Pensions and AVC's for aircrew

[FFP]

Seeing as my flying pay's not pensionable.....

I'm on AFPS 75. 6 years to go to 38 point. Thinking of AVC's as I understand it's pre-tax pounds you can invest.

Is there a general rule of thumb for AVC's i.e Not worth it unless you stay till 55 etc ? Any experiences good or bad ?

And are AVC's the only way to use pounds pre tax (other than childcare vouchers that reduce your tax bill ?)

[airborne_artist]

You really need to see an IFA to answer these questions.

[The Old Fat One]

FFP,

I'm not an IFA but I've done a wee bit of investing and it has done me no harm.

AVC's are tax efficent, since your investment is effectively added to by the tax man. Good if you are on non pensionable pay (which flying pay is) and even better if you are a higher rate tax payer (which you probably are).

If you are risk adverse, you can get into a fixed yield fund - or you can spread your funds if you want to gamble a wee bit.

I would advise personal research unless you have an IFA you can completely trust.

In theory AVC are best if you are staying to 55, but I got in one (big time!) at 38 and made it paid up at 47 when I left. It will spit out in a few years and supplement my pension when I hit 55.

That said if i had put that money into property I would have made a killing, so you pays your money and you takes your chance.

No doubt I'll get flamed for this, but property may be worth a shot in the next year or so when it bottoms out.

good luck

[spheroid]

You need to see an IFA because it is illegal to provide any Financial advice unless you are qualified. The post from the old fat one is illegal advice

[FFP]

Fair enough. Thanks TOFO.

[D-IFF_ident]

I see your problem mate - I doubt there are many UK qualified IFAs where you are right now? Perhaps you could view TOFO's post as his opinion vice advice? My opinion is that it might depend on how long you are planning to 'invest' and, dare I suggest, when you do speak to an IFA, you have a rough idea of which country you plan to be in, in 6 years from now.

I think there are some good UK websites that rate investment plans. Although in today's financial climate you may be as well sticking your extra cash under the mattress!

Good luck :}

[FFP]

D-IFF,

Spot on. I think I remember Michael Spinak talking about AVC's during one of his pitch meetings at IOT and how unless you stay till 55, there's better things to do with your money. On the other hand, if I could get back at least what I'd pay in over 6 years and pay less tax, I'd consider it. I thought I'd try my luck with the PPRuNe crowd for some opinions and personal experiences before making a long distance phone call at 3 am ;)

I view TOFO's as opinion rather than advice and even if he'd come out with "Give me your money and I'll make you a fortune" Madoff style, I'd still not part with my hard earned flying pay without consulting someone better with money than me !

Give me some credit. I am aircrew, you know :E

[Alison Conway]

I looked into AVCs, and they have their uses. So much so that the only trades to be able to invest in one via the mob is the medical trade. Therefore you will have to seek outside advice; however they do give you the satisfaction of seeing the government effectively giving you cash!

[FFP]

however they do give you the satisfaction of seeing the government effectively giving you cash!

That's the appealing bit. Thanks for the info !

[The Old Fat One]

I have a policy of trying not to engage in pprune vitriol, so I'll just observe that any sensible person will see the flaw in Speriod's argument.

On a general note there are a number of rules of investment that hold good no matter what you put your money in.

Create a portfolio (diversity).
Take a long term view.
Plan for the downturns as well as the upturns.

If you can, manage your own money. It is the job of a professional advisor to make money out of selling you products and services, and ultimately that must shape their advice.

Anybody heard of Bernard Madeoff? He was a financial advisor.

[A2QFI]

Anybody can save thru an AVC plan, you don't have to be in the medical profession and you don't have to do it thru your employer. It has got to be a good way of raising capital. It is what you do with it to raise an income for the rest of your life that is the hard decision.This is comment, not advice

[Pontius Navigator]

To add,

I started and then I stopped. My fund of course continued.

When I started it was on the basis that I would take out an annuity when I retired from the RAF at 55. In the event I didn't retire then and by the time I did retire the FSAVC rules had changed to that of the normal AVC.

This meant I was no longer required to buy an annuity at retirement which had the advantage that I would not be paying 40% tax back on the proceeds. The taxman giveth and the tax man taketh back again.

Now I have to take out an annuity before the age of 75. The downside of waiting of course is that annuity rates have fallen along with everything else. Now I wait.

Would I do it again? Yes. Would I have stopped? No.

[Al R]

The Old Fat One isn't registered with the FSA and representing himself as such and/or as an IFA, so whats he doing wrong? And if you think the issue of pensions advice now is murky - just wait until Public Accounts kick in, in 2012.

Apologies for going Off Topic, but on another (mil related) note, given that Henry Allingham is now the oldest man in the UK, he will soon be in receipt of the State pension for 49 years - longer than most of us talking about annuities have been alive? This Early Day Motion might interest some;

''That this House welcomes the decision of the French government to award the Legion d'Honneur, France's highest badge of courage, to Henry Allingham; expresses admiration for the way in which the 112 year-old has in recent years conducted himself with dignity and pride in reminding people in this country of the horrors of war and the sacrifice and courage shown by our servicemen and women; calls on the Government to honour Mr Allingham in a manner equivalent to that decided upon by the French government; and welcomes the campaign by the Brighton-based Argus newspaper to achieve this.''

UK Parliament - Early Day Motions By Details (http://edmi.parliament.uk/EDMi/EDMDetails.aspx?EDMID=38259&SESSION=899)

Britain has to honour its oldest war veteran (From The Argus) (http://www.theargus.co.uk/news/4209398.Britain_has_to_honour_its_oldest_war_veteran/)

[A2QFI]

100% right that Henry Allingham should receive some recognition in his lifetime. However, it is no suprise that whoever has proposed the early day motion has got their facts wrong! The Legion D'Honeur is an award, not just for bravery, but for excellence in any field of human endeavour. Something like our Companion of Honour or Order of Merit

[Loquatious]

Firstly, please get professional advice!

My own experience was not good. I started AVCs in early 90s and left the Army after full service (pensionable) of 22 years in 99.

Despite an Army / MOD pamphlet that clearly stated I had pension 'headroom' due to flying pay and higher than average pay band, the AVC provider returned all my premiums in 99 stating that I had no such pension headroom.

Besides this, one thing I hadn't realised was that the AVC (yes they were freestanding) had to be taken at the same time as the pension was first payable.

Whilst it seemed I had the grounds to fight my case, the return would have been so poor I didn't bother and reinvested into something else.

[soddim]

This is not advice but, given the parlous state of our government finances, despite the best endeavours of Mr Prudence Brown, it appears to me that every possible tax-efficient savings method should be used to maximum extent. Pensions, including AVCs, are the most tax-efficient method.

I have no doubt that the thirty to forty year olds of today are going to be poorer in retirement than my generation unless they take the right investment decisions to look after their future.

[Al R]

Although its not confirmed (just highly leaked), it seems more likely than it has for years that the extra 20% relief given to higher rate tax payers into private pensions is eventually going to be dissapearing this month too. Food for thought.

[PingDit]

An AVC is a great way of bolstering your income in retirement, if you can afford the extra outgoings each month. You're allowed to contribute up to 15% of your gross income, which could also include your flying play. I.e. take away what you currently pay into your pension from 15% (gross) of your salary, and you can contribute the outstanding percentage into your AVC. Contributing into the same scheme as your employer already uses will help to save you a lot of setting-up and running costs rather than going it alone with another provider.
Other things to consider should also include Individual Savings Accounts (ISA's) which have a tax free 'wrapper' around them.
Although I am a qualified financial consultant, I have not practiced for some years and only offer the above as a personal opinion! An IFA is the only consultation route to take.

[SuctionBoost]

You could also consider a SIPP, although not "in house" they can be arranged through a financial advisor. As tax efficient as a AVC but the contribution limit is your annual gross salary up to something like £235K

[AH Veteran]

I would recommend a call to the Forces Pension Society. They seem to have their head screwed on when it comes to advice and do have the expertise in military pensions that many civilian IFAs do not. They will charge you to become a member (about £26 a year, I think) but this money also goes towards helping widows get the money they are entitled to.

Good luck.

The Forces Pension Society (http://www.forpen.org/)

[heights good]

"You need to see an IFA because it is illegal to provide any Financial advice unless you are qualified. The post from the old fat one is illegal advice"

That's not quite right, its only illegal to act as a financial advisor without being qualified. You can give as much advice as you want as a "mate" just not as an IFA.

Hope that clears things up

HG

[Stupidbutsaveable]

I started to pay into an FSAVC in 91, expecting to stay until 55. I left in 07 and am still paying into it. Not got round to following up properly yet. Any opinion on how it stands after you leave?

[Pontius Navigator]

I took out an FSAVC about 15 years ago. I ran it for a couple of years and then decided I had better things to do with my money, or rather Miss PN1 did as she took innumerable driving tests before taking my car to uni.

I stopped contributing but the small pot then doubled in size.

I have just converted. I noticed that fund rose quite hansomely last year to a point it had reached in Oct 07.

The reason I opted for a pension today is that advice in the papers pointed out that hanging on until I was 70 or 75 for a higher payout would have a break even point some 15 years hence when I was well in to my 80s.

The sum involved is miniscule but never the less is 10% of what I put in and 6% pa of the fund value. That of course will be taxed bringing the yield down to 4%. It is fairly adjacent to my share portfolio income so on balance it is 50-50.

Referring back to the reason I stopped contributing - you should not be seduced by the 40% tax relief and borrow to save.

[VinRouge]

Is there any way of making AVCs tax fre then recieving the money as a lump sum at a later date, say 55/65 etc?

[Pontius Navigator]

VR, if you become non-resident in UK, but then you pay taxes in Spain or wherever. The whole point is it it tax-free as it goes in hence you pay taxes when it comes out.

As you tax input rate is usually 40% but your tax at output is 30% then you win.

[VinRouge]

At what age can I grab it? for example, If I paid AVCs from 30 to 38 tax free, moved to dubai (working) on retirement from the mob at 38,could I grab it then tax free or would I have to wait till I was 55?

[jamesanthony1943]

I am pleased to see you serving chaps discussing pensions and AVC's.Is there not a department in HM Forces where you can get advise.
Spare a thought for lots of guys (like myself) who did up to 21 years 364days, retired before April 1975 and got not a penny.
Check out Equality for Veterans Association and lend your support. A case is going before the courts next year if not sooner.Good luck and safe flying

[Pontius Navigator]

VR, not sure but remember an AVC is a gamble.

You gamble for a long and happy retirement of many years. They gamble you will turn your toes up sooner and they pocket the whole balance.

The pension for a 30 year old will be very small compared with the pension fron the same pot for a 70 year old. And of course remember, that pension is taxed.

[Al R]

Vin,

If you transferred it to a Qualifying Recognised Overseas Pension Scheme (QROPS), although you are still not able to draw on it until 55 years old, you are presented with certain advantages. For instance, you do have the potential (under certain circumstances) to access the entire benefits tax free. More importantly, if cash flow is an issue, the scheme will have agreed with HMRC to report any payments made from the scheme only for the first 5 "complete and consecutive UK tax years" of the member’s overseas residency. Therafter, things such as GAD rate annual payments to the member (ie; you) tend to drop off the radar..

Bear in mind that following the latest emergency budget and the announcements on the change from RPI to CPI, some final salary pension schemes have temporarily suspended guaranteed transfer valuations required for pension transfer value analysis for transfers to other UK pension schemes and QROPS. If yours is a Free Standing AVC linked to AFPS, then you need to check if the moratorium (still) applies. Here is a list of providers who might be of help. Although Do Buy isn't specifically mentioned, you can still have a third nation involved.

http://www.hmrc.gov.uk/pensionschemes/qrops.pdf

Since earlier this year, there are also Qualifying Non UK Pension Schemes (QNUPS) which allow ex-pats more freedom if they wish to return home after a period overseas, or if they have already gone into a QROPS. SPVA and HMRC can throw their teddies out of the cot though, if the QROPS is clearly a dodge. Be careful.. the Isle of Man seems intent this week, on bursting onto HMRCs radar screens.

Isle of Man makes Qrops land grab with pension rules - New Model Adviser Edition - Citywire (http://www.citywire.co.uk/new-model-adviser/isle-of-man-makes-qrops-land-grab-with-pension-rules/a447605?ref=new-model-adviser-latest-news-list)

International Adviser :: Army bans transfers to Wenns QROPS (http://www.international-adviser.com/article/army-bans-transfers-to-wenns-qrops)

PN,

I agree that the immediate 40% tax uplift should not be the sole reason to invest income via the pension wrapper. But for the right client and in the right circumstances, it makes the decision the best one almost by default.