Ask the panel

April 28, 2006

Worried about your employment, maternity, pension rights? Send your questions to The Times Higher advice panel.

What are the pros and cons, for pension purposes, of buying back years of service - through additional voluntary contributions - and freestanding AVCs?

* Our panellist from the Association of University Teachers says: "Under the rules of the Universities Superannuation Scheme, members have the option of an added-years AVC, which allows you to buy extra years and days service in the USS or a money-purchase AVC.

"The added-years AVC is part of the main scheme and is a final-salary arrangement, where the member pays a percentage of their salary, up to 15 per cent, to buy an agreed period of service.

"The money-purchase AVC is administered by the Prudential. The individual pays additional contributions from their salary to the Prudential for investment. The resultant fund is used at retirement to buy extra retirement benefits, either in the USS or through the purchase of an open-market annuity. More details on AVCs can be found on the USS website at "

She adds: "Freestanding AVCs are money-purchase contracts entered into with any provider and are used to purchase an open-market annuity before age 75."

She says that the AUT is unable to provide details of the pros and cons of AVCs because it cannot give investment advice. This area is regulated by the Financial Services Authority.

"Any member seeking such advice should contact an independent financial adviser (IFA). The trustee company has trained advisers for members of the USS - contact details can be found on its website (www.

Alternatively, contact an IFA through a company such as Endsleigh, an accountant or your bank or building society."

* Our panellist from lecturers' union Natfhe says: "Bacon and Woodward, an independent financial adviser, provided advice to the teacher unions in 2002 spelling out the different types of AVCs and the pro and cons of each type. The leaflet is available at Type=Document."

He says: "'Past added years' is a facility within the Teachers' Pension Scheme that enables an individual to purchase at full cost years they were not in the scheme, with some limits. The individual can purchase additional service by lump-sum payments or monthly contributions within the 15 per cent tax relief on pensions. The service purchase includes family benefits.

This product is secure in that the individual knows the cost and the benefit of their purchase and it is tied to the final average salary."

He goes on: "AVCs are available through the in-house provider Prudential - www. An individual makes either a lump-sum or monthly contributions into an AVC fund, which is invested in the market, often in with-profit funds. These funds can go down in value as well as up, and they are less secure than the past added-years option. An individual can use their fund to purchase annuities either at retirement or at any point up to the age of 76. These funds are used to supplement the TPS."

He concludes: "Freestanding AVCs can be taken out with a financial company.

They are similar to AVC funds except they can be moved between employment.

They also tend to attract higher administration costs than an AVC."

* Our panellist from the Universities and Colleges Employers' Association says: "The pros and cons will depend very much on the personal circumstances and preferences of individuals. Both methods enable individuals to increase their pension benefits while receiving tax relief on the additional contributions. However, the main difference is that in the case of buying added years, the individual will benefit from a higher pension based on the individual's salary at retirement, whereas in the case of free-standing AVCs benefits will be gained through either taking the fund as cash or investing it in an annuity fund."

This advice panel includes the Association of University Teachers, Natfhe, the Universities and Colleges Employers' Association, Research Councils UK, the Equality Challenge Unit and Rachel Flecker, an academic who sits on Bristol University's contract research working party.

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