LGP, AVC's and funding

yotlane

I am in a local government pension and also make payment into AVC. I have an endowment maturing in a couple of years and don't need to use the funds at the moment. As interest rates are so low, is it possible to put the money from the endowment into my AVC pot, thus getting the tax saving? and then take it as part of my pension when I am ready.

Also can I take out a lump sum from my AVC before my retirement date, as long as I am over 55yrs. Any thoughts would be appreciated?

jem16

yotlane wrote: »

As interest rates are so low, is it possible to put the money from the endowment into my AVC pot, thus getting the tax saving? and then take it as part of my pension when I am ready.

No problem doing that but you may not be saving tax but simply deferring tax if you are a basic rate taxpayer.

Also can I take out a lump sum from my AVC before my retirement date, as long as I am over 55yrs. Any thoughts would be appreciated?

Some AVC pots are still linked to the main scheme and must be taken at the same time. Others will allow you to take as you please if over 55 - you would need to ask.

However the one advantage to AVCs with the LGPS is the ability to use the AVC pot to fund the tax free lump sum, thus preserving the main pension with no need to use the dire commutation rate. However I'm not sure how this works with those already receiving the automtaic lump sum from pre 2008 contributions.

GhIFA

jem16 wrote: »

No problem doing that but you may not be saving tax but simply deferring tax if you are a basic rate taxpayer.

Subject to annual allowance and earnings limitations.

pandora205

jem16 wrote: »

No problem doing that but you may not be saving tax but simply deferring tax if you are a basic rate taxpayer.



Some AVC pots are still linked to the main scheme and must be taken at the same time. Others will allow you to take as you please if over 55 - you would need to ask.

However the one advantage to AVCs with the LGPS is the ability to use the AVC pot to fund the tax free lump sum, thus preserving the main pension with no need to use the dire commutation rate. However I'm not sure how this works with those already receiving the automtaic lump sum from pre 2008 contributions.

I also pay into LGPS and AVCs. In my scheme I am not permitted to take the AVCs until I retire. With regard to the pre-2008 sum and counting AVCs towards the tax free lump sum, that is fine as long as the total does not exceed 25% of the total pension pot (I have a formula for calculating this somewhere as it is not usually stated on our superannuation statements)

jem16

pandora205 wrote: »

With regard to the pre-2008 sum and counting AVCs towards the tax free lump sum, that is fine as long as the total does not exceed 25% of the total pension pot (I have a formula for calculating this somewhere as it is not usually stated on our superannuation statements)

That's fair enough. However what I was interested in finding out is if you can take the lump sum from ONLY the AVC pot, thus increasing the annual pension.

With post 2008 contributions you must commute some of the pension to receive a lump sum so this would be advantageous to take it from the AVC pot instead. However pre 2008, there is an automtaic lump sum with a lower pension.

hyubh

jem16 wrote: »

However what I was interested in finding out is if you can take the lump sum from ONLY the AVC pot, thus increasing the annual pension.

No, the benefits for pre- and post-April 2008 are calculated separately, albeit using the same final pay figure. As such, you can't do some sort of reverse commutation on the fixed lump sum element that relates to pre-April 2008 membership.

jem16

hyubh wrote: »

No, the benefits for pre- and post-April 2008 are calculated separately, albeit using the same final pay figure. As such, you can't do some sort of reverse commutation on the fixed lump sum element that relates to pre-April 2008 membership.

So basically with post 2008 you are actually better off as you don't have to commute to get the lump sum as you can take it from the AVC pot, thus getting a higher pension but you're stuck with the automatic lump sum and no inverse commutation allowed.

Pixieboy

What hasn't been mentioned so far is that AVCs in the LGPS must be deducted from pay, i.e. you cannot send a cheque to the AVC provider, for instance.
There is also a limit on the sum that can be paid as AVCs which is 50% of your pensionable pay in the pay period that the AVCs are being paid, i.e. if monthly pensionable pay is £1,500 you can only pay up to £750 in each month that you pay AVCs - the limit is not relating to a longer period, such as a financial or tax year.
The guidance on how much can be taken as lump sum is available here http://timeline.lge.gov.uk/GAD/Reg%2021_GAD_LTA_Add_Cash_Commutation_Guidance.pdf it is rather technical though, so if you want to post standard pension, standard lump sum and AVC fund values someone can calculate the possible lump sum for you, or alternatively ask your fund administrators to do this for you.
As has been said, you cannot reduce the pre 1/4/2008 standard lump sum, but you could increase the lump sum overall by using AVCs at retirement for this purpose, reducing or eliminating the need to give up standard pension to increase the standard lump sum.
Oh, and as has also been said, you cannot take benefits from the AVC before the main scheme benefits.
Hope this helps.

hyubh

jem16 wrote: »

So basically with post 2008 you are actually better off as you don't have to commute to get the lump sum as you can take it from the AVC pot, thus getting a higher pension but you're stuck with the automatic lump sum and no inverse commutation allowed.

Yes taken in isolation, no given other things - in particular, historically a retiring member could buy additional service with the proceeds of their AVC. The ability to use an AVC to take a lump sum without eating into the main pension is just the modern version of that really.

pandora205

I emailed my authority asking if the pre 2008 lump sum and be commuted to pay (so there reverse of the usual) but haven't had a reply. I don't think it is possible unfortunately.