Effect of A-day on AVCs and final salary schemes

"Ronald Raygun" wrote

A is always taken to be 20.000. Makes the calculation easier!

"Ronald Raygun" wrote

Actually, the Prudential MPAVC is the more "usual" form of AVC scheme. "Added Years" are much more unusual!

"Tim" wrote

Oooops - just re-read your post. Make that (1/A) is 20 instead. [Actuaries work in "annuity factors", not "annuity rates"!]

Of course adding years may well be unusual, but it isn't the only way value could be added to a scheme. The usual way with a scheme which is already simply fund-based and where there is already an expectation that an annuity will have to be purchased, is simply to add to the fund.

My point was that the Pru scheme doesn't "add" anything to the existing USS scheme, but is completely separate, and so "AVC" is a misnomer. Worse than that, promoting it as linked to USS is an advertising trick which is totally misleading.

Nice round numbers to make calculations easy are all very well, but it helps if they have the right order of magnitude. An annuity rate of twenty point zero is so out of line, I fear you've got your multipliers and divisors mixed up.

Did you mean 5% or were you just trying to be funny? Forgive me if I don't fall about laughing.

Sorry, replied before your correction got through.

I can't answer your question in absolute terms, but I imagine that the size of your 'pot' would be calculated in a similar way to that in which actuaries evaluate the health of a pension scheme by comparing the total assets with the amount needed to meet their liabilities in respect of each individual pensioner. To do this, they must have a way of determining how big each person's pot needs to be. Similarly, if you wanted to transfer your pension elsewhere, they'd need to calculate the transfer value in the same sort of way.

Why not ask the Trustees?

"Ronald Raygun" wrote

Eh? There is no expectation that an annuity will be purchased at retirement. The pensions are paid directly from the scheme...

"Ronald Raygun" wrote

Which effectively is what any AVC scheme does.

"Ronald Raygun" wrote

Actually, for sure with the Teachers Pension Scheme version (again with Prudential, and otherwise also very similar), and quite possibly with the Universities Scheme also, the Prudential fund *can* be used to buy extra benefits *in* the Teachers Scheme at retirement (an open market option is also available if the pensioner wishes to buy an annuity elsewhere).

"Ronald Raygun" wrote

As AVC stands for "Additional Voluntary Contributions" (which the ones directed to Prudential still are), it's not really a misnomer!

"Ronald Raygun" wrote

Prudential is the USS's chosen provider for MPAVC benefits. How is this a 'trick'?

By "the scheme" in this instance I did not mean the USS fund. I guess by using the phrase "simply fund based" I misled you. What I meant by fund-based is a scheme into which you make contributions and where you get a regualr statement of account telling you how much money is in the fund. With such schemes there generally *is* an expectation that you purchase an annuity.

The USS scheme does pay the benefits directly from the fund, but this scheme is not "simply fund based" in my meaning of the phrase, because it doesn't have a defined fund value. You don't get a statement of account telling you how much it's worth, because you already know what it's worth in terms of the pension you will actually get (based on number of years of service, not on how much your share of the pot is worth).

But the Pru USS AVC does not. It is effectively standalone and you would be expected to buy an annuity.

That is not the impression I got, and if it's possible, it seems to be well hidden.

So tell me, how would I trade in my Pru AVC fund for added USS years, or for a boosted deemed final salary, or work out whether it would be to my advantage?

Well OK, they're voluntary, and they are contributions which the employee makes, and they are additional to the contributions he makes already, but they are not contributions *to the USS pot* but to a separate standalone fund administered by Pru, and to my mind the term AVC would only be completely apt if they all flowed into the same pot.

Inasmuch as most advertising is trickery, smoke, and mirrors.

"Ronald Raygun" wrote

You need to wait until you are about to take your pension, and ask them then to pay the AVC pension from the scheme rather than buying an annuity elsewhere.

"Ronald Raygun" wrote

It may well produce a higher pension, due to the expense assumptions loaded into the annuity rates when taking the open market option.

"Ronald Raygun" wrote

That interpretation would cause rather a problem with "Free Standing AVCs"!!

I see, so it would be rather like buying an annuity from USS.

Fair enough, understood. However, if the sums indicate (as on my projections they do) that under the new rules I can take the entire Pru fund as a TFLS, it would likely be to my advantage to do just that, instead of buying into an annuity, even one from USS, wouldn't it (subject to the usual caveats of not blowing it all on wine and women)?

"Ronald Raygun" wrote

Agreed - TFLS being 'TF' but annuity being taxable. Always take your maximum TFLS!