Is an Annuity required for those with Local Governement pensions

millerfamily5

Hi

I am a Local Government officer and have paid into a Local Authority pension fund since 1986 which is split between to authorities because I moved to a lower paid job in 2000. I expect to continue to be employed with my current Local authority until I retire in 5 years time when I will be 65. I expect to have paid of my mortgage by this time as it will reduce to about £13000 by the end of 2012.

My wife who is a teacher age 50 with the same Local Authority expects to continue to work until retirement age and also contributes to the local authority pension scheme.

I also paid for several years into a private AVC scheme (Then M&G now the Pru) because I hadn't paid into a pension fund before 1986 and I wasn't keen on the Local Government choice for AVCs which was Equitable Life. Currently the value of this fund is £21000 or just under £20000 if I wanted to transfer it to another AVC provider.

I am a little confused about the issue of annuities. Is this something for people who have saved in a private pension fund or is it something I should be thing about to use with my lump sums from the pension and AVCs.

Also I get confused by the idea of taking a larger lump sum and reducing the annual pension. Is there any value in this?

Many thanks

Richard

jem16

millerfamily5 wrote: »

I am a little confused about the issue of annuities. Is this something for people who have saved in a private pension fund or is it something I should be thing about to use with my lump sums from the pension and AVCs.

I am a little confused too. You mention AVCs which are payments into a pension scheme via your main pension scheme, in this case the LGPS. However you then say you didn't choose the LGPS AVC provider but chose a private AVC provider. So in other words what you have is a private pension with no connection to the main scheme.

Now if you had chosen to use the LGPS AVC provider, you would be able to take your lump sum from the AVCs as opposed to the main scheme. This is one advantage of using the LGPS AVC provider.

However as you simply have a private pension, you will only be able to take 25% tax-free lump sum and an annuity with the rest or transfer the pot to a different provider who would allow you to use income drawdown where the rest of the funds remain invested after drawing the tax-free cash.

Also I get confused by the idea of taking a larger lump sum and reducing the annual pension. Is there any value in this?

I wouldn't advise choosing the larger lump sum unless you have a sepcific reason for spending it. The commutation rate of 12:1 means that you would not be able to make up the lost pension.