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EmmaRoid

Pension Avcs Vs Added Years

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Im looking to burn a little bit of PAYE salary for a few years and Im uncertain what to do.

Ive been paying 5% into a 1/80 DB scheme, no other arrangements. I am looking at an extra 0.87% contribution for the next 23 years for each extra year I might want to buy. Doing it very simply, say for a £40,000 salary, Im looking at £348 p.a. for 23 years totalling £8000 in contributions to get £500 a year extra pension, (everything, is index linked, obv). Can I assume my contributions are giving me a £1500 lump sum and a 7.5% yield on the remainder? (in todays money). I know I should do the yield off a projected investment value as the contributions grow and discount by inflation but Im trying to compare bad apples with bad apples)

Who knows if Ill stay in the scheme 23 years, but for example, I would contribute an extra 5% for 4 years to gain that extra year, still £8000 contributions but effectively all up front for the same pension outcome, a worse deal for me in effect? Is this a reasonable, simple assessment without hurting my brain with net discount future stuff?

What Im struggling with is, over the 4 year period Im am targetting a nominal 20% increase in salary. Which obviously boosts the return over my contributions but how do you account for that in numbers?

The alternative, AVCs, would be chucked into whatever fund I choose from the Pru and its fingers crossed as to what happens. Sounds like a poor deal although under current rules, because it is tied to a chunky DB scheme, Ive been told Id likely be able to remove far more than 25% of the AVC fund tax free and drawdown the remainder over a short period. If I invest only 5% of my salary for the next 4 years, no employer contribution, Im not going to get anywhere near an index linked £600 annuity income from this am I?

The trouble with both is that 23 years is a long time and lots could change/go wrong. Which is likely to be safer? Id need to live 14 years to get my money back from the added years and Id likley be taxed at my marginal rate at the time versus hopefully getting most of my AVCs out tax free at 60

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You can have a SIPP as well (full tax relief), or go into VCTs (up to 30% tax relief).

By a combination of these most years I pay pretty much no income tax.

SIPP can be drawn upon at 55 (for which reason don't shove it all in there), VCTs you have to keep for IIRC five years or repay the tax.

In both cases the income is also tax free which is a very nice regular bonus from my VCTs which don;t just roll it up but pay it as decent dividends.

I did AVCs many years ago whne that was all that was available but they are just a rubbish version of SIPPs.

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You can have a SIPP as well (full tax relief), or go into VCTs (up to 30% tax relief).

By a combination of these most years I pay pretty much no income tax.

SIPP can be drawn upon at 55 (for which reason don't shove it all in there), VCTs you have to keep for IIRC five years or repay the tax.

In both cases the income is also tax free which is a very nice regular bonus from my VCTs which don;t just roll it up but pay it as decent dividends.

I did AVCs many years ago whne that was all that was available but they are just a rubbish version of SIPPs.

I know there's other options but for the time being, I'd like to keep things simple and keep to PAYE not self assessment.

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I know there's other options but for the time being, I'd like to keep things simple and keep to PAYE not self assessment.

Gotcha.

I'd always go with extra years; very few schemes offer them because they cost the scheme and benefit the recipient.

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Gotcha.

I'd always go with extra years; very few schemes offer them because they cost the scheme and benefit the recipient.

And the risk of losing the DB benefits over the next 20+ years before I draw them? Versus a defined AVCs pot with my name on it?

(the DB scheme is funded, generously by my employer to keep it in the nearly black rather than bottomless blackhole)

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Not sure if I fully understand what you are trying to do, but you can paye money into a SIPP and not go Self-Assessment.

I know that as a fact because HMRC sent me a letter last year asking me not to file a SA form this year.

You just ring them up and tell them how much you put into your private pension that year.

I'm fully PAYE now

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