Boosting My Wife's Pension - A Minefield Of Options...

jabbahut40

Hi,

My wife (44) works for Glasgow City Council and has been a member of the Strathclyde Pension Fund for 20+ years. She is a low paid part time worker and is looking at options for boosting her potential pension. Looking at the website it suggests that she has three main options:

• by arranging to purchase additional LGPS pension by making additional regular contributions, ARCs.
• by making additional voluntary contributions, AVCs.
• by contributing to a personal pension plan or stakeholder pension scheme.

http://www.spfo.org.uk/MembersServices/EmployeeMember/PurchasingAdditionalBenefits/

We are unclear on the pros/cons of each option or whether progressing with a S&S ISA would be better.

Would appreciate some thoughts.

Jabba

oldtoolie

In most situations, increasing contributions to the defined benefits scheme is the best idea. AVC's and personal pensions are essentially investment schemes where you bear the market risk. But you do need to crunch the numbers to see what is right for you. Why not call the pensions scheme to see if they have an advisor who could help?

jabbahut40

Thanks for the feedback. After some further reading I notice that the ARC scheme has a minimium £250 contribution taken direct from source, with a maximium £5000 per annum. My wife's annual salary is approx £10K so £250 contribution per month is likely to be a bit too steep. She was thinking of something around £100 to get started.

I notice that you did not comment on a S&S ISA. Is this a non starter?

Jabba

Stochasticity

jabbahut40 wrote: »

Thanks for the feedback. After some further reading I notice that the ARC scheme has a minimium £250 contribution taken direct from source, with a maximium £5000 per annum. My wife's annual salary is approx £10K so £250 contribution per month is likely to be a bit too steep. She was thinking of something around £100 to get started.

I notice that you did not comment on a S&S ISA. Is this a non starter?

Jabba

I read it that you can make contributions of less than £250 per month. E.g. female, aged 44, paying over 5 years (i.e. 60 instalments), £101.30 per month buys extra pension of £500 per annum (including dependent's benefits).

That's an excellent prospective return based on a total outlay of £6,078 - if your wife is in good health, has a normal life expectancy, and needs the regular income in retirement more than flexible access to the capital.

If there are health considerations, then an ISA may make more sense. If she needs a regular income in retirement but from age 55 rather than the scheme retirement age, then AVCs or contributions to a separate pension arrangement may be suitable. But the AVCs will not provide the same guaranteed benefits.

jabbahut40

Stochasticity wrote: »

I read it that you can make contributions of less than £250 per month. E.g. female, aged 44, paying over 5 years (i.e. 60 instalments), £101.30 per month buys extra pension of £500 per annum (including dependent's benefits).

Thanks Stochasticity. Great response! Where did you read the above?

Jabba

pandora205

Does your wife pay tax? If so bear in mind that AVCs would come out of her salary before tax, in effect meaning that the 20% that would have gone in tax will be paid in.

jabbahut40

pandora205 wrote: »

Does your wife pay tax? If so bear in mind that AVCs would come out of her salary before tax, in effect meaning that the 20% that would have gone in tax will be paid in.

Thanks!

Yes. She is a lower rate tax payer. Out of interest does the above apply to ARCs aswell as AVCs?

Jabba

jem16

jabbahut40 wrote: »

Thanks for the feedback. After some further reading I notice that the ARC scheme has a minimium £250 contribution taken direct from source, with a maximium £5000 per annum.

You have misunderstood that. The minimum £250 is not the contribution rate but the minimum amount of added pension you can buy per annum.

As mentioned earlier for a 44 year old female buying £500pa of extra pension it would cost £101.30 with dependants' benefits inlcuded.

As the £101.30 is paid before tax it means that the net cost is £81.04.

Use the caluclator to work out the payments.

http://www.spfo.org.uk/SPFOsite/templates/benefit_calculator_arc.aspx?NRMODE=Published&NRORIGINALURL=%2fThinkingofJoining%2fBenefitCalculator%2fSPFOARCCalculator%2ehtm&NRNODEGUID=%7bC4DFF6F9-BF39-4D6A-8CBD-FE20455C9EDB%7d&NRCACHEHINT=Guest