LGPS and AVC....taking max lump sum

portchieboy

OK, don't want to get into the politics of taking max cash from a pension pot (there are reasons why) but I want to clarify the rules please.

I am a member of LGPS and have a pot 124k. I can take in 3 years (at 60) 11k pension, 21k lump sum, or max out at 8k pension, 58k cash. I pay in to Pru, and by 60 will have say 25k pot.

Now, Pru tell me that come 60, I can take option 2, 58k cash, and take all cash out of AVC, in fact anything up to another 57k.

How can that be? I thought it was simply 25% of the COMBINED pot (special rules within LGPS), but certainly no more?

Andy_L

The LGPS allows you to add together the AVC pot and the "equivilent pot" of the LGPS (20x the pension IIRC?), find 25% of that as you max lump sum and then use just the AVC pot to fund that lump sum rather than taking 25% from pth the AVC and LGPS pots

portchieboy

Thanks. Can you just clarify though....20% of the IIRC.....what does that mean.....how does it affect my numbers? Basically, could the Pru numbers be correct?

jem16

portchieboy wrote: »

Thanks. Can you just clarify though....20% of the IIRC.....what does that mean

He said 20x - ie 20 times, not 20%.

IIRC = If I Remember Correctly

Basically the value of the LGPS "pot" ( there is no actual pot for defined benefit schemes) is worked out as 20 times the pension. This value is then added to the AVC value to give a total value. From this you find 25% which is your maximum lump sum.

xylophone

http://www.essexpensionfund.co.uk/pensionsWeb%20Documents/BriefGuide.pdf
Does this help?

portchieboy

Thanks all.

The thing that has switched on the lightbulb for me is the 20 x multiplyer. Basically the Fund is 20 x the pension, and so the 25% cash is based on that fund, plus the AVC fund.

Hope that helps someone else in due course.

littlelad

If it helps, as a member of LGPS, I recently rang my pension fund (large local authority in the midlands) to check if they used a multiplier of 20. They confirmed they used a multiplier of 16.

gillsfan_2

As far as I am aware, the IR use a multiplier of 20 to calculate the value of a DB pension for the 25% rule but 16 to calculate the value of the annual uplift of your pension towards the annual allowance - why make things simple when you can make them complicated?

CAE

The pension pot from LGPS is calculated at 20 x pension plus any lump sum retirement grant (if applicable) Add the AVCs value to get total pot, and max lump sum is 25% of the total. Take all of AVCs as lump sum (if within limit) and then there is no need to reduce pension to achieve a greater lump.

Zero_Sum

portchieboy wrote: »

Thanks all.

The thing that has switched on the lightbulb for me is the 20 x multiplyer. Basically the Fund is 20 x the pension, and so the 25% cash is based on that fund, plus the AVC fund.

Hope that helps someone else in due course.

If there is no AVC, the cash lump sum is 25% of your annual pension x 12

ie if youre pension is £10,000, you can reduce that to £7,500 & take £30,000 lump sum. Obviously with pre 2008 membership confuses things even further as there is an automatic lump sum attached to that.

atush

OK, don't want to get into the politics of taking max cash from a pension pot (there are reasons why) but I want to clarify the rules please.

I don't really know what you are referring to here. There are no politics involved, just heartfelt advice. When we advise those taking max lump sum to reconsider before doing so, as the LS is easily spent, and then you have no savings. And it commits you to a lower income for the rest of your life.

In any case, I imagine the best way to find out the rules is to read your scheme booklet or ask your HR dept.

But do, when considering the different lump sums, take into account the commutation rate when deciding exactly how much LS to take.