Local Authority Pension - Best options to top up?

jem16

jabbahut40 wrote: »

Expense. We felt that the costs of the contributions were very high for the returns (even recognising that these were index linked and guaranteed as part of the final salary pension).

Yes it can be quite expensive. However are you aware that it's index linked not only in retirement but also from the date you elect to purchase them?

What were you quoted?

jabbahut40 wrote: »

As you can see there are some non UK funds however none of these are particulary high performing. Whilst I appreciate that my wife could take 100% of the AVC proceeds as a tax free lump sum (subject to limits) I can't help thinking that investing in a SIPP or ISA against better performing funds might be a better option.

Comments?

Jabba

Is a pension definitely going to be the best option? Is your wife a basic rate or higher rate taxpayer? If basic rate she will end up with 20% tax relief but will likely pay 20% tax when she takes the proceeds, apart from the tax free lump sum of course.

Has she considered a S&S ISA? If of course she's a higher rate taxpayer then that's a different ball game.

jabbahut40

jem16 wrote: »

Yes it can be quite expensive. However are you aware that it's index linked not only in retirement but also from the date you elect to purchase them?

What were you quoted?

Thanks Jem16. We used the ARC calculator on their website. Putting in my wifes DOB and selecting 10 years of ARCs we were quotes the following as monthly payments which we felt were expensive.

http://www.spfo.org.uk/index.aspx?articleid=2442&fPst=3


Yearly Pension, Monthly Payment (without dependants), Payment (with)
£250.00, £27.97, £29.33
£500.00, £55.94, £58.66
£750.00, £83.91, £87.99
£1,000.00, £111.88, £117.32


My wife is a lower rate tax payer and could afford approx £100 per month as part of saving for the future.

Any ideas of whether a SIPP, S&S ISA or AVCs would be the best option given this additional info?

Thanks,

Jabba

jem16

jabbahut40 wrote: »

Thanks Jem16. We used the ARC calculator on their website. Putting in my wifes DOB and selecting 10 years of ARCs we were quotes the following as monthly payments which we felt were expensive.

http://www.spfo.org.uk/index.aspx?articleid=2442&fPst=3


Yearly Pension, Monthly Payment (with dependants), Payment (without)
£250.00, £27.97, £29.33
£500.00, £55.94, £58.66
£750.00, £83.91, £87.99
£1,000.00, £111.88, £117.32

Your table is not quite correct. First Monthly Payment column should be (without dependants).

However taking £1000 pension bought at £117.32 (with dependants) means your wife would pay £93.90pm after tax relief. Over 10 years that would cost her £11,268.

As far as I'm aware, Public Sector Additional Pension amounts are index linked from purchased - you will need to check on that. So £1000 purchased at 2.5% CPI after 19 years would pay out £1599pa. To purchase a similar annuity would need a pot of £53,300 approximately.

So something that has cost your wife £11,268 has given a return of £53,300.

My wife is a lower rate tax payer and could afford approx £100 per month as part of saving for the future.

OK, let's assume £93.90 net payment into SIPP or AVCs for 19 years. Growth at 7% would see £43,699 giving an annuity of £1310.97pa. However it's cost her £21,409.20.

Any ideas of whether a SIPP, S&S ISA or AVCs would be the best option given this additional info?

Thanks,

Jabba

I'm not sure I would be ruling out ARCs.

AVCs will only be useful if you would rather take the 100% AVC pot as tax free lump sum. This could be beneficial if it increases the main pension. You would need to look at that closely. However fund choice is limited.

SIPP would give greater fund choice but would you beat the ARCs.

S&S ISAs will give more flexibility if it's not solely income that your wife is after.

chucknorris

taktikback wrote: »

My wife just started an AVC with Prudential (with a nudge from me..). The killer benefit is that you can potentially take the whole lot tax free if you have a substantial main pension, because you can elect to take your 25% tax free cash, which is based on the whole pension, just out of the AVC - which means you avoid reducing your main indexed linked pension.

To avoid confusion (sorry to those of you who do not easily get confused) my query was/is specific to the TPS (teachers' pension scheme)

what scheme is this in? I am in the teachers' pension scheme and perhaps I misread it, but I was under the impression that when taking the lump sum that you cannot distinguish between the AVC and defined befefit elements when taking a lump sum?

EDIT: This is what the AVC (for the teachers' pension scheme) leaflet states:

Can I take any of the money
invested in my AVC pot
as a lump sum?
You can normally take up to 25% of the
value of your AVC pot as a tax-free lump
sum. Any remaining fund can be used to

provide you with an income.

Is the above badly written and it should say that you can take a higher percentage if you balance it against the other part of the teacher's pension?

I hope that I am wrong, does anyone know? If I am wrong I will almost certainly invest in AVC's with a view to taking it all as a lump sum and leaving my main defined benefit element all as pension income.

hyubh

chucknorris wrote: »

what scheme is this in?

This thread is about (and Mrs Taktikback is in) the LGPS. Unless Jem or someone like that has a quick answer, you should start another if you have a TPS question, otherwise things will just get confusing...

chucknorris

hyubh wrote: »

This thread is about the LGPS. Unless Jem or someone like that has a quick answer, you should start another if you have a TPS question, otherwise things will just get confusing...

I'm sure people who work in LG can read can't they? Or are you saying that they are easily confused? I have found the answer anyway:

To avoid confusion (sorry to those of you who do not easily get confused) my query was/is specific to the TPS (teachers' pension scheme)

Can I take any of the money
invested in my AVC pot as a
lump sum?
You can potentially take up to 100% of your
AVC pot as a tax-free lump sum when you
draw your AVC benefits at the same time
as your LGPS pension (as long as this isn't
more than 25% of the total value of your

LGPS pension benefits taken).

Apparantly you can take more than 25% in the LGPS but you can't in the TPS!

jem16

chucknorris wrote: »

Is the above badly written and it should say that you can take a higher percentage if you balance it against the other part of the teacher's pension?

You can only take 25% tax free from your Teachers' AVC. Unfirtunately it doesn't follow the same rules as the LGPS.

chucknorris

jem16 wrote: »

You can only take 25% tax free from your Teachers' AVC. Unfirtunately it doesn't follow the same rules as the LGPS.

Thanks Jem I found it in the LGPS AVC leaflet (posted above). I thought that you would know the answer which is why I posted here. But then I realized the LGPS AVC leaflet would probably give me the answer. Well I am very dissapointed, but that's life.

jem16

chucknorris wrote: »

Thanks Jem I found it in the LGPS AVC leaflet (posted above). I thought that you would know the answer which is why I posted here. But then I realized the LGPS AVC leaflet would probably give me the answer. Well I am very dissapointed, but that's life.

I think it could be good if taking the tax free cash from the LGPS AVC pot increases the main pension. For service after 2009 this would certainly be the case as there is no automatic lump sum.

However for service pre 2009 with the automatic lump sum, I'm not sure that you can do this.

chucknorris

jem16 wrote: »

I think it could be good if taking the tax free cash from the AVC pot increases the main pension. For service after 2009 this would certainly be the case as there is no automatic lump sum.

However for service pre 2009 with the automatic lump sum, I'm not sure that you can do this.

I didn't join the scheme until 2010 Jem. Sorry I didn't quite understand what you were saying?