Questions of Cash: Pension AVCs; Halifax; Trusts international

Q: I am a university professor, paying additional voluntary contributions (AVCs) for 10 years, now at £220 a month, to supplement my occupational pension from The Teachers Pension Fund. Given the state of the market, should I continue to pay AVCs? I may take early retirement in September, 2004 or retire at 65 in September 2006. MR, by e-mail

A: If you fear the market will not grow in the period before you retire an alternative is direct your AVC contributions to a cash deposit fund (or deposit administration account) within the AVC, Carl Melvin, of Pension Transfer Solutions, says.

Assuming you are a higher-rate taxpayer, AVCs are attractive because you obtain 40 per cent tax relief. If you pay standard rate tax a concurrent personal pension would normally be preferable.

But to confirm that your AVC fund remains your best option you should ask your fund managers to project the value of the fund at your planned retirement dates and assess the level of income from future contributions on the basis of the annuity rate payable. Then compare the return on continuing to invest in the AVC, compared with other possible investments.

"Another option is to save the contributions into a cash deposit account," Mr Melvin adds. "After you have retired you become eligible for a personal pension in the next tax year. You can invest up to £3,600 gross in an immediate vesting personal pension to get 22 per cent tax relief and 25 per cent tax-free cash sum. The return on investment could be much better."

Q: Halifax bank's website claims that "With a Halifax current account there's more value for everyone". This is clearly wrong because its credit interest begins at only 0.25 per cent if you do not pay £1,000 a month into the account, and other banks offer a better deal. What does Halifax say? RB, Redhill.

A: "The line in question reflects the total package offered and not just one aspect of pricing,"says a Halifax spokesman says. "The terms on our website about the Halifax current account used are accurate and we are happy that they comply with Banking Code rules."

John Fox, lead officer for consumer credit and mortgages with the Trading Standards Institute, says: "I would say this is sufficiently vague to be trade puff, rather than a misdescription. Halifax is not describing any particular attribute."

Q: My daughter is a British subject who has lived in California for eight years with a work visa. She has only a UK passport and the United States Internal Revenue considers her a foreign national for tax purposes.

She is the sole and absolute beneficiary of two non-qualifying life policies, single-premium with-profits bonds taken out by me in 1992, which were put into trust two years later.

I wish to surrender them (the trust empowers me to do that) and give her the proceeds. I believe there is an annual exemption threshold of only $11,000 (£6,900) before tax is payable in the US. The surrender value is about £30,000. How can I avoid tax liabilities in the UK and US? HG, by e-mail.

A: Zainab Juhoor, a director of the accountant PricewaterhouseCoopers, says: "On the assumption that you are not domiciled in the US for federal gift-tax purposes, and the policies are not US policies, there does not seem to be a federal gift-tax exposure in the US. If your daughter receives a distribution directly from the trust she will have to report the distribution to the Internal Revenue on Form 3520, if the US regard the trust as a foreign trust.

"The 3520 reporting could be avoided if the terms of the trust allows you to receive the distribution and you then make a gift to your daughter. The UK could tax this only if you die within seven years of the transfer." But further information is needed on the exact situation to confirm this and whether you will generate a UK tax liability. Mr Juhoor recommends professional advice.

Q: What should I do regarding underperformance and mis-selling of endowment policies supposed to pay off mortgages? PS, Merseyside.

A: There are no grounds for complaint just about the underperformance of an endowment which leads to a shortfall in repaying a mortgage. But whoever sold you the policy was required to ensure you were aware of risks of an endowment and that its returns depended on stock market performance.

If they failed to do so, they mis-sold the policy and you should be eligible for compensation to put you into the same position as if you had been sold a repayment mortgage. Other grounds for a complaint of mis-selling include an endowment being sold with payments beyond retirement, or selling an inappropriate product.

Any complaint for mis-selling should be directed in the first instance to the firm that sold you the endowment. If you do not receive a satisfactory response complain to the Financial Ombudsman Service (020 7964 1000).

Q: I read your article on Lincoln Financial Group (Misery piles on victims of the endowment trap, 8 February).

I have a maximum investment plan and a FSAVC with Lincoln and I have stopped contributing to both because of the bad performance. Might Lincoln go bankrupt? Should I surrender the policies? SM, London.

A: Lincoln is part of a very large and solid international financial group and we have heard nothing to suggest it will go bankrupt. Many of its policies are bad performers. You do not provide enough details to suggest whether to surrender your policies.

Donna Bradshaw of Fiona Price & Partners says although Lincoln's charges are high, you will also have to pay surrender fees and charges for any fund you move your money to. You need specific advice, but do not be surprised if the recommendation is to move.