Is it worth making AVCs if I’m in a defined benefit scheme?

[Wiltson]

As in the title really! My understanding is that AVCs go into a defined contribution scheme which isn’t as good as a DB scheme. Is it worth it?

I would say yes if you can afford it because you won't be taxed on the amount you put in to an AVC. I think. That's how I understood it.

Yes, if you have money to save that you won't need until retirement. It's tax efficient and will still provide additional retirement income/lump sum.

If your retirement already looks comfortable because of the DB scheme, there are probably better, certainly more flexible ways, to invest that money.

Do you use your ISA allowance each year?

Always pay what you can into your pension when you can. You get 20% boost from tax man (or 40% even!). And you won’t , even now , find an interest rate close to that level of growth.
ok, if you are in 30s it is tying up your money till at least 55, so you need balance
but if you are within 10 years of retirement age and can spare the money then just stick as much as you can in and treat it like a savings account with a whopping big interest rate

I worked in manufacturing. Many of our shift operators were on higher rate tax due to shift allowances and overtime. They had this big thing about mortgages that they’d been doing for years- get the government to pay 40% of your mortgage capital. They took out interest only mortgages and then saved into AVC. When they retired they took their entire avc as their 25% tax free lump sum (their overall pensionbvalue was big given the value of their db pensions) and used that to pay off capital of their house.

not sure it’s advisable these days🤷🏼‍♀️, but they always seemed very pleased with themselves that government was paying such a price for their homes 😳

I used my avc to make up the difference between my db pension when I retired early, and what I will have when my state pension kicks in. I was therefore able to retire at 55 and have effectively been taking the same pension as I’ll get when I’m 67. It made a massive difference to my health and well-being to be able to retire that early. I took the whole avc pot as tax free lump sum as it was well within the 25% of overall value of my db valuation.

really, if you can, do it. You will not ever regret it.

Check your scheme rules.

Pro of mine: I can use all the AVCs towards the 25% TFLS which is gear for maximising the index linked annual payment.

Con of mine: I cannot take the AVC without triggering my pension.

So if my only aim is the 25% TFLS, it’s great. But if I want to build a pot of money to bridge a few years of early retirement, I’m better off saving the same amount into a private DC pension.

Yes I do. I get 40% tax relief so it's a no brainer really. I've already reduced my hours down to 30 hours a week and I intend to retire early.

I do. Reasons for doing so

• my DB scheme is at a poor accrual rate and I have only been in it since late 30s
• I can draw the dc when I'm 57. If I take my DB early the amount I take is reduced. That way I can use dc to fund first part of earlier retirement
• I save 40% tax. When I take it out my pension income will be low enough that I will only pay 20% tax on it (and some tax free)

Oh and I hear a lot that 'dc isn't as good as db'. They each have advantages. Clearly DB has the advantage of certainty of income. But advantages of dc include

• drawing it early as I said above
• if you do a drawdown plan rather than purchasing an annuity, your capital can continue to grow during your retirement
• with drawdown you can vary what you take... So take more if you need a new roof, or less if you can manage a cheaper year for some reason
• if you die you can leave your dc pot to whoever you like. DB schemes tend to only pay a smaller amount and only to a spouse or civil partner. Not to kids or unmarried partner etc. If you die before 75 they get it tax free