Investment: the pounds 12,000 question
Sunday 07 June 1998
You should try this question out on some independent financial advisers. The choice is not clear cut. Here are some thoughts:
q Ask your pensions administrator for a projection of your likely company pension. If you are already heading for quite a decent pension, that could tip the balance in favour of PEPs (or their successors next year, individual savings accounts).
q You can pay no more than 15 per cent of your gross salary into the company pension/AVCs in any one year. So, depending on your earnings, you may not be able to invest your lump sum bonus into AVCs in one go.
q AVC contributions are worth more than PEP contributions because they come from your gross pay. You get tax relief on contributions.
q On the other hand, any income from share-based PEP investments is boosted by the 20 per cent tax credit (10 per cent from next April) that accompanies share dividends. You can no longer claim this tax credit on investments held within pension/AVC schemes.
q AVCs are much more inflexible than PEPs. You will be forced to take your money in the form of a pension annuity at the time you take your main company pension (with the exception that regular AVC contributions that started before 8 April 1987 can be partially taken as a lump sum).
q The income from a pensions annuity is fully taxable. By contrast, you can draw a tax-free income from a PEP.
q You'll need to consider how charges on the AVC and a PEP compare.
q All this is subject to the caveat that the rules on ISAs and pensions, PEPs and ISAs themselves, and tax rates and investment returns in relation to annuity rates could change in the next 15 years before you retire. Only on retirement, with the benefit of hindsight, will you know whether AVCs or PEPs were the better option.
The flexibility of PEPs could be the clincher, whatever the different projections of benefits look like. But if you ever had to resort to any means-tested benefits before retirement, PEPs are assets that would be taken into account when assessing means.
q Write to the personal finance editor, 'Independent on Sunday', 1 Canada Square, Canary Wharf, London E14 5DL and include a phone number, or fax 0171-293 2096. Do not enclose SAEs or any documents you wish to have returned. We cannot give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given.
- 1 Tourist films plane's descent just metres above packed Caribbean beach
- 2 Kate Moss: Previously unpublished nude photo revealed by Mert and Marcus
- 3 Indian woman creates 'Marriage CV' after parents put her on dating site: 'Definitely not marriage material. Won’t grow long hair, ever'
- 4 World Book Day: Boy 'excluded' from school after dressing up as Fifty Shades' Christian Grey
- 5 Bad Jews poster 'censored' on London Tube
Tourist films plane's descent just metres above packed Caribbean beach
Indian woman creates 'Marriage CV' after parents put her on dating site: 'Definitely not marriage material. Won’t grow long hair, ever'
Becky Watts: Four appear in court charged with hiding body parts after teenager's death
Isis 'bulldozes' Nimrud: UNESCO condemns destruction of ancient Assyrian site as a 'war crime'
Professor Brian Cox brands astrology-believing Tory MP David Tredinnick an 'outlier on the spectrum of reason'
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Durham Free School: 'Creationism taught at' free school facing closure
End of the licence fee: BBC to back radical overhaul of how it is funded
Elif Shafak: Turkish author warns against rise of British nationalism
Most people think legal tax avoidance is just as wrong as illegal tax evasion, poll suggests
Nigel Farage promises Ukip will not 'stigmatise' would-be migrants – and says he wants 'everyone to speak the same language'
iJobs Money & Business
£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...
£8 per hour: Recruitment Genius: This Pension Specialist was established early...