Local Govt Scheme Pension too early!

grnglide

I have a preserved pension in the Local Government Scheme which is due to start paying on my 60th birthday (next week but the scheme havent written to me yet - it is on someone's desk!!).

I had always assumed that I could defer the pension until I was 65 but I left the scheme in 1996, have enough service to get my pension at 60 and the rules seem to say that I "have" to have it then.

Since I am currently employed full time in a final salary pension scheme (who wouldnt allow me to transfer in the money from the Local Government Scheme even if I had wanted to), the two pensions together will not be huge and I have a daughter starting university in september the unexpected income of £4,000 or so will cost her a hit in the several hundred pounds of grant (as apposed to loan) she will get in her third year of a 4 year course.

I have a fully funded ISA for this tax year and savings to fund future years. My employers pension scheme includes AVCs (which I have never used) which are payable by salary sacrifice. It seems worth considering putting the Lump Sum plus the monthly payments into the AVC as I can reduce NI liability with funds obtained without NI anyway.

I am not certain whether I can get the AVC back as cash when retiring. Is there anything else I should be considering?

StephenM_2

I think student finance is based on your taxable income. So if you put your LG pension into the AVC or some other pension scheme they won't count as taxable income and so won't affect your daughter's finance.

Loughton_Monkey

This situation is very easy to deal with as you suggest. Simply invest all the 'unwanted' money - lump sum plus income - into another pension and then take that at 65 (or whenever).

grnglide

Student finance is, indeed, basically based on taxable income declared gross. Any payments into pension schemes which are not deducted from salary (so they are already net) are declared and reduce the household income / increase the amount of the student maintenance grant (doesnt change the loan any more) if any.

I assume that ISAs are the same - the student finance england website doesnt actually say (it is useless!) and I am not going to ask!

While the AVC route is tax / NI efficient I am just worried that there isnt a downside (the choice of underlying investments obviously is a consideration) that I have missed or a better way I havent thought of.

Being able to defer the LGPS pension for 5 years in the same manner as the state pension would have been a much better option :sad::wall:

Zelazny

I'd be careful - any tax free pension commencement lump sum that you receive can not legally be invested into another pension, from what I recall. Something to do with tax dodging.

I'd write to the scheme and ask them to defer the pension - as long as you're currently in full time employment and don't need the money, there's no need to take it now, and most schemes offer reasonable increases for deferment beyond normal pension age.

grnglide

The LGPS doesnt allow deferrment of pensions which are payable as a result of preserved entitlement at age 60 (people who left before 1998). While I could tell them "I dont want the money" there isnt an option of swapping payments now for more money later.

Having said that the authority in question has not yet got round to writing to me about a pension / lump sum that is payable in a weeks time. I have spoken to them, they do know, just not done anything!

Now I remember why I left!

Zelazny

The cynic in me is wondering if you could get away with pretending you've moved. Return some of their correspondence as "not at this address" and then they can't pay it to you. Then contact them in a few years and ask for your money - they'll either have to backdate it to now or apply a late retirement factor. May cause tax issues if they backdated it, though, and the fact that you've spoken to them complicates things.

kidmugsy

Zelazny wrote: »

I'd be careful - any tax free pension commencement lump sum that you receive can not legally be invested into another pension, from what I recall. Something to do with tax dodging. QUOTE]

It's not as bad as that. There are rules against "recycling" lump sums, but (if memory serves) up to 30% is OK. Googling, or waiting patiently for an expert here, will reveal all.

System

I'm in a similar position. I wanted to defer the pension because of eligibility for child tax credits. I hadn't thought of simply recycling it straight into another pension.

Why are local government pension schemes so rigid? Everybody else is moving in the direction of older retirement ages, not younger.

RichandJ

kidmugsy wrote: »

Zelazny wrote: »

I'd be careful - any tax free pension commencement lump sum that you receive can not legally be invested into another pension, from what I recall. Something to do with tax dodging. QUOTE]

It's not as bad as that. There are rules against "recycling" lump sums, but (if memory serves) up to 30% is OK. Googling, or waiting patiently for an expert here, will reveal all.

http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM04104920.htm

grnglide

Hmm - the letter from the council arrived today. Amongst other things it specifically states that "HMRC will not allow you to reinvest your tax free lump sum in another pension plan" which from the link above isnt necessary completely true. It is also only on one of the two alternative forms I can complete depending whether I use old or new rules!

I also have the option of converting lump sum into pension at a rate of £5.63 per £100 pound of lump sum. If this is increased at the same annual rate as the normal pension that seems a good deal, especially as my wife is 9 years younger than me and would be expected to receive (and need) the widows 50% pension for some years.