LGPS buying added years and redundancy

dothemaths

I am in the Local Gov Pension Scheme and was in the middle of buying 5 added years on my pension (to be paid by 2017) when I have been told I am to be be made redundant with a severance payment of £48K. I have also been told that I can complete the purchase of the 5 extra years if I pay a lump sum of £31K.

I asked that the £31K be taken out of my severance payment and paid to the LGPS leaving me with a severance payment of £17K. The idea being that as all severance payments over £30K are liable to tax - I would escape tax on my severance payment.

The LGPS said no - it had to come from a personal cheque from me, ie my employer had to pay me my severance payment and then I had to send them the £31K - but this of course means that I am liable for an £8K tax bill. What difference does it make to LGPS? They get their money anyway? Even me paying an extra £31K on my pension brings me nowhere near the limit for pension contributions for the year - so why can't I do this? Any thoughts?

Linton

Err no - if you pay into a pension from your net income you get tax relief. So the overall effect should be the same.

JOHNGT

You are effectively asking to sacrifice income which you are due (part of your redundancy payment) in return for a pension contribution. However, such an arrangement turns the employee contribution into an employer pension.

If you worked in the private sector, most employers would allow you to do this, but unfortunately for you, you don't.

dothemaths

After the conflicting advice I was given by a) my employer and b) LGPS, it now transpires that if I pay the supplement to complete the purchase of added years, they will issue me with a letter that I can forward to HMRC who will then refund the tax on my contribution.

Seems a roundabout way of doing it - but at least I get the tax back!

Thanks for your assistance

Tempus_Fugit_2

> dothemaths, I was interested in this thread because both myself and a couple of colleagues may be in the same situation as you shortly. Could I just clarify this with you - you still have have approx 2.5 years of additional years to purchase from the 5 and the LGPS want you to pay £31K to purchase the 2.5 years ?

I mentioned this thread in the office and people were surprised by the sums involved. A very timely reminder of reality for those of us that have a LGP.

dothemaths

Out of the contract to buy 5 added years I will have purchased 1 year and 320 days by the time I am made redundant on 31st March - so I will have 3 years 45 days to buy. Now that I have it confirmed that the £31K will attract tax relief (at 40%) it means that I will effectively have to pay around £19K.

If, on retirement (effectively the day after - April 1st) I take the maximum lump sum, it will be £11K more with my added years than without. So effectively the added years has cost me £8K and for this I get an increase in my annual pension of £1,700 per year. I think its worth it, but you'll have to do your own calculations.

Good Luck