The Teachers Pension AVC with Prudential is there to help you to build up a pot of money to provide an additional source of income in retirement.
The Teachers AVC with Prudential is a money purchase (or defined contribution) scheme, unlike the main Teachers Pension which is a defined benefit (or final salary) scheme.
This means that rather than having a guarantee on future income based on your earnings and the amount of time you have contributed like the main Teachers Pension, the benefits you get will depend on the amount that you have saved, it’s growth and your choice of converting the pot to income.
Once you have reached the point that you want to take benefits from your Teachers AVC you should weigh up your options carefully and not just select from the income choices offered by Prudential – in fact doing this will in all likelihood cost you money.
You can take up to 25% of the fund as tax free cash and then the remainder of the fund has to be used to provide an income which is potentially taxable.
Many people still use their Teachers AVC to purchase an annuity however, with annuity rates at historic lows it pays to shop around and find a provider that will pay you the most income – this is known as the open market option.
Due to the current low annuity rates and the inflexibility of annuities, many teachers are looking for alternative ways to use for their AVCs – particularly since the new pension freedoms have been introduced.
What was originally flexible drawdown is now more commonly known as flexi-access drawdown and has proved to be very popular.
Flexi-access drawdown is currently not available within the Teachers AVC. This however doesn’t mean that the AVC can’t be used to take advantage of the new pension freedoms but it will need to be moved to an alternative structure to allow access.
We have helped many teachers get the most from their Prudential AVCs through capped drawdown, flexi-access drawdown as well as standard, impaired, enhanced, fixed term or investment backed annuities.