Avoiding 40% tax rate

00ec25

if at a pre 92 HEI it is possible he may not be able to join LGPS anyway as they may only offer USS

LGPS has already announced the move to career average for service earned AFTER April 2014. They already removed the automatic lump sum a few years ago - to get one you have to "buy" it by receiving a smaller pension. Their normal retirement age is aligned with whatever the state age is/will be . The further changes in April will see the contribution rate % increase but the accrual rate rises dramatically from 1/60 to 1/49. There is no option for starting added years within LGPS (that was removed in the previous changes)

USS on the other hand currently remains at 1/80 but is also state retirment age aligned. Crucially it has its next valuation soon at which time the updated estimate on how much the existing level of underfunding will be recalculated - it would be pure speculation to guess what changes USS may need to make if the underfunding rises dramatically

as for added years they they always were the most expensive option because they commit the fund to paying a quantifiable enhancement to the pension. Starting one from scratch if you are >35 - 40 is a move you want professional advice on before committing to it

00ec25

kidmugsy wrote: »

Ever since the rules changed to let people in an occupational scheme also have a personal pension, AVCs have looked a bit redundant

surely it depends on charges and fund managers? an AVC linked to a defined benefit scheme as with USS/Pru means the charges paid by the employee are "nil/low". In a personal pension you pay the "full" charges cos no one else will


Added years remains an easily understood option if you will not reach full service before retirement age AND you are in a defined benefit scheme (career or final salary) - you know what you'll get!
contributing to the Pru's AVC (the available option to a USS member) does not buy added years and therefore you move in comparing chalk (money purchase of unknown eventual value) with cheese (final salary defined benefit)
starting a personal pension away from USS/Pru has the same issue - how to compare money purchase v defined benefit

that's the sort of advice you need qualified pensions professionals to give

jem16

00ec25 wrote: »

if at a pre 92 HEI it is possible he may not be able to join LGPS anyway as they may only offer USS

I don't think anyone suggested joining the LGPS. The LGPS was simply mentioned to see if the USS was following the same changes as the LGPS and other public sector schemes.

00ec25 wrote: »

I disagree - added years remains an easily understood option if you will not reach full service before retirement age AND you are in a defined benefit scheme (career or final salary) - you know what you'll get!

AVCs were generally considered to be the money purchase option as opposed to added years/additional pension.

surely it depends on charges and fund managers? an AVC linked to a defined benefit scheme as with USS/Pru means the charges paid by the employee are "nil/low". In a personal pension you pay the "full" charges cos no one else will

Charges will be important but potential can be more important.

kidmugsy

00ec25 wrote: »

Added years remains an easily understood option if you will not reach full service before retirement age AND you are in a defined benefit scheme (career or final salary) - you know what you'll get!

Hah! A friend of mine bought extra years in USS then moved to a different university with a later retirement age, so that the two years extra service that he'd bought was money completely wasted.


But I was writing about the USS/Pru combo. If you go for that your AVC money is tied up in a way that it wouldn't be in a personal pension. For me that would outweigh second-order considerations of cost: how much cheaper could the AVC be than a Vanguard fund in a cheap SIPP?

jem16

kidmugsy wrote: »

Hah! A friend of mine bought extra years in USS then moved to a different university with a later retirement age, so that the two years extra service that he'd bought was money completely wasted.

Does the USS not have a specific scheme retiral date then?

But I was writing about the USS/Pru combo. If you go for that your AVC money is tied up in a way that it wouldn't be in a personal pension. For me that would outweigh second-order considerations of cost: how much cheaper could the AVC be than a Vanguard fund in a cheap SIPP?

The one advantage of the money purchase AVC with the USS is the ability to take the whole AVC pot as your tax free lump sum instead of taking from the main scheme.

00ec25

kidmugsy wrote: »

Hah! A friend of mine bought extra years in USS then moved to a different university with a later retirement age, so that the two years extra service that he'd bought was money completely wasted.

if he was buying an extra 2 years at his retirment date (which is 65 under USS) then he did not transfer 2 years to the new scheme, but the new uni's pension should be a member of the public sector transfer club under which they have to give a minimum of 1 for 1 transfer of any service accrued at date of transfer, so he would have got credit for the time he had already paid for so it was not a complete waste of money, it simply increased his accrued service by a few extra days

kidmugsy

00ec25 wrote: »

if he was buying an extra 2 years at his retirement date (which is 65 under USS)

You're off in the wrong direction there. He was a member of USS, working in a university where his contractual retirement age was 65. He could see that at 65 he would have had only 38 years of contributions, so he bought two more years of service. Later he moved to a university where his contractual retirement age was 67 and he did indeed retire at 67. So his two bought years proved unnecessary and had stretched him financially at an age when things were tight. Clearly he benefited from not having to contribute for the last two years of his career but he was flush with funds then and it mattered less.

@jem: it's a multi-employer scheme so the scheme's retirement age and your employer's retirement age could be different.