Pension Added Years Avc

[StretchyLegs]

Hi, I'm hoping someone can help...
If you decide to pay AVC to add 10 years service to your pension (Royal Mail) am I correct in thinking you would pay this amount (currently 6%) plus employers contributions at 17.1% for the amount of time that you would be buying back (eg 10 years) or is there a reason that it will be taken at this rate for longer than the 10 years?

[fiction-factory]

I would be surprised if your employer would pay any amount into your Avcs. You need to ask at work.

[fiction-factory]

Sorry. Maybe you meant you would pay the 17,5% the employer pays into the pension scheme.

[fiction-factory]

If you but 10 years I can't see why they'd take it for longer. But only they or trustees can tell you for sure.

[fiction-factory]

Buy not 'but'

[StretchyLegs]

Yes, fiction factory, the employers contributions have been paid by ourself. We have asked the employee, but whilst we wait for a reply I was hoping someone may be in the same boat, well, actually, for their sake, I hope they're not!

[bhg481]

Assuming your pension works like my Civil Service pension did, your pensionand lump sum are based on the number of years service. If you buy extra years you pay that extra contribution as long as you work there, so your pension will be calculated on (number of years + 10), rather than (number of years).
In other words if you have already worked 5 years, you opt to buy 10 years and then work for another 20 years, your final pension will be based on 35 years service.

[StretchyLegs]

Thank u BHG, that makes sense, but it's not exactly what I'm asking.
My husband joined in 1990 and opted to buy an extra 10 years, he has been paying this amount (6% of salary plus 17.1 employer contributions) since then (for 28 years) To me, this should have either stopped after 10 years, or should only have been approx 33% of the amount.

[bhg481]

As I said, you pay the extra contribution as long as you work for the company. I joined the Civil Service aged about 23, so opted to buy 3 years so that I could retire at age 60 with a full 40-year pension. I paid about 1% extra contributions until I retired at 60. You don't just pay for the number of years you're buying, you pay for the rest of your working life.

[StretchyLegs]

Thank u BHG, I understand what you're saying, my husband joined RM at 30 and opted to pay the extra 10 years (to give him 40 years pension) but they have taken the same 6% amount from him for 28 years, which means he has paid twice his normal pension amount for all this time, I would have thought they should have taken 2% for the AVC if the period of time was 3 times longer.

[bhg481]

I don't know how the actuaries calculate the payments but you've got to bear in mind that they can only work on averages ie, average life expectancy, average promotions etc. Had your husband died say 1 year into his job, the pension fund would have had to pay you half his pension for the rest of your life; the extra payments would have been based on 11 years' service instead if 1 year. Also payments made in the early years are small; as the years go by there may be promotions/annual increments etc but the final pension is based on final salary with all years counting equally. Quite complicated to estimate.

[Peter Pedant]

first of all - 10 /10 for thinking about your pension
good girl !

Your employer's pension will have an employer's cont - whooppee ! The added years bit - probably doesnt but that does not mean it is not a good idea
( no! yes! I mean: that still means that it is a good deal)

No or Yes - the AVC conts will be for the rest of your employment with the post office
and by retirement age - instead of 33 1/2 y ( or whatever ) you will have 43 1/2 !

very good deal - keep with it
find out what will happen if you leave the Royal Mail

and the other thing is - which came up in Heir Hunters today - apparently but check - the Royal Mail pension on your death a portion goes to the next of kin....
and you cant assign it
check that - but that doesnt mean that it isnt a bad idea

and all conts are tax free !

[Peter Pedant]

No or yes!
it is still a good deal

My AVC conts were easily as much as my pension conts -but you know if you want them, then you pay what the scheme says you have to - I checked - 2005 my conts were double the employers conts
but as an OAP I dont root around dustbins in order to eat

[ToraToraTora]

buying the extra ten years does not take ten years, it is calculated to take the time from the start to the proposed retirement date.

[fiction-factory]

Stretchylegs. It's not clear to me whether you are saying he has been paying his 6% and contributing the employer's 17.1% IN ADDITION TO his normal monthly contribution (which is what?)

[fiction-factory]

surely there are different ways of buying added years, so we need to know what arrangements were agreed here, or lese we cannot give a definitive answer for this partciular case.
You could buy 10 years in one go as a (huge) lump sum but there are now limits on how much you can pay in/get back in tax relief in one year.
Or you could agree to pay an extra amount each month for the next 10 years. If you leave/die after say 2 years you would only get enhanced benefits based on 2 additional years (plus of course any standard pension benefits from your basic contributions.
Or the actuaries could work out how much extra you need to pay each month over your working life to give you 10 extra years by retirement date. That amount is then paid until you leave/retire (and if you leave early they may have to adjust it downwards- that's one for the actuaries/scheme rules.
Clearly the first arrangment doesn't apply here so we need to know whether the second or third (or some other) arrangment is in place.

It's best to ask your trustees or chase up your employer company a sthey should know the details

[dasherman]

Your husband would have normally paid the extra contributions until he left Royal Mail employment, or until he reached 60, whichever came first.

However, the added years AVC closed to new entrants in 2008 and as the RM DB pension scheme has now closed to future accrual, the added years AVC has closed for current employees too.
Therefore he will have accrued less than the number of added years he first signed up to.
He would have received a big red booklet telling him all about it!

The 6% & 17.1% contributions relate to what was going in before closure!

[fiction-factory]

It seems odd then that the OP seems certain that the deductions of 6% and circa 17% have continued since 2008, dasherman.

[dasherman]

Sorry, I don’t think my previous post was completely clear!

The 6% employee and 17.1% employer contributions are or more pertinently were, the standard contribution levels into the main RM pension scheme, (in practice the RM contribution level has varied over the years).
If an RM employee chose to buy added years, that would be an additional payment on top of the 6%.

In 2008 the RM DB scheme closed to new entrants but anyone already paying into the added years AVC was allowed to continue with payments.

However the DB scheme has now closed to future accrual and so too has the added years AVC, so those extra payments should have stopped at the end of March, and the balance of years bought will be whatever it was at that date.