Calling LPGS Pension Experts!

moneyfoolish

pandora205 wrote: »

I'm no expert but I am a LGPS contributor who also pays into AVCs. From a recent presentation I attended I seem to recall that some AVC companies now impose penalties for those contributing less than 5 years (PRU was one - I'm with Clerical Medical which I don't think does), so that will be worth checking.

I don't know about your scheme but with mine it is fine to take the lump sum entirely or partly from the AVCs provided they don't make up more than 25% to the calculated total pension pot (I have the calculation somewhere but I don't get close). However, I think the pre 2008 lump (LGPS) does have to be taken in cash but I could be wrong.

I have a few years to go so not as well informed as I will be nearer the time!

Our scheme is with Standard Life and it is the same as yours re allowing a lump sum of up to 25% to be taken from the AVC. I'm sure you're correct re the pre 2008 and lump sum also which would go towards the 25%. However, I must check the 5 year penalty possibility so thanks for alerting me to that.

jamesd

russell_anderson wrote: »

I fear you're correct and I should have been using the S&S ISAs for a long time. Too conservative by half, I'm afraid after getting burned in the Technology slump when I was investing in high-tec shares!!!!!! I'm thinking of switching some of the Cash ISAs to S&S now because of the low rates but maybe I'll switch a lot more!

If you do it and don't actually want the income I suggest that you put at least 30% in a global tracker fund. Something like the Vanguard offering. That'll get you slightly below global developed market average performance and then you can cover the rest in other ways, like with active managed emerging markets, strategic bond and other funds.

I didn't get burned by the dotcom bust because I just wasn't investing back then. Instead I learned about patterns and invested heavily in 2008/9 and did really well as a result in 2009 and 2010 during the recovery. Many markets today are still at relatively low levels, at least on cyclically adjusted price/earnings (CAPE) measures. Though not the US, which is currently above the long term average, if still below its potential for a high.

moneyfoolish

jamesd wrote: »

If you do it and don't actually want the income I suggest that you put at least 30% in a global tracker fund. Something like the Vanguard offering. That'll get you slightly below global developed market average performance and then you can cover the rest in other ways, like with active managed emerging markets, strategic bond and other funds.

I didn't get burned by the dotcom bust because I just wasn't investing back then. Instead I learned about patterns and invested heavily in 2008/9 and did really well as a result in 2009 and 2010 during the recovery. Many markets today are still at relatively low levels, at least on cyclically adjusted price/earnings (CAPE) measures. Though not the US, which is currently above the long term average, if still below its potential for a high.

Thanks for the advice. Much appreciated.

moneyfoolish

pandora205 wrote: »

I'm no expert but I am a LGPS contributor who also pays into AVCs. From a recent presentation I attended I seem to recall that some AVC companies now impose penalties for those contributing less than 5 years (PRU was one - I'm with Clerical Medical which I don't think does), so that will be worth checking.

I don't know about your scheme but with mine it is fine to take the lump sum entirely or partly from the AVCs provided they don't make up more than 25% to the calculated total pension pot (I have the calculation somewhere but I don't get close). However, I think the pre 2008 lump (LGPS) does have to be taken in cash but I could be wrong.

I have a few years to go so not as well informed as I will be nearer the time!

I checked at work with someone in Pensions and found that I can take all AVC contributions as part of the tax-free 25% when I retire.

The pre 2008 mandatory lump sum is, of course, included as part of that 25%.

The downside for me is that I can only contribute 50% of my monthly pensionable earnings for this year which only gives me 3 months and there is no option to put in a lump sum but you can't have everything.

I've also checked with Standard Life and have been assured that there is no penalty if I pay the AVC into one of the following 3 funds:-
Sterling fund
Managed fund
Managed Cash fund

I think because of the huge tax advantages I am going to invest in the Sterling Fund for the 2 or 3 years before I retire.
It seems that the Managed Cash Fund doesn't give much advantage and, although, if this were a long-term investment I would choose the Managed fund, it's not going to be in there for more than 3 years at most. Anybody got any comments on whether this sounds reasonable or am I being stupid?

I just hope that the information I was given from Standard Life is accurate as the whole strategy comes unstuck if they suddenly come up with huge penalties for withdrawing from the fund after 2 or 3 years!

jamesd

If you think that the Sterling Fund is invested in Sterling, whether the currency, the precious metal or investments that are almost all in the UK, you should read the fund description. If you think the value can't drop, you should know that on 14 January 2009 the value dropped by 4.8% in one day and that SL literature had previously been misleading, resulting in SL paying its own money into the fund to cover the losses. This doesn't necessarily mean it's a bad fund, just that if you don't expect it to be substantially invested in asset-backed securities, like packages of mortgages or other consumer debt, you should be aware before investing.

It seems reasonably likely that the value of the damaged assets will recover during the sort of timeframe you're considering, so there might be some capital value increase from that.

moneyfoolish

jamesd wrote: »

If you think that the Sterling Fund is invested in Sterling, whether the currency, the precious metal or investments that are almost all in the UK, you should read the fund description. If you think the value can't drop, you should know that on 14 January 2009 the value dropped by 4.8% in one day and that SL literature had previously been misleading, resulting in SL paying its own money into the fund to cover the losses. This doesn't necessarily mean it's a bad fund, just that if you don't expect it to be substantially invested in asset-backed securities, like packages of mortgages or other consumer debt, you should be aware before investing.

It seems reasonably likely that the value of the damaged assets will recover during the sort of timeframe you're considering, so there might be some capital value increase from that.

Thanks again James. You're a font of knowledge. I had looked at the year-on-year variations and they seemed to be showing little movement compared to the Managed Cash Fund! I did realise that none of these funds are pure cash but didn't realise they would be as volitile as you've just indicated!

jamesd

That example was during pretty extreme circumstances and isn't really representative of what is likely, just what's possible in extreme conditions. Part of the reason I knew to look was that it's so uncommon for funds like that to do badly and there was a fuss back when this one did and had a description that suggested its risk was lower than it is.

pandora205

Just to mention that I've mailed my pensions dept to check to see if I can do a reverse commute, i.e. convert some of my AVC pot into annual pension. I don't think they will let me but if they offer a 12:1 ratio (as is the case for converting pension to lump sum) I'll seriously consider this as I intend to live longer than 12 years into retirement.

moneyfoolish

pandora205 wrote: »

Just to mention that I've mailed my pensions dept to check to see if I can do a reverse commute, i.e. convert some of my AVC pot into annual pension. I don't think they will let me but if they offer a 12:1 ration (as is the case for converting pension to lump sum) I'll seriously consider this as I intend to live longer than 12 years into retirement.

Let us know how you get on.

CAE

You can use your AVC pot to purchase an annuity I.e. pension in the LGPS. The factors vary depending on age etc at the time, and are set by the Govt Actuary Dept.

If you started paying AVCs before November 2001 there is a further option available, where you can use the AVC pot to buy membership, like a transfer value.

The option to take the AVC pot as a lump sum has only been available since April 2006.