LGPS 2014 - additional years contract

jem16

taktikback wrote: »

That would help with your objective of maintaining the highest level of base pension (with index linking etc) and avoid commuting any of it at a poor rate.

The only problem with that is that pre 2008 contributions give an automatic lump sum which gives no option of reverting back to pension.

You could then do what you like with the lump sum (further investment etc) having shielded it from tax.

Will it give the same level of pension though?

taktikback

Yes the pre-2008 service has to pay a lump sum, but that leaves the last 5 years plus 9 to retirement which would still allow quite a significant sum to be built up.

I have to admit I haven't recently done the calculation for the ARC alternative which I believe has only recently been revised, but all other things being equal -the tax free position on the way in and on the way out for the AVC has to be tough to beat. Plus there is no obligation to turn it into a pension, which may be a better balance given that the poster is looking at having £12k and possibly a full state pension coming, to provide inflation linked income.

amandajc

Thanks both. That is true I do have a guaranteed lump sum of about £13,000 and will be OK for full state pension when I get to 66. I would really like to take my pension a little early (at 63) although in this case it will be reduced and I will have to fund the years until I get my state pension. I understand that if I do take my LGP at 63 the whole lot (including the bit that is down to any ARCs I have paid) will be reduced (by something like 12%?) but I'm confused about how an AVC fund would operate in that situation. Do I have to take it at the same time?, does it automatically get converted into extra pension? (apart from any I decide to take as a lump sum). Do ARCs and AVCs follow the same rules as regards reductions for taking the pension early? I am very grateful for any information on this. I have written to my pension advisor but she is being slow to reply and seems hesitant to answer questions due to the changes next year.

jem16

amandajc wrote: »

but I'm confused about how an AVC fund would operate in that situation. Do I have to take it at the same time?,

If you were planning to use it to fund the extra tax free cash then yes you would.

does it automatically get converted into extra pension? (apart from any I decide to take as a lump sum).

Any amount that you don't use for tax free cash you would use to purchase an annuity. Not good value really.

Do ARCs and AVCs follow the same rules as regards reductions for taking the pension early?

No they don't. The AVC pot would be the value of your funds when you take them.

I'm not sure about ARCs but I should imagine the reduction applies to them.

I am very grateful for any information on this. I have written to my pension advisor but she is being slow to reply and seems hesitant to answer questions due to the changes next year.

I can understand this as some parts aren't fully settled yet.

hyubh

Hyubh believes you have to be an undeserving rich parasite to do this

I take it by this 'response' that your wife does indeed have a sizeable AVC! And that the school doesn't have any outsourced caterers that need to worry about their employer rates...

hyubh

amandajc wrote: »

but I'm confused about how an AVC fund would operate in that situation. Do I have to take it at the same time?

Yes.

does it automatically get converted into extra pension?

You can choose to put the value against your main pension and take up to 25% of the total tax free; any remainder is then usually used to buy an annuity, i.e. a separate pension from your main LGPS one.

Do ARCs and AVCs follow the same rules as regards reductions for taking the pension early?

Reductions are irrelevant to an AVC, as it's a DC pension on the side (i.e., what you get is dependent on the investment returns of your AVC pot, rather than what the scheme says you will get).

I have written to my pension advisor but she is being slow to reply and seems hesitant to answer questions due to the changes next year.

That is the big unknown, unfortunately.

taktikback

hyubh wrote: »

I take it by this 'response' that your wife does indeed have a sizeable AVC! And that the school doesn't have any outsourced caterers that need to worry about their employer rates...

No she doesn't - as I said previously -she pays £100 a month and only started it a year or so ago..

Yes the school has caterers, and the school is an academy with the usual concerns about employer rates.

My response is challenging your prejudice, and also trying to make sure you don't put off perfectly normal posters from considering AVCs because you characterise them as being for "fat cats" only - as I said previously Daily Mirroresqe..;)

taktikback

amandajc wrote: »

Thanks both. That is true I do have a guaranteed lump sum of about £13,000 and will be OK for full state pension when I get to 66. I would really like to take my pension a little early (at 63) although in this case it will be reduced and I will have to fund the years until I get my state pension. I understand that if I do take my LGP at 63 the whole lot (including the bit that is down to any ARCs I have paid) will be reduced (by something like 12%?) but I'm confused about how an AVC fund would operate in that situation. Do I have to take it at the same time?, does it automatically get converted into extra pension? (apart from any I decide to take as a lump sum). Do ARCs and AVCs follow the same rules as regards reductions for taking the pension early? I am very grateful for any information on this. I have written to my pension advisor but she is being slow to reply and seems hesitant to answer questions due to the changes next year.

You will see from the other replies that the rules are different. The reason I think you might want to look at them is because you have a sizable pension value behind you and enough years to use the AVC pot effectively as a tax efficient savings scheme which could give you a cash sum that would make it less necessary to commute your pension when you get there - this is particularly relevant if you are planning to retire early because the AVC is not affected by that as it's just a pot of money, but it might be substantial enough to give you a safety pot to balance the actuarial reduction on the main scheme

amandajc

Thanks to all. That clears things up and makes a lot of sense. Hopefully the AVC rules won't change next year.

jem16

amandajc wrote: »

Thanks to all. That clears things up and makes a lot of sense. Hopefully the AVC rules won't change next year.

The other option is to use a S&S ISA to fund the 3 year gap between age 63 and 66. If you were able to put enough money away to live on for those three years, you could perhaps avoid taking the pension early and having the actuarial reduction.