Local Authority Pension - Best options to top up?

jem16 · 4 March 2013 at 7:17PM

taktikback wrote: »

I found the small print for the Wiltshire LGPS ARCs and it confirms that they are indexed linked from purchase.

That sounds like good news. Likely to be the same for all LGPS sections then.

The AVC £29697 pot might be tax free - the ARC at £873 would give an income of about £700 yearly after basic rate tax.(at today's rates) which might be £1000 in 10 years with indexation.

Have I got that right?. It all looks a bit closer than suggested previously

The AVC pot would be lower than that though. My calculations were for 10 years of payment with a further 9 years of growth to take the OP to normal retirement age of 65.

Your wife would have 10 years of payment with only 4 (or perhaps 5) years of growth to age 65.

I would also say that 7% return after charges would be a little unrealistic. You might be better working off 5% or less.

jabbahut40 · 16 March 2013 at 9:50AM

Hi,

Got this response from the Strathclyde Pension Fund.

"The rate of additional pension is increased in line with the cost of living using the Retail Prices Index (RPI) from the date of your first contribution to the date of award of benefits. Once in payment, the additional pension continues to increase in line with the RPI.

You would therefore be correct with the below value estimation of your ARCs benefits after 19 years."

My wife is still in two minds whether to go for ARC, AVC or do nothing. She can realistically afford £50-£100 per month so not sure what are the pros and cons of each option.

Any help or advice would be appreciated.

Jabba

Pixieboy · 16 March 2013 at 10:16AM

Hi,
a note of caution on the indexation of additional pension using ARCs... RPI from commencement of purchase only applies to ARC contracts that commenced before 1st April 2012; for those that start(ed) from 1st April 2012 onward, indexation is based on the Pension Increase Orders, which is effectively CPI.
Relevant GAD guidance for Scotland here
http://timeline.lge.gov.uk/GAD/Scot_ARCfactors_v1_01042012.pdf
section 13.2.5
I'm surprised that Strathclyde PF quoted RPI, and think it would be wise to query this with them before making a final decision.

jem16 · 16 March 2013 at 3:25PM

jabbahut40 wrote: »

Any help or advice would be appreciated.

Main pro for ARCs is that you're buying a specific amount of pension so the investment risk is not with you but the employer.

Main pro for AVCs/SIPPS is that you can decide the risk level so may get more. You can also get at least 25% of it tax free.

I suggest you read this thread though.

https://forums.moneysavingexpert.com/discussion/4499951

jabbahut40 · 25 March 2013 at 7:31AM

Hi,

This morning I have asked the people who admin the Strathclyde Pension Fund the following questions:

1. Assuming I started ARC payments am I able to stop them at a later date with no penalties? i.e. my pension would be credited with the additional benefits purchased to date via the ARC.

2. I have looked at the ARC calculator on the website and am considering buying an extra £750 of pension over 10 years which quoted me £83.91 and £87.99 (with dependents benefits). To help me make a decision you please advise what additional benefits are provided by “with dependents benefits” that are not included in the former?

3. Can you please confirm that RPI rather than CPI will apply from the date of first contribution? I have read on the internet that RPI from commencement of purchase only applies to ARC contracts that commenced before 1st April 2012; for those that start(ed) from 1st April 2012 onward, indexation is based on the Pension Increase Orders, which is effectively CPI. I would appreciate if you could confirm whether my understanding is correct for the Strathclyde Pension Fund.

4. To help me make a decision is there any other relevant information you feel that I need to know at this stage? e.g. ARC rates expected to change soon, etc.

Is there anything else you think I need to ask to help my wife make a decision?

Thanks,

Jabba

Big_Ash · 9 June 2013 at 9:34PM

Hi Jabba, funnily enough, I asked the LPFA similar questions but I am yet to receive any reply on the RPI/CPI aspect which is the crucial one for me.

Did you manage to get a definitive reply?

jabbahut40 · 8 September 2013 at 7:06PM

Big_Ash wrote: »

Hi Jabba, funnily enough, I asked the LPFA similar questions but I am yet to receive any reply on the RPI/CPI aspect which is the crucial one for me.

Did you manage to get a definitive reply?

Yes. See below response:

I refer to your below email regarding possible ARC payments.

Paying additional regular contributions (ARCs) to buy extra LGPS pension

You can pay more in contributions to buy up to £5,000 of extra annual pension in blocks of £250. The extra annual pension is payable on top of your normal LGPS benefits.

You can buy extra pension for yourself and, if you wish, extra pension for your husband, wife, civil partner, nominated co-habiting partner and for eligible children on your death.

Additional contributions are taken from your pay, just like your basic contributions. Your LGPS and ARC contributions are deducted before your tax is worked out, so, if you pay tax, you receive tax relief automatically through the payroll. You qualify for tax relief (normally at your highest rate) on all pension contributions up to 100% of your taxable earnings, including your normal contributions.

You can start to buy extra pension at any time up to your 64th birthday. You decide how long you want to pay extra contributions for, although it must be for a number of whole years and payments must be completed by age 65.

The cost to you of buying extra pension is calculated in accordance with guidance issued by the Scheme Actuary which can be reviewed by the Actuary at any time. The extra pension you are buying will increase in line with the cost of living, both before and after you draw your pension.

You can choose to stop paying ARCs at any time by notifying us and your employer in writing. You will be credited with the extra pension that you have paid for at the time of ceasing payment.

If you leave or retire before completing payments, your contributions will cease and you will be credited with the extra pension that you have paid for at the time of leaving. This will increase the value of your LGPS benefits. However, if you qualify for an ill health pension, you will be credited with all of the extra pension that you set out to buy, even if you have not completed full payment for it.

Your extra pension will be paid at the same time as your LGPS benefits.

If you choose to retire early and draw your benefits before age 65, or you are retired on redundancy or business efficiency grounds, the extra pension you have bought will be reduced for early payment.

If you draw your benefits on flexible retirement, you will be able to draw the extra pension you have paid for, although it will be reduced for early payment.

If you draw your pension after age 65, the amount of your extra pension will be increased to account for late payment.

On retirement, you can choose to exchange some of the extra pension you have bought for a cash lump sum in the same way as your main LGPS pension.

If you die in service and you opted to pay for dependant's benefits when you took out your original ARC contract, then extra benefits will be payable to your husband, wife, civil partner, nominated co-habiting partner and to eligible children as if you had completed all payments. If you did not opt to pay for dependant's benefits when you took out your original contract, then no extra benefits will be payable.

If you die after leaving but before retirement and your benefits are held in the LGPS for payment (deferred benefits), then a lump sum of 5 times the extra annual pension you paid for will be payable. If you die on pension when under age 75, a lump sum of 10 times your extra annual pension minus any extra pension already paid to you may be payable. If you opted to pay for dependant's benefits when you took out your original ARC contract, then extra benefits will be payable to your husband, wife, civil partner, nominated co-habiting partner and to eligible children.

For more details visit our website. You may be required to undergo a medical examination at your own expense before being allowed to buy extra pension. – https://www.spfo.org.uk

The Government currently uses CPI (Consumer Prices Index) as opposed to the RPI (Retail Prices Index) for setting cost of living pension increases.

On your benefits being paid on or after age 55, or if your benefits are paid before age 55 because of ill-health and you are permanently incapacitated from engaging in any regular full-time employment, your benefits will be increased each year in line with the cost of living. Otherwise, if you draw your benefits before age 55 you will normally have to wait until your 55th birthday for your first cost of living increase, when your pension will be increased to the level it would have been had it been increased each year.

*** Note: My wife has yet to make a decision on ARCs vs AVCs and cannot make her mind up and to date has done nothing. Would be interested to hear what other people (with similar circumstances) have done and why to see if that would help her make a decision.

Thanks,

Jabba

Local Authority Pension - Best options to top up?

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