What should I do with my FSAVC?

By THIS IS MONEY
Updated:

 

I have been contributing to CU FSAVC (managed funds) every month since 1993 as I thought I may change jobs and also I started late in employment at 27. I am contributing to the maximum limit of 15% (including 9% of my income to my company pension scheme). I am 40, married, with savings of £180,000 in shares/ISA/PEP and about £50,000 in other savings. Can I use my FSAVC fund to take cash out when I am 60? I know that the fund will pay the pension but annuity rates are like deposit account rates.

Should I stop paying into the FSAVC - what are the consequences for the remaining money in the fund? Or should I transfer the fund from CU to a better performing FSAVC? Or should I keep contributing to the CU FSAVC?

My wife works with the Department of Employment and pays about 1.5% of her salary towards pension. Should she get a letter every year stating what pension she would get if she works until she is 60. She has been with them for ten years, and started work at 28. SS.

Jon Minchin independent financial adviser at Pensionline, says: First, you can't use your FSAVC to get cash. FSAVC funds can only be used to buy an annuity. Then, check if you should continue paying into an FSAVC at all. If you started work at 27 and you pay the maximum into your company scheme you may be in danger of overfunding it, even without the FSAVC. If you stay in the same firm until 65 you will have put in 38 years. Assuming it is a final salary scheme based on 60ths, you will have 38/60th, which is very close to the maximum you are allowed to have in any company scheme, which is two thirds final salary. You could well be in danger of putting in more than you are allowed. If that happens your contributions would be returned with a 50% tax charge on them and you will not be able to take any benefits from them. And, if you are offered early retirement with a full pension, which is not uncommon these days, you may have wasted your contributions because you'll get a full pension as part of the deal anyway. Your options a, b and c all assume you keep up FSAVC contributions but before looking at them check if this is worthwhile with your firm's personnel department. If you earn under £30,000 (though from your details this seems unlikely), you could go for a stakeholder pension rather than FSAVC contributions because you can take 25% of your final fund as cash and the rest as an annuity.

As for your wife's scheme, the rules are changing and it may be required to send out annual statements in future, but in any case she already entitled to ask what pension she will get once a year, so she should ask personnel.

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