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  • FIRST POST
    • Lummoxley
    • By Lummoxley 27th May 17, 4:02 PM
    • 113Posts
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    Lummoxley
    LGPS - put additional funds in AVC, AVP or SIPP?
    • #1
    • 27th May 17, 4:02 PM
    LGPS - put additional funds in AVC, AVP or SIPP? 27th May 17 at 4:02 PM
    Hi, I'm 51, single with no dependents, earn £48.5k and currently contribute to a LGPS which is my main pension.

    I have an outstanding mortgage @ 2.19% 5 year fix which I've been overpaying by £120 pcm.

    From my reading here it would appear I would be better paying the £120 into a pension as a higher rate tax payer. The AVC & AVP with the LGPS don't look that attractive as they appear tied to when I take my LGPS.

    I'm able to up the monthly contribution to £400 pcm, my questions are;

    1. Am I correct that I should switch to pension from overpaying mortgage?

    2. Is there something I'm missing re the AVC/AVP option that would favour those over a SIPP?

    3. Is there a specific type of SIPP, or other pension, I should be considering as I don't know enough about investments to actively manage?

    4. At my salary of £48.5k would all £4800 (12 x £400) attract 40% relief?

    Apologies for the long post and thanks in advance for any thought.
Page 1
    • Rheumatoid
    • By Rheumatoid 27th May 17, 4:14 PM
    • 356 Posts
    • 1,119 Thanks
    Rheumatoid
    • #2
    • 27th May 17, 4:14 PM
    • #2
    • 27th May 17, 4:14 PM
    You will only get higher rate relief on your gross taxable pay above the 40% threshold which might not be much once you have taken off your pension contributions, etc.
    Last edited by Rheumatoid; 27-05-2017 at 4:17 PM.
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    • Dazed and confused
    • By Dazed and confused 27th May 17, 4:39 PM
    • 1,604 Posts
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    Dazed and confused
    • #3
    • 27th May 17, 4:39 PM
    • #3
    • 27th May 17, 4:39 PM
    Your "salary" is irrelevant, you're better off checking your taxable pay for the year from your March payslip (or your P60 if you've got it now).

    You're more likely to get full 40% relief on the whole of the £400/£4800 if you live in Scotland.
    • xylophone
    • By xylophone 27th May 17, 4:58 PM
    • 22,396 Posts
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    xylophone
    • #4
    • 27th May 17, 4:58 PM
    • #4
    • 27th May 17, 4:58 PM
    The AVC & AVP with the LGPS don't look that attractive as they appear tied to when I take my LGPS.
    You could transfer the AVC into a drawdown type pension at age 55 and so access it before you take your LGPS pension?

    https://www.pru.co.uk/pdf/LAVK0846.pdf page 9.

    It would be convenient to use the AVC as monthly payments are made before tax so that you would automatically receive the tax relief without having to apply to HMRC.

    See "net pay" https://www.aviva.co.uk/retirement/news-views/report/making-sense-of-tax-relief-on-pension-payments/
    • atush
    • By atush 28th May 17, 12:02 PM
    • 16,160 Posts
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    atush
    • #5
    • 28th May 17, 12:02 PM
    • #5
    • 28th May 17, 12:02 PM
    Do you want to retire early?

    If so, using a DC pension is the best way to go. Could be your AVC, a Sipp or a PP.

    You dont want to buy added pension, that will be taken early/reduced.
    • AlanP
    • By AlanP 28th May 17, 9:03 PM
    • 855 Posts
    • 587 Thanks
    AlanP
    • #6
    • 28th May 17, 9:03 PM
    • #6
    • 28th May 17, 9:03 PM
    Hi, I'm 51, single with no dependents, earn £48.5k and currently contribute to a LGPS which is my main pension.

    I have an outstanding mortgage @ 2.19% 5 year fix which I've been overpaying by £120 pcm.

    From my reading here it would appear I would be better paying the £120 into a pension as a higher rate tax payer. The AVC & AVP with the LGPS don't look that attractive as they appear tied to when I take my LGPS.

    I'm able to up the monthly contribution to £400 pcm, my questions are;

    1. Am I correct that I should switch to pension from overpaying mortgage?

    2. Is there something I'm missing re the AVC/AVP option that would favour those over a SIPP?

    3. Is there a specific type of SIPP, or other pension, I should be considering as I don't know enough about investments to actively manage?

    4. At my salary of £48.5k would all £4800 (12 x £400) attract 40% relief?

    Apologies for the long post and thanks in advance for any thought.
    Originally posted by Lummoxley
    1) Invest rather than pay mortgage - yes. How about a S&S ISA instead of (or as well as ) a pension?

    2) What you may be missing is the fact that the AVC pot can be taken TAX FREE at the time you start to draw your LGPS pension which, as I doubt you will get 40% tax relief on any contributions due to reason pointed out by others, you will get 20% tax relief on the way in and pay 0% tax on it on the way out.

    Is tied to main scheme and can only be split out by transferring at some point into PP / SIPP - but you lose the "take it all tax free" benefit if you do this.

    3) A basic SIPP with one of the low cost platforms such as Fidelity, Cavendish, HL etc. would most likely be fine. Whatever personal pension you decide on you need to make the investment choices, and that applies to LGPS AVC scheme as well.

    4) Check taxable pay as others have stated, your normal LGPS contributions will have come off you Gross Pay already (at 40% tax saving) so there will be little, if any, 40% tax band salary left to put into another pension.
    • kidmugsy
    • By kidmugsy 28th May 17, 11:34 PM
    • 9,467 Posts
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    kidmugsy
    • #7
    • 28th May 17, 11:34 PM
    • #7
    • 28th May 17, 11:34 PM
    If, as others suspect, there's no 40% tax to be saved, I suggest you redirect your monthly savings from the mortgage to high-interest regular savings accounts where you could make 5% p.a. Pure gain!
    • Lummoxley
    • By Lummoxley 29th May 17, 2:22 AM
    • 113 Posts
    • 308 Thanks
    Lummoxley
    • #8
    • 29th May 17, 2:22 AM
    • #8
    • 29th May 17, 2:22 AM
    Thanks all, that's made it much clearer. I'll have another look at the AVC, the link from my LGPS site just takes me to the Scottish Widows site rather than a specific product.
    • AlanP
    • By AlanP 30th May 17, 9:32 PM
    • 855 Posts
    • 587 Thanks
    AlanP
    • #9
    • 30th May 17, 9:32 PM
    • #9
    • 30th May 17, 9:32 PM
    Thanks all, that's made it much clearer. I'll have another look at the AVC, the link from my LGPS site just takes me to the Scottish Widows site rather than a specific product.
    Originally posted by Lummoxley
    Sounds like your LGPS scheme has chosen Scottish Widows as their AVC provider, they will probably offer a subset of their funds (and maybe some by other fund houses) as part of the arrangement.

    Ask your Admin team for the relevant AVC leaflets?

    The LGPS 2014 website has some generic information on it as well
    • Lummoxley
    • By Lummoxley 8th Jun 17, 6:37 PM
    • 113 Posts
    • 308 Thanks
    Lummoxley


    2) What you may be missing is the fact that the AVC pot can be taken TAX FREE at the time you start to draw your LGPS pension which, as I doubt you will get 40% tax relief on any contributions due to reason pointed out by others, you will get 20% tax relief on the way in and pay 0% tax on it on the way out.

    Is tied to main scheme and can only be split out by transferring at some point into PP / SIPP - but you lose the "take it all tax free" benefit if you do this.
    Originally posted by AlanP
    I followed up this with my pension admins as the information was different from different sources. It appears that I can only take 25% of the value of the AVC, not 25% of the total pot.

    Furthermore they appear to indicate I could only use the remaining 75% to buy an annuity.

    This is the reply I got:

    If you pay AVCs you may elect to take up to 25% of your AVC fund as a tax free lump sum, the rest you can use to purchase an annuity, this has been correct since 2014.

    Unfortunately, it appears the information on the xxxx Council intranet is outdated.
    • AlanP
    • By AlanP 9th Jun 17, 12:52 AM
    • 855 Posts
    • 587 Thanks
    AlanP
    I followed up this with my pension admins as the information was different from different sources. It appears that I can only take 25% of the value of the AVC, not 25% of the total pot.

    Furthermore they appear to indicate I could only use the remaining 75% to buy an annuity.

    This is the reply I got:

    If you pay AVCs you may elect to take up to 25% of your AVC fund as a tax free lump sum, the rest you can use to purchase an annuity, this has been correct since 2014.

    Unfortunately, it appears the information on the xxxx Council intranet is outdated.
    Originally posted by Lummoxley
    I got that reply, or similar, from my local LGPS admin team.

    It was a proposal that was discussed at the time the 2014 changes were being considered & consulted on but the change was never made.

    I had to provide the following links to make them look into it again when they changed their mind:

    Main LGPS website - https://www.lgpsmember.org/more/AVCoptions.php

    and to the full scheme guide on their own website (rebranded version of the guide linked below (although the previous version at that point in time).


    Quote from the email I received back a couple of weeks later:

    "Thank you for your enquiry regarding how much of an AVC fund you would be permitted to take as a tax free lump sum at retirement.

    I note that you were previously informed that only 25% of an AVC may be taken as a tax-free lump sum. I sincerely apologise as this information was incorrect and confirm that you may take 100% of an AVC fund as a tax free lump sum as long as when added to your main LGPS pension benefits it does not exceed 25% of the overall value of your LGPS benefits.

    I understand that one of my colleague's has sent information regarding our in-house AVC providers to you via the internal post and trust that you have received this.

    Please accept my sincere apologies for any inconvenience you may have been caused."


    The earlier answers had come from the Pensions Helpdesk who handle 1st line enquiries and respond based on the information they are provided with by the scheme administration staff, a call centre operation effectively.

    I asked for it to be passed to the actual Admin team and it a reply from them that I quoted above.

    If I was you I would have another go and see what your scheme guide says, it mist be online somewhere.

    There are 3 versions btw, the one I quoted from above was the latest available at the time, an earlier version which says the same as the reply you have received, and what is obviously a new v3.0 as shown below.

    I would then check the version on your scheme site against the Employees in England and Wales – April 2017 V3.0 Full Guide found here:

    http://lgpsregs.org/resources/guidesetc.php

    Page 26 is where it is covered:

    Take your AVCs as cash

    You can take some or all of your AVC fund as a tax-free cash lump sum but you can only take it all as a lump sum if you draw it at the same time as your main LGPS benefits and provided, when added to your LGPS lump sum, it does not exceed 25% of the overall value of your LGPS benefits (including your AVC fund).


    Can't get much more up to date and official than that


    Good luck and don't let them fob you off
    • chiefie
    • By chiefie 9th Jun 17, 7:07 AM
    • 289 Posts
    • 298 Thanks
    chiefie
    https://www.lgpsmember.org/more/AVCoptions.php

    Top of the feed.

    I think they had intended to restrict to 25% but I never got followed through. So I'm doing the same and ploughing money into the avc with standard life. Hope it doesn't change in the next 20 months 🤞But if it does I will just transfer the avc into a sipp. Good luck
    • Lummoxley
    • By Lummoxley 9th Jun 17, 5:24 PM
    • 113 Posts
    • 308 Thanks
    Lummoxley
    Thanks Alan & chiefie

    I'll have another go.
    • Lummoxley
    • By Lummoxley 15th Jun 17, 11:10 PM
    • 113 Posts
    • 308 Thanks
    Lummoxley
    Well I had another go and sent this.

    "Hi **, thanks for your response, however I've done some further research and had feedback on other members experience and believe your advice is incorrect. Can I request that you seek clarification.

    For example https://www.lgpsmember.org/more/AVCoptions.php clearly indicates that I can access 100% of the AVC as long as it does not exceed 25% of my entire "pot".

    This is also stated in the full scheme guide on page 26. This version of the guide is from April this year, I've been told that the change was discussed in 2014 but not implemented. I accessed this at http://lgpsregs.org/resources/guidesetc.php
    "

    I got this reply.

    "Dear Mr **,

    Further to your recent email, I can confirm that the information provided by my colleague is correct, you can only use 25% of the fund value from any AVC contracts commencing after 1st April 2014 as tax free lump sum.

    Please see the following link for more information regarding this.

    https://www.pensionsadvisoryservice.org.uk/about-pensions/pension-reform/freedom-and-choice

    Regards

    **
    Senior Pensions Administrator
    "

    • AlanP
    • By AlanP 16th Jun 17, 12:31 PM
    • 855 Posts
    • 587 Thanks
    AlanP
    Well I had another go and sent this.

    "Hi **, thanks for your response, however I've done some further research and had feedback on other members experience and believe your advice is incorrect. Can I request that you seek clarification.

    For example https://www.lgpsmember.org/more/AVCoptions.php clearly indicates that I can access 100% of the AVC as long as it does not exceed 25% of my entire "pot".

    This is also stated in the full scheme guide on page 26. This version of the guide is from April this year, I've been told that the change was discussed in 2014 but not implemented. I accessed this at http://lgpsregs.org/resources/guidesetc.php
    "

    I got this reply.

    "Dear Mr **,

    Further to your recent email, I can confirm that the information provided by my colleague is correct, you can only use 25% of the fund value from any AVC contracts commencing after 1st April 2014 as tax free lump sum.

    Please see the following link for more information regarding this.

    https://www.pensionsadvisoryservice.org.uk/about-pensions/pension-reform/freedom-and-choice

    Regards

    **
    Senior Pensions Administrator
    "

    Originally posted by Lummoxley
    I hope they are wrong at your end and not mine!

    It does seem totally confused within the world of LGPS Admin for some reason.

    I've had a look at the link they provided and can't see anything that relates to AVC's linked to a DB scheme, just the "standard" rules about 25% of a DC pot being tax free.

    The lgps regs website you linked to is part of the Local Government Association (LGA). Why not contact them, quoting the various guides, the email from your pension administrators and my "we made an error" email requesting clarification.

    You could also go back to your team and ask them to explain why they are not following the overall LGPS regulations and why & when they made a local policy decision to implement a local approach.

    One of the experienced LGPS admin's on here may be able to advise on whether the LGPS regulations have to be followed or whether there is scope for local discretion.

    Are you a Unison member? If you are they have pensions expertise and can take up the case for you if they believe you are correct? Might even be worth joining just so they can support you.
    • AlanP
    • By AlanP 19th Jun 17, 2:23 PM
    • 855 Posts
    • 587 Thanks
    AlanP
    Had a further thought on this - Have you looked at the Scheme Guide on your council area's LGPS website?

    Each area appears to re-brand the national guide, and I was being told "No" by my LGPS team until I queried why not just the national guide, but their own one indicated they were wrong.
    • chiefie
    • By chiefie 19th Jun 17, 6:35 PM
    • 289 Posts
    • 298 Thanks
    chiefie
    Had a further thought on this - Have you looked at the Scheme Guide on your council area's LGPS website?

    Each area appears to re-brand the national guide, and I was being told "No" by my LGPS team until I queried why not just the national guide, but their own one indicated they were wrong.
    Originally posted by AlanP
    My local admin had to look up the national regs as their scheme guide was not up to date 😗
    • atush
    • By atush 19th Jun 17, 10:18 PM
    • 16,160 Posts
    • 9,852 Thanks
    atush
    What you may be missing is the fact that the AVC pot can be taken TAX FREE at the time you start to draw your LGPS pension which, as I doubt you will get 40% tax relief on any contributions due to reason pointed out by others, you will get 20% tax relief on the way in and pay 0% tax on it on the way out.

    I think, but am not sure this benefit was taken away in apr 2014. So the AVC plan needs to have existed before then.
    • chiefie
    • By chiefie 19th Jun 17, 10:36 PM
    • 289 Posts
    • 298 Thanks
    chiefie
    I think, but am not sure this benefit was taken away in apr 2014. So the AVC plan needs to have existed before then.
    Originally posted by atush
    I believe that was the plan but it was never followed through. The lgps 2014 website says you can take all avc as cash as long as its not mrevthan 25% of total pot.
    • atush
    • By atush 20th Jun 17, 2:48 PM
    • 16,160 Posts
    • 9,852 Thanks
    atush
    GTK, I thought it was now in force.
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