Topping Up LGS Pension - ARCs vs AVCs?

moneyfoolish

gardenia101 wrote: »

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.

Hello gardenia101. I'm no expert but I also have an LGPS pension and I am contributing half of my salary to the AVC scheme which I intend to take as a tax-free lump sum, Like yourself I was worried about the potential for the AVC to go down. We only have 2 options for our AVC fund and they are both with Standard Life. One is their Managed Fund which is equity based and went up by around 13% last year; the other is their Sterling Money Market Fund which went up 0%. I have chosen the Sterling Fund as that is supposed to be pretty secure and as I will be getting 20% increase from the Government with little risk, I'm happy. The other option is more risky but with much greater potential and I am considering putting half of my money into that fund in the future. I'm too old to use the ARC scheme but if I had dreamed I would still be working (I'm 68 and joined the LGPS scheme when I was 55), I would have certainly used that as my first preference.

atush

He probably meant as you have a public service pension there wasn't much he could do for you as you don't need a pension. He could help you with S&S isas if he could give you a low enough fee.

So, NHS pension you can't reverse commute so you have to take the LS, fine. You might, with your Cash ISas have enough to not have to take a LS from the LGPS pension. But as you say, that money is shrinking and some of it might be better off in a S&S isa where it could grow and beat inflation. The market has been good to me this year, with many finds, shares and trusts up from 15-50%.

If you had to retire due to ill health, you might be in for valuable ill health retiral conditions. So would not have to live off your savings. But, savings outside a pension would be taken into acct if you had to rely on means tested benefits whereas pensions wouldn't.

jem16

gardenia101 wrote: »

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?

I wouldn't bother with a SIPP. Your LGPS AVC has much more of an advantage with the ability to take the whole of it tax-free provided it's no more than 25% of your whole LGPS pension plus AVC. The SIPP would only allow you to access 25% of it tax-free with the rest having to be taken as an annuity.

I think you need to decide if you want a no-risk option or a risk option.

For money that you want to rely on to get you up to your £10k/£12k target, I would tend to go with the ARC option if you can afford it.

Anything extra put into a S&S ISA for a bit of flexibility.

gardenia101

russell_anderson wrote: »

I'm too old to use the ARC scheme but if I had dreamed I would still be working (I'm 68 and joined the LGPS scheme when I was 55), I would have certainly used that as my first preference.

Thank you - I'm expect I'll end up there for much longer than I imagine....

atush wrote: »

He probably meant as you have a public service pension there wasn't much he could do for you as you don't need a pension.

I like your explanation of what he meant much more

So, NHS pension you can't reverse commute so you have to take the LS, fine. You might, with your Cash ISas have enough to not have to take a LS from the LGPS pension. But as you say, that money is shrinking and some of it might be better off in a S&S isa where it could grow and beat inflation. The market has been good to me this year, with many finds, shares and trusts up from 15-50%.

I must get around to transferring some of my cash ISA to a S&S ISA even if I don't contribute as much as I'd like to - at least it is a start.

If you had to retire due to ill health, you might be in for valuable ill health retiral conditions. So would not have to live off your savings. But, savings outside a pension would be taken into acct if you had to rely on means tested benefits whereas pensions wouldn't.

Very true - the pension is my priority at the moment.

jem16 wrote: »

I wouldn't bother with a SIPP. Your LGPS AVC has much more of an advantage with the ability to take the whole of it tax-free provided it's no more than 25% of your whole LGPS pension plus AVC. The SIPP would only allow you to access 25% of it tax-free with the rest having to be taken as an annuity.

I think you need to decide if you want a no-risk option or a risk option.

For money that you want to rely on to get you up to your £10k/£12k target, I would tend to go with the ARC option if you can afford it.

Anything extra put into a S&S ISA for a bit of flexibility.

Delighted about not going down the SIPP route - thank you.

I've decided to go for the ARCs - just hope they don't put the prices up too much. The maximum I can buy is £5K pa - over 10 years this equates to £544 pcm which is a hefty chunk of my salary. But my savings can make up the difference as my expenses aren't huge. I could buy the £5K over a longer time, but if I had to leave work early for reasons other than ill health (elderly parent springs to mind) then at least I've paid in.

Using the MSE income tax calculator I wouldn't be paying tax on my salary (but maybe still on my non-ISA savings - how could I check this?). Apart from informing the charities than currently claim gift aid on my contributions that they now couldn't claim, would I have to inform anyone else? Child benefit/tax credits people?

If I still wanted to pay into AVCs (doubt it but want to check I've understood the rules) then I could pay in up to all of my salary that wasn't going into ARCs. Is this correct & would it still be worth paying in a token amount even if I'm not a tax payer?

Thank you all for taking the time to contribute & answer my questions - it is very much appreciated.

moneyfoolish

If your company AVC linked to your LGPS pension is similar to mine, then you can pay in up to a maximum of half of your taxable income but you can't put in any lump sums. However, you can adjust the monthly payments from your salary at any time. Unfortunately, I don't know if any how paying money into your ARC would affect this but I'm sure others with greater knowledge than myself will tell you.

jem16

gardenia101 wrote: »

Using the MSE income tax calculator I wouldn't be paying tax on my salary (but maybe still on my non-ISA savings - how could I check this?).

If your total income, including gross interest payments, is over £9440 then yes you will pay tax on the interest. Banks take this off automatically anyway.

Apart from informing the charities than currently claim gift aid on my contributions that they now couldn't claim, would I have to inform anyone else? Child benefit/tax credits people?

As you are still a taxpayer then charities can still claim. Gaining tax relief on pension payments doesn't make you a non-taxpayer.

If I still wanted to pay into AVCs (doubt it but want to check I've understood the rules) then I could pay in up to all of my salary that wasn't going into ARCs. Is this correct & would it still be worth paying in a token amount even if I'm not a tax payer?

Are you based in Scotland or England & Wales? AVCs are limited to half your salary if in England & Wales. How it works in relation to ARCS as well I have no idea.

I wouldn't pay into AVCs as well as ARCs.

However you are still a taxpayer.

gardenia101

jem16 wrote: »

If your total income, including gross interest payments, is over £9440 then yes you will pay tax on the interest. Banks take this off automatically anyway.



As you are still a taxpayer then charities can still claim. Gaining tax relief on pension payments doesn't make you a non-taxpayer.



Are you based in Scotland or England & Wales? AVCs are limited to half your salary if in England & Wales. How it works in relation to ARCS as well I have no idea.

I wouldn't pay into AVCs as well as ARCs.

However you are still a taxpayer.

I've obviously misunderstood the income tax checker - I took it to mean that as I would be paying £0 tax I'd be classed as a non tax payer So much to learn....

Glad the charities can still get extra money from those nice people at HMRC.

I will stick to the ARCs & put any extra into the S&S ISA that I WILL open very soon.

Thanks for your patience :T

jem16

gardenia101 wrote: »

I've obviously misunderstood the income tax checker - I took it to mean that as I would be paying £0 tax I'd be classed as a non tax payer So much to learn....

No you're still classed as a taxpayer, hence why you can get tax relief on the pension payments. If you were not a taxpayer you would be limited to a gross £3600 payment into a pension.

One thing I would check out is the entitlement to tax credits as I think this may depend on taxable income. Your taxable income will be reduced by the amount of pension contributions you make and also Gift Aid payments.

Child Benefit will not be affected.

gardenia101

jem16 wrote: »

No you're still classed as a taxpayer, hence why you can get tax relief on the pension payments. If you were not a taxpayer you would be limited to a gross £3600 payment into a pension.

In the end I decided to throw as much money from my salary into ARCS over the next 4 years to gain an extra £3K pension/year, & live off my reduced salary + savings now since rates are so low.

I got my state pension forecast today & just want to check about whether I'm still OK for NI contributions now that I'm paying ARCs. It states that a qualifying year is one where you have received a minimum amount of qualifying earnings & for 13/14 this is £5668. Now I'm paying ARCS I won't receive this much net salary - my gross salary before any deductions is around £12K/yr.

Will the next 4 years NI contributions still count towards my SP, or have I shot myself in the foot trying to maximise my LGPS at the expense of my SP? I currently have 27 qualifying years, so would expect to get to the full 35 years but I'd rather get there as quickly as possible in case my health fails & I have to leave my job.

Thanks in advance (again).

jem16

gardenia101 wrote: »

Now I'm paying ARCS I won't receive this much net salary - my gross salary before any deductions is around £12K/yr.

NI contributions are based on your gross salary, not net so I don't see a problem.

Does your payslip still show NI deductions?