T
Tom123
Guest
Getting past the question of mis-selling and the general lack of understanding of the issues allow me to summarise why there is no contest;
The NSP is a risk free guaranteed model. That means teachers nurses etc avoid (a) charges that absorb about 1/6th of all cash passing thru the pensions industry taken as 5% on contb and fund charge 1%. Cornmarket assume 6% pa asset growth before charges. (b) they avoid market risk - the facts are that equities have underperformed inflation for over ten years now. (c) they avoid pension rate risk - the cost of translating a fund into regular income has doubled and as interest rates head further south is set to quadruple.
The AVC model cannot outperform the inbuilt guaranteed return of NSP without staggering growth, no cyclical market downturn near retirement and no collapse in pension rates ( annuities). No different to endowment mortgages the cash pot argument for AVC's should not be used as it is by sellers to conceal the fact that for the risky route to be taken there must be a risk premium for the investor of at least 2% to 3% pa outperformance of NSP. Though possible this is improbable and has never happened.
The NSP links to a pension based on salary grade uplifts ie civil service, teacher and nurses salary inflation. This has been 66% higher than general inflation which is what normal annuity rates attract ie 5% pa vs 3% pa.
A young person going for NSP starting on a low grade and hitting high grades of pay near retirement gets a supercharged rate of return on the NSP.
The only USP on the AVC is that it can be encashed after clearing income tax on 75% of it. This is the only point. But most workers would be infinitely better off with the certainty of an escalating state guaranteed income for life 50% transferable to ones spouse. This is because a fund of a hundred grand might sound great but you factor in longer mortality, such a sinking fund could only be expected to pay out 4% tops per year. A guaranteed escalating joint life pension income is worth 30 to 40 times its value in capital terms.
Ask any financially trained self employed actuary or other independent financial professionals and they's bite off your arm for an NSP option.
Since 2006 you can transfer your AVC fund into the NSP to buy added years. This is what all tachers, nurses and civil servants should do except for those not risk adverse, extremely well off either way or expecting to need cash for a few short years before early death like before age 70. If you're normal, pretty risk adverse and you want certainty in your life especially at retirement there is no contest.
Finally by any measure the mass selling of AVC's in lieu of NSP is mis-selling. If it were reversed transfers out of the NSP into AVC's would be seen as a mis-selling scandel of huge proportions just as it was in the UK costing the industry £9 billion in fines and compensation. Bottom line you can't expect a salesperson who get about 20% of the first years AVC as commission to behave in any other way than to conceal the greater value of NSP which, when opted for means no cash for the salesperson. No salesperson can be expected to act with integrity under those circumstances and the standard presentation of information to workers is enormously skewed towards the AVC sale just as the normal "risky" Endowment mortgage presentation hugely underplayed the value of the guaranteed capital repayment mortgage.
PS The PrimeTime thread is populated by proxies for Cornmarket and other industry interests on the evidence of language and mindset so beware.I am an independent financial "Authorised Advisor" without conflicts in this sector.
The NSP is a risk free guaranteed model. That means teachers nurses etc avoid (a) charges that absorb about 1/6th of all cash passing thru the pensions industry taken as 5% on contb and fund charge 1%. Cornmarket assume 6% pa asset growth before charges. (b) they avoid market risk - the facts are that equities have underperformed inflation for over ten years now. (c) they avoid pension rate risk - the cost of translating a fund into regular income has doubled and as interest rates head further south is set to quadruple.
The AVC model cannot outperform the inbuilt guaranteed return of NSP without staggering growth, no cyclical market downturn near retirement and no collapse in pension rates ( annuities). No different to endowment mortgages the cash pot argument for AVC's should not be used as it is by sellers to conceal the fact that for the risky route to be taken there must be a risk premium for the investor of at least 2% to 3% pa outperformance of NSP. Though possible this is improbable and has never happened.
The NSP links to a pension based on salary grade uplifts ie civil service, teacher and nurses salary inflation. This has been 66% higher than general inflation which is what normal annuity rates attract ie 5% pa vs 3% pa.
A young person going for NSP starting on a low grade and hitting high grades of pay near retirement gets a supercharged rate of return on the NSP.
The only USP on the AVC is that it can be encashed after clearing income tax on 75% of it. This is the only point. But most workers would be infinitely better off with the certainty of an escalating state guaranteed income for life 50% transferable to ones spouse. This is because a fund of a hundred grand might sound great but you factor in longer mortality, such a sinking fund could only be expected to pay out 4% tops per year. A guaranteed escalating joint life pension income is worth 30 to 40 times its value in capital terms.
Ask any financially trained self employed actuary or other independent financial professionals and they's bite off your arm for an NSP option.
Since 2006 you can transfer your AVC fund into the NSP to buy added years. This is what all tachers, nurses and civil servants should do except for those not risk adverse, extremely well off either way or expecting to need cash for a few short years before early death like before age 70. If you're normal, pretty risk adverse and you want certainty in your life especially at retirement there is no contest.
Finally by any measure the mass selling of AVC's in lieu of NSP is mis-selling. If it were reversed transfers out of the NSP into AVC's would be seen as a mis-selling scandel of huge proportions just as it was in the UK costing the industry £9 billion in fines and compensation. Bottom line you can't expect a salesperson who get about 20% of the first years AVC as commission to behave in any other way than to conceal the greater value of NSP which, when opted for means no cash for the salesperson. No salesperson can be expected to act with integrity under those circumstances and the standard presentation of information to workers is enormously skewed towards the AVC sale just as the normal "risky" Endowment mortgage presentation hugely underplayed the value of the guaranteed capital repayment mortgage.
PS The PrimeTime thread is populated by proxies for Cornmarket and other industry interests on the evidence of language and mindset so beware.I am an independent financial "Authorised Advisor" without conflicts in this sector.