Joint pension query

Happychappy

I recently posted a query regarding my wife's Tesco pension, but could really do with opinions about our current state of finances before speaking to an IFA.

I am employed by a local government employer, I did 30 years with a LGPS and paid 11% salary for 30 years into a police pension scheme which finished in 2008 when I took retirement, I now have a pension around £1650 a month, I am 57, no mortgage, house paid off and a few hundred k in savings, so no saving or cash issues.

After retirement in 2008 I then took full time employment with another Local government authority and receive a salary of around £34k plus a pension of £23k, I did not join the current LGPS pension until September 2012, I know I should have joined in 2008, but I was only intending to stay for 3 - 5 years, however thought that three to five years of paying into another pension scheme as I am now a 40% tax payer maybe beneficial?

I now think the way things are I will only stay for another year or possibly two, retiring at 60.

Therefore is it worth continuing to pay into the new LGPS which is less than a year old, or is it worth increasing payments and paying AVC for tax reasons, and if so, how much?

I can lose the whole of my salary, as it only goes into a savings account. Is it worth paying into this pension when the total outlay will only be three or four years, or is it worth maxing out AVCs for the next year or two?

My wife has been employed by Tesco and paid into their pension scheme for 12 years and has a Tesco pension, and likewise will only stay there for another four years possibly ? Is It worth her paying AVC for the last three or four years?


I have always maxed out the cash Isa's for both of us for the last ten to twelve years, so savings wise, we really do not need either of our salaries, but I believe if we were to max out AVCs this can only be around 25% or 50% of each salary, so easily enough to live off? Plus we both have 30 years of state pensions contributions, so at around 66 if the state still exists and we do ! ,we will get the state pension.

Thanks

Bigmoney2

Happychappy wrote: »

I recently posted a query regarding my wife's Tesco pension, but could really do with opinions about our current state of finances before speaking to an IFA.

I am employed by a local government employer, I did 30 years with a LGPS and paid 11% salary for 30 years into a police pension scheme which finished in 2008 when I took retirement, I now have a pension around £1650 a month, I am 57, no mortgage, house paid off and a few hundred k in savings, so no saving or cash issues.

After retirement in 2008 I then took full time employment with another Local government authority and receive a salary of around £34k plus a pension of £23k, I did not join the current LGPS pension until September 2012, I know I should have joined in 2008, but I was only intending to stay for 3 - 5 years, however thought that three to five years of paying into another pension scheme as I am now a 40% tax payer maybe beneficial?

I now think the way things are I will only stay for another year or possibly two, retiring at 60.

Therefore is it worth continuing to pay into the new LGPS which is less than a year old, or is it worth increasing payments and paying AVC for tax reasons, and if so, how much?

I can lose the whole of my salary, as it only goes into a savings account. Is it worth paying into this pension when the total outlay will only be three or four years, or is it worth maxing out AVCs for the next year or two?

My wife has been employed by Tesco and paid into their pension scheme for 12 years and has a Tesco pension, and likewise will only stay there for another four years possibly ? Is It worth her paying AVC for the last three or four years?


I have always maxed out the cash Isa's for both of us for the last ten to twelve years, so savings wise, we really do not need either of our salaries, but I believe if we were to max out AVCs this can only be around 25% or 50% of each salary, I thought you could theoretically but 100% salary into a pension although in reality it is a less as you would probably want to maintain NI contributions to qualify for state pension and possibly other contribution based benefits.
so easily enough to live off? Plus we both have 30 years of state pensions contributions, you will need 35 yrs contributions to qualify for the flat rate pension (£144) from 2016. so at around 66 if the state still exists and we do ! ,we will get the state pension.

Thanks

You can take 25% from the pension pot tax free at retirement, there is a calculation to ascertain how much this is with DB schemes (usually 20 x annual pension, may be different for public sector) Some schemes allow all the tax free lump sum to come entirely from the AVC's, some only allow the 25% to be spread between the 2.

Any money paid into AVC's is paid tax free so you effectively get 20% back for a basic rate tax payer, which you can't get any where else on cash deposits. The catch is you can't get it until retirement but if that isn't too far off it can be a good idea.


I took early retirement due to redundancy and started putting a large amount away for the 6months before I left and lived off savings. My scheme allowed any tax free lump sum to come entirely from AVC's so this was the only lump sum I took ( less than the max 25% but a nice little lump)

atush

AVCs are very valuable if your pension scheme allows using the AVC to fund the tax free lump sum rather than using the main fund (and reducing your pension accordingly) so do use AVCs in those cases (if they are good for you or not I don't know as I don't know your scheme).

Second, in your case, I would put your current pension income (100% ) if you can into another pension of some sort- be it your current one or a Sipp.

In your case, with income over 20K as a pension, a Sipp would mean you can qualify for a flexible DD which means you can take as much pension from that new pot as you like each year- even 100% (but would pay income tax). You can pay in upto 100% of income so could pay in more than the 23K you are currently receiving and get 40% boost as tax relief.

xylophone

I did 30 years with a LGPS and paid 11% salary for 30 years into a police pension scheme which finished in 2008 when I took retirement, I now have a pension around £1650 a month, I am 57,

Can you clarify?

jem16

Happychappy wrote: »

Therefore is it worth continuing to pay into the new LGPS which is less than a year old, or is it worth increasing payments and paying AVC for tax reasons, and if so, how much?

If you pay into the LGPS you will have the benefit of the employer's contribution and a Defined Benefit pension so definitely continue with that.

or is it worth maxing out AVCs for the next year or two?

AVCs with the LGPS have the advantage of being able to use the AVC pot to take the 25% tax-free lump sum as opposed to commutating the main pension which at a rate of 12:1 is dire.

However AVCs taken out for less than 5 years now have an early exit charge. The exit charge after 1 year is 15% and after 2 years is 10%.

http://www.pru.co.uk/pdf/kf/LAVK0846.pdf

As a higher rate taxpayer, the pension has its advantages provided you won't end up a higher rate taxpayer in retirement. You should consider paying the amount you are a higher rate taxpayer by into a pension but do work out how much you would have in retirement as there's not a lot of point paying 40% tax on it.

However you also have the choice of a PP or SIPP if those early exit charges are prohibitive.

My wife has been employed by Tesco and paid into their pension scheme for 12 years and has a Tesco pension, and likewise will only stay there for another four years possibly ? Is It worth her paying AVC for the last three or four years?

That depends on the AVC rules for her scheme. If there is no advantage such as in the LGPS, then unless she is a higher rate taxpayer a S&S ISA would possibly be better.

I have always maxed out the cash Isa's for both of us for the last ten to twelve years, so savings wise, we really do not need either of our salaries, but I believe if we were to max out AVCs this can only be around 25% or 50% of each salary, so easily enough to live off?

How much you can contribute varies with each scheme so you need to check. With the LGPS in England & Wales it's up to 50% but in Scotland it's 100%.

jamesd

Happychappy wrote: »

I now have a pension around £1650 a month, I am 57

That's £19,800 of guaranteed pension income. A person with £20,000 of more of guaranteed pension income in payment from work, state pensions or an annuity can use Flexible Drawdown from a personal pension. Flexible Drawdown lets you take out as much money as you like from the pension pot whenever you like. As usual the first 25% is tax free, any more is added to your taxable income in the year(s) in which you take it. Once you start Flexible Drawdown neither you nor any employer is ever allowed to make any pension contributions for you ever again during your life and you must tell any employers this.

What this means for you is that paying money into a personal pension in your name is a wonderful deal. You get the normal tax relief but without the restrictions on taking money out of a pension.

So initial guidance is to pay as much taxable income as you possibly can into personal pensions for as long as you can to exploit the tax boon, after deducting the value of the work contributions from the cap on how much you're allowed to pay in each tax year.

jem16

jamesd wrote: »

That's £19,800 of guaranteed pension income.

I suspect this is net income. From a previous thread the Op has £23k from this pension.

jamesd

Even better, over the target without having to wait one year for an inflation-related increase. Though of course it would not be a good idea to use flexible drawdown while there's any prospect of ongoing pension contributions so it's actually mostly moot at the moment.

hyubh

jem16 wrote: »

However AVCs taken out for less than 5 years now have an early exit charge. The exit charge after 1 year is 15% and after 2 years is 10%.

A minor correction, but that's just the (relatively recent) policy of the Prudential. While they are a popular AVC provider, it is possible the OP's particular LGPS fund has another provider that doesn't impose exit charges, or indeed, doesn't use the Prudential at all.

Happychappy

xylophone wrote: »

I did 30 years with a LGPS and paid 11% salary for 30 years into a police pension scheme which finished in 2008 when I took retirement, I now have a pension around £1650 a month, I am 57,

Can you clarify?

Sorry I paid into a police pension for 32 years, this is a gross pension of £23k and around £1650 nett per month, no NI to pay just the dreaded tax.

Happychappy

Thank you all for taking the time to reply, I shall now seek out some financial advice.

Up until three years ago we could bank both salaries and purely live on interest from savings, but unfortunately this is no longer the case, the 6 - 7% fixed rates have now dropped to 2%? Hence the wake up call to do something whilst still at work, as many say, I should have done this a few years ago.

I will speak to my current pension provider at the Local government authority and get their view on how much I can pay in and hopefully some information from them?