Money: Can I take my top-up pension early?

The Government announced last year that members of employers' pension schemes would be allowed to take their top-up pensions (those based on additional voluntary contributions) at a different time from the main scheme. Have there been any further announcements? I would like to draw down my AVC fund two years before my normal retirement date.

KS, Hertfordshire

You'll have to be patient. The Government is still consulting. No date has yet been set for a final announcement, let alone for when the new rules will apply. It looks as though the Government will allow people with AVC funds to convert them into an annuity income at any age between 50 and 75. That's what people with personal pensions can already do. But there are complications. There is no limit to the annuity income you are allowed to buy with the proceeds of a personal pension; there is a limit on the combined income of employer's pension plus AVC income you can have.

Broadly, the limit is two thirds of your pre-retirement income, although you can go above this level to take account of inflation since you retired. Ideally, the two-thirds rule will be abolished. Otherwise too much time and expense may be involved in monitoring AVC plans cashed in at various times.

At the same time, the Government should re-examine the rules that require you to use many pension funds (including most AVC schemes) to buy an annuity. Annuity rates have fallen to levels that are proving disastrous for many people now retiring. You are contemplating cashing in your AVCs early. The younger you are when you buy an annuity, the lower the in-come you'll get. For many, the possibility of delaying the purchase of an annuity will be the attraction of the AVC flexibility proposed by the Government.

Higher or lower?

I have heard that the difference between the buy and sell price for dealing in unit trusts is to be abolished. If so, would the single price go to the higher buying price or the lower selling price?

AS, Devon

You have misunderstood. Most unit trusts have two prices. There is the higher price at which you buy units, also called the "offer" price. There is the lower price you receive when you sell your units back to the management company and cash in your investment. This is called the "bid" price. You'll see only one price for units in the listings in the financial pages. This is midway between the offer and the bid prices based on the previous day's value. Investors buying into the fund would have paid slightly more, sellers would have received slightly less.

However, single pricing is already in use for open-ended investment companies. Oeics are essentially unit trusts under a new name, though they are governed by different rules. Company law rather than trust law applies and investors own shares rather than units.

Oeics are similar to unit trusts in practice but the most visible difference is the single price. On top of the single price for the shares, there could be separate charges to pay. For example, someone buying into an oeic may have to pay an initial charge to the fund managers.

Hopefully, investors will find the single pricing system easier to understand in comparison with unit trusts. Charges will be more transparent.

A number of management companies have already converted their unit trusts into oeics. If you're an existing unit trust investor, you may at some stage be asked to vote on a proposal to convert to the oeic structure. It is also possible some managers of investment trusts may want to convert to oeic status. But while they remain as investment trusts, they will keep their "closed-ended" fund structure. This makes investment trusts rather different from unit trusts and oeics. There are different risks and other considerations for investors.

The single price of an oeic is based on a valuation of all the investments held by the fund. Stock market investments held by a fund are valued at the mid-market price (half way between the buying and selling prices). When you place an order to buy or sell oeic shares, you may be given an indicative price only. The actual price at which you deal will depend on the next valuation of the fund's assets, with valuations normally taking place at a set time each day.

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; or e-mail i.berwick@independent.co.uk. Do not enclose SAEs or any documents you wish to be returned. We cannot give personal replies, nor can we guarantee to answer letters. We accept no legal responsibility for advice given.

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