Or he could set up a free-standing AVC plan (FSAVC) with a separate pension company. Both types of AVC plan offer upfront tax relief – in Rob’s case at the basic rate of 24 per cent (falling to 23 per cent from the new tax year, starting 6 April).There are a number of differences to consider. An employer-provided AVC will mature at the same time as the main occupational pension scheme, whereas an FSAVC can be set up to mature earlier or later; the FSAVC can also be taken from job to job. An in-house AVC may have a cautious investment strategy based on building society deposits or a with-profits investment.A relatively young man like Rob may prefer, and stand to benefit from, the more adventurous investment choice that an FSAVC offers. But an FSAVC will usually have higher charges than an in-house AVC.Pensions are sufficiently complicated to encourage Rob to get further specialist advice. He should also note that any money he puts into an AVC or FSAVC will be tied up until his retirement.
A PEP, however, can be cashed in at any time.Finally, aged 31 and showing such interest in pensions, Rob is clearly past the stage of thinking he will live forever. He doesn’t need to be thinking about life insurance, partly because his company pension scheme already gives free life insurance equivalent to four times his annual salary But he may want to consider other types of cover. For example, many lenders offer insurance to cover mortgage payments in the event of losing a job or of not being able to work because of accident or sickness.Rob Davies was talking to Graham Baxter of JWH Financial Planning, a member of DBS Financial Management, a leading network of independent financial advisers.If you would like to be considered for a financial makeover, write to Steve Lodge, Personal Finance Editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL. Please include details of your current financial situation and state why you think you need a makeover..
A free share windfall averaging pounds 1,000 a head was announced last week for 3 million policyholders as part of Norwich Union’s plans to join the stock market in June. But while the handout from the insurer is more generous than expected, several million other holders of, for example, car or household policies or personal equity plans will be entitled to nothing. Nearly 2 million holders of “with-profits” policies – most endowments and many pension policies – will get a minimum of 300 shares, worth an estimated pounds 720. More than a million of these will receive additional shares, related to the current value of their policies. A small number of people with personal pension plans could end up with shares worth pounds 10,000 or more.
Holders of “non-profit” policies – such as term assurance, unit-linked policies and annuities – will get a fixed 150 shares, worth an estimated pounds 360. There are just over a million of these policyholders.Only Norwich Union customers who hold life insurance, a pension plan or an annuity qualify for the free shares. Car, household and medical policies – as well as unit trusts and PEPs – do not qualify.