Personal finance: Contacts: Money Q&A: Are extra pension payments a good idea?

I have been a teacher for five years. I recently received a mailshot about pensions and I responded. This resulted in a visit from a Prudential salesman who advised me to make additional voluntary contributions to a Prudential scheme. Should I?

FF, LONDON

The teachers' pension scheme is a final salary scheme. You get a pension related to your salary before you retire and the number of years you have belonged to the scheme.

All employers with pension schemes are obliged to offer an additional voluntary contributions (AVC) plan for people who want to make extra provision. The tax rules allow employees in an employer's pension scheme to contribute up to 15 per cent of their pay towards a pension, spread across the employers' main scheme (if it is a contributory scheme) and an AVC scheme.

The official AVC of the teachers' pension scheme is managed by Prudential.

As an alternative to the Prudential scheme, you could pay your money into a so-called free-standing AVC plan. These are offered by many financial services companies. It is impossible to know in advance whether the Prudential AVC plan is going to give a better return than others on the market. You have to make a judgement based on the past performance of different plans, and their likely future performance, taking account of where your money will be invested, and the amount of money taken out in charges.

Plan providers are obliged to give projections of investment performance based on standard assumed rates of growth laid down by the regulators. You have to take these projections with a pinch of salt. The actual investment performance could be very different, but the projections do enable you to compare the different levels of charges creamed off by the main plan providers. Unlike the main teachers' scheme, which gives a predetermined, pay-related pension, the Prudential AVC and other AVCs are money-purchase schemes. Your eventual pension will depend on investment performance and annuity rates (the amount of money your fund will purchase) when you retire.

If you start making AVCs now, you will have to use the money to buy an annuity income and cannot take any of the money as a tax-free lump sum.

But teachers also have the option to buy back past years' membership of the main teachers' scheme for years when they were eligible to join the main scheme but did not do so. This option would be available to you. There is a good chance you would get a better pension from buying a past year than putting the same amount of money into an AVC scheme.

For details call Teachers Pensions on 01325 745746.

Write to the personal finance editor, 'The 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.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor