(Some suspect logic there I think).

My stupid mate has no pension, even though our company puts in up to 10% if he wanted one, he has a family and buys lottery tickets all the time.

I'd wait until you've actually started to receive your pension before drawing the "stupid" conclusion. If it still exists in any meaningful way.

Don't count your Chickens and all that.

you’re actually more likely to die in a traffic accident on the way to buying your lottery ticket than you are to win big.

😆 http://www.money.co.uk/article/1005091-is-it-ever-worth-playing-the-lottery.htm

Who knows how reliable that is, but it sounds right.

[i]i do the office syndicate lottery mainly because its 10 pounds every 8 weeks and mainly because i aint being the sad sack left in the office after the rest of them win it big. [/i]

+1

These people can answer some of your questions. Plus, they will help you with asking your pension scheme / provider the right questions

http://www.pensionsadvisoryservice.org.uk/