Poverty in old age
Although the teachers’ pension is regarded as a generous scheme by some, it is sensible to consider the possible consequences of poverty in old age. You do not want to work hard all your life in the classroom only to find you must continue to work into your retirement to pay the bills.
Therefore, if the teachers’ pension annual allowance, which is the sum you receive throughout the year, is not going to be enough to sustain the lifestyle you want in old age, you need to begin to plan now. One option for increasing the value of your teachers’ pension is an AVC scheme.
What is an AVC?
AVC stands for Additional Voluntary Contributions. This is a plan offered to teachers that is separate to your teachers’ pension. However, the contributions still come straight from your salary. It works alongside your teachers’ pension scheme but at the time of retirement remains separate. This means if you choose to retire early, you can claim on your AVC scheme while leaving your teachers’ pension scheme until normal retirement age.
The longer you pay into your AVC and the higher the contribution, the more you will receive as an additional income at retirement. The AVC is usually invested; therefore, the value of the scheme tends to increase. It is worth knowing that the investment can also reduce the value of your AVC. Consequently, you could pay more into your AVC scheme than you end up receiving back.
What are the features of AVCS?
The benefit of AVCs over other personal pension schemes is that you are likely to incur lower administration costs. You will also enjoy much greater flexibility, as you can vary and even stop the amount you pay. As the amount comes out of your salary, you will also enjoy some tax relief on these payments.
If you would rather the payments not be deducted from your salary, then you can set up an FSAVC, which is a free-standing scheme. Here the payments are taken directly from you rather than your monthly salary. This approach might make you feel like you have more control. However, it might not offer the same level of benefits. It is worth talking to a financial advisor to consider if this is a more appropriate companion to your teachers’ pension.
The content in this article was correct on 8th July 2019. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on pensions for teachers and non-teachers. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.