Topping Up LGS Pension - ARCs vs AVCs?

gardenia101

I didn't want to hijack this thread, although I have read it & the conclusion I have come to is that using ARCs would most likely be better for me, but I'd like a few grown ups to comment on my reasoning....

I have a small NHS pension payable at 60, am on track for a full state pension at almost 67 (if they still exist) & contribute to a LGPS which I should get at 65 (ish - they may change the rules again before then). I'm now 44 & plan to retire at 60, but not take my LGPS until 65 (or whatever it is).

As I only earn £11K I'm limited to putting £55 pcm into the LGPS - I'm not expecting my salary to increase very much during my career, & can't imagine leaving my post as the term time only working suits my lifestyle. I also have a disability which puts me at a disadvantage from getting another job.

But I'm aware I'm not saving enough for retirement. So I've almost decided on paying ARCs for their defined benefit, rather than hoping the AVCs fund does well.

I'm also thinking of paying into a S&S ISA, but although I promise myself I'll read up on investing, this has yet to happen, so it would most likely be a Vanguard type ISA which would require minimal management from me.

My thoughts are to go for the ARCs & use the S&S ISA as additional pension planning (almost instead of the AVC route). I'm financially disciplined not to touch the ISA money unless it was a last resort (& that is why I'd prefer the flexibility of getting to the ISA at any age).

I'm unsure what time period to buy ARCs over - 20 years is my maximum allowed time due to my age. I know this would be the cheapest option should I stay in post for that long, but should I also consider hurling as much money in as I can for 3-5 years in addition so that I know I've definitely got £x due should I have to leave my post (for reasons other than ill health retirement)?

I'm also aware of this thread & wondering if my LGPS will put up their costs by as much in April 2014? Their website still states that payments are linked to RPI....

I've paid off my mortgage, & have enough money in IA cash ISA/savings a/c to support myself for a few years.

What would you all do if you were in my position?

Camdoon

I am sure one of the experts or IFAs will be along to help but one of the benefits of the LGPS is that the AVC can be taken as cash allowing you not to forego,part of your main pension to take a tax free lump sum. So you are immediately onto a 20% uplift. On a small salary the benefits of this and being able to underpay one year and overpay on others to an AVC may be of more benefit than more rigid ARCs which may cost more in the future.

jem16

gardenia101 wrote: »

What would you all do if you were in my position?

How much have you decided you are going to need in retirement and how much are you on track to receive?

If more is needed then you need to decide whether you prefer the non risk option of the additional pension, the risk option of AVCs but with the advantage of using it to fund the tax free lump sum or no extra pension but use S&S ISA for flexibility.

gardenia101

jem16 wrote: »

How much have you decided you are going to need in retirement and how much are you on track to receive?

If more is needed then you need to decide whether you prefer the non risk option of the additional pension, the risk option of AVCs but with the advantage of using it to fund the tax free lump sum or no extra pension but use S&S ISA for flexibility.

After using Microsoft Money for years I do, sadly, have a very accurate picture of how much I spend. I could manage on £10-12K pa (at todays value) when my kids leave home (assuming they will :rotfl:). I know this seems low, but I don't have any expensive sporting hobbies, I don't drive or take exotic holidays - my disability prevents me from doing all of these now.

I'm waiting for my annual statement from LGPS, but I think I've worked out that I'll build up an annual pension entitlement of £197. However there are so many variables as I'm part time & term time only. Using the new 1/49 (instead of 1/60) my entitlement would be £240 pa. I assume this entitlement has nothing to do with my actual monthly contributions.

My NHS pension is around £1360 pa with a lump sum of £4K.

Seeing the pathetically small amounts is depressing & part of me thinks it just isn't worth paying in for extra benefits as it will take a chunk of my already small salary, & even after many years my pension entitlement will still be very small

But I guess it is better to do something rather than nothing.

I'm still going round in circles with which way to go, as I'm pretty sure I can't afford to fund ARCs, AVCs & a S&S ISA, or if I could all 3 would be so small that they wouldn't be worth doing. Or am I wrong in thinking that as I do have 23 years until I reach SRA?

How can I do further projections for a longer timescale for my LGPS?

Thanks in advance.

gardenia101

Camdoon wrote: »

I am sure one of the experts or IFAs will be along to help but one of the benefits of the LGPS is that the AVC can be taken as cash allowing you not to forego,part of your main pension to take a tax free lump sum. So you are immediately onto a 20% uplift. On a small salary the benefits of this and being able to underpay one year and overpay on others to an AVC may be of more benefit than more rigid ARCs which may cost more in the future.

Yes - that is another thing to consider. Aargh.... Just when I think I've made up my mind.

I just worry about the whole "may go down as well as up" aspect of AVCs, but you are correct about the flexibility being a major plus.

atush

The thing is, will you have a cash pot at retirement or investments enough to make sure you don't commute your valuable LGPS or NHS pensions into a Lump sum? For instance, do you have to take the 4K LS from the NHS, or can you opt for a higher annual pension? Most don't think about it, and just take it.

if you are likely to take a LS, then paying into the AVC makes sense so you can take your index linked pension w/o commuting any of it. After you think you have enough in the AVC pot to fund it (or have saved in ISAs outside a pension) then paying ARCs makes the most sense.

We don't know enough about you really to say, but if you give you the right questions to ask yourself, you'll know the right answer for you.

Maybe Arcs, AVCs and S&S isas aren't all possible, but maybe two fo the 3 are?

jem16

gardenia101 wrote: »

After using Microsoft Money for years I do, sadly, have a very accurate picture of how much I spend. I could manage on £10-12K pa (at todays value) when my kids leave home (assuming they will :rotfl:).

So around £4k/£6k extra needed if you are including the state pension.

I'm waiting for my annual statement from LGPS, but I think I've worked out that I'll build up an annual pension entitlement of £197. However there are so many variables as I'm part time & term time only. Using the new 1/49 (instead of 1/60) my entitlement would be £240 pa. I assume this entitlement has nothing to do with my actual monthly contributions.

How many years service have you now and how many would you have on retirement? Is the £197pa what you have built up so far or were you including the years up till retirement?

My NHS pension is around £1360 pa with a lump sum of £4K.

Yes the lump sum is based on 3 times pension and is automatic. You cannot inversely commute the lump sum though.

Also remember that the pension and lump sum will be increasing each year in line with inflation.

Or am I wrong in thinking that as I do have 23 years until I reach SRA?

It is still quite a number of years to consider.

How can I do further projections for a longer timescale for my LGPS?

Thanks in advance.

Just add in some extra years. The main problem will be guessing what your final salary will be. With career average it's a bit more complicated.

gardenia101

jem16 wrote: »

How many years service have you now and how many would you have on retirement? Is the £197pa what you have built up so far or were you including the years up till retirement?

This is what I think I've built up so far - only joined the scheme last June when I got my current job.

I'm hoping to stay working here for another 15/16 years at least - then I'll be 60.

Yes the lump sum is based on 3 times pension and is automatic. You cannot inversely commute the lump sum though.

I take that to mean that I have to take the lump sum - it can't be added back into my NHS pension to increase my annual pension payment. Have I got that right?

Just add in some extra years. The main problem will be guessing what your final salary will be. With career average it's a bit more complicated.

I can take a guess at not very much higher than it is today :rotfl:

jem16

gardenia101 wrote: »

This is what I think I've built up so far - only joined the scheme last June when I got my current job.

I'm hoping to stay working here for another 15/16 years at least - then I'll be 60.

So based on your current salary that would be £3152pa. Slightly more healthy looking.

I take that to mean that I have to take the lump sum - it can't be added back into my NHS pension to increase my annual pension payment. Have I got that right?

Yes you are correct. Some do allow it so you would need to check for sure.

I can take a guess at not very much higher than it is today :rotfl:

An extra 16 years will make quite a bit of a difference.

gardenia101

atush wrote: »

The thing is, will you have a cash pot at retirement or investments enough to make sure you don't commute your valuable LGPS or NHS pensions into a Lump sum? For instance, do you have to take the 4K LS from the NHS, or can you opt for a higher annual pension? Most don't think about it, and just take it.

I have many years cash ISAs slowly losing money so I should have enough to cover me between 60 & 65/67. I also expect to inherit property before I'm 60 but don't want to rely on this happening.

AFAIK I have to take my NHS lump sum.

if you are likely to take a LS, then paying into the AVC makes sense so you can take your index linked pension w/o commuting any of it. After you think you have enough in the AVC pot to fund it (or have saved in ISAs outside a pension) then paying ARCs makes the most sense.

We don't know enough about you really to say, but if you give you the right questions to ask yourself, you'll know the right answer for you.

Maybe Arcs, AVCs and S&S isas aren't all possible, but maybe two fo the 3 are?

I'm not sure I know anything anymore - my head is spinning.

I'm also nervous of putting money into a S&S ISA as if my health does get worse, I could be forced to live off this money long before I get to retirement age. The AVCs would at least lock that money away until retirement.

Now my friend has also told me to consider a SIPP..... Would either ARCs &/or AVCs be a better idea than a SIPP considering how little I'd be able to afford to pay into them?

gardenia101

jem16 wrote: »

So based on your current salary that would be £3152pa. Slightly more healthy looking.

But still very depressing - it is hard to convince myself that it is all worth it.

A family friend is a IFA - when I asked him if it was worth me coming to see him to talk through my options he laughed & said my only option was poverty now I'm too old to work the streets. All said tongue in cheek (I hope) but I got the impression it wasn't worth my while worrying & trying to plan for my retirement...