LGPS 2014 - additional years contract

jem16

FatherAbraham wrote: »

Not good value compared to what?

Curious regards,
FA

Annuity rates for a 63 year old are not as good as annuity rates for a 65 or older person.

The whole point of LGPS AVCs is to use the whole AVC pot for the tax-free lump sum. Any other use may well see a PP to be a better choice.

Nual

I am hoping to take early retirement from LG in 3-4 years time, 4 or 5 years before state pension date of 66, and am finding the changes in LGPS and state pension are making it impossible to plan ahead. How can it be right that 5 months before its introduction, the rules on LGPS are still not known? Shedding jobs in LG means it may make sense to opt for ER/VR at some point, ( my LA is very ungenerous with the redundancy payment but I need to factor this in)

Please will someone advise on whether I have understood the following correctly?

I will be 60 before 1st April 2016, so should have protection so that what I get under the new rules will be as least equal to what I would have got under the old schemes.

I will reach the rule of 85 in July 2016. If I go early my pension will only be actuarialy reduced by 3-4 months - or does this have to be a full year reduction ( tapered)?

I am buying a few added years under the pre 2008 rules. This will still be based on my final salary, including the lump sum. I am due a payrise due to job evaluation from 1st April 2014, so although only a couple of thousand this is important.

I am buying AVCs and hope to put as much as possible into this pot before I retire, including backdated payrise. I will be allowed to continue to do this under the new scheme, up to a maximum that includes the lump sum and an old equitable life AVC that I stopped paying into when that all went wrong. I can then take this as a tax free lump sum on retirement.

Is there any advantage to living off other saving pots and deferring taking the LGPS and AVC pot , and if so for how long?

In order to get a full ( new rules) state pension, I will have to buy NI credits between retiring and SPA as even though I will have 40 plus years of NI, I have been contracted out for more than 20 years and the estimates of basic state pension plus SERPS are less than the new state pension.

I thought I had got all of this worked out last year but am feeling quite shaky in terms of understanding all of the changes!

pandora205

woolly_wombat wrote: »

Don't bank on the LGPS AVC rules staying the same.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/244744/Local_Government_Pension_Scheme_2014_-_Government_Response_to_the_Consultation.pdf

"Local Government Pension Scheme 2014
Government Response to the Consultation

September 2013
Department for Communities and Local Government"

..........

"Reg. 17

Comments
Two respondents commented that by providing the opportunity for members to circumvent the main scheme commutation provisions to provide an alternative means of acquiring a tax‐free lump sum, the removal of the limit fundamentally undermines the objectives of the new scheme design to deliver saving and ensure the long term viability of the scheme.

Government response
To comply with Government policy, changes have been made to both Regulation 17(8) and Regulation 33(4) to ensure that any lump sum amount taken by a member from their AVC pot does not count towards the 25 per cent tax free lump sum allowed in respect of main Scheme benefits."

WW

Does this mean that the proposal would be to tax AVC pots taken as a lump sum?

jem16

pandora205 wrote: »

Does this mean that the proposal would be to tax AVC pots taken as a lump sum?

To me it reads that the main scheme and the AVC scheme would only allow 25% tax-free lump sum from each which is how it works in most of the other Public Sector schemes.

pandora205

jem16 wrote: »

To me it reads that the main scheme and the AVC scheme would only allow 25% tax-free lump sum from each which is how it works in most of the other Public Sector schemes.

Thanks - though that is quite a shift as AVCs have been able to be taken as part of the total (notional) pot. I'll clarify as we have a presentation coming up from our pensions department (and I was rather hoping to take my AVCs as a lump)

jem16

pandora205 wrote: »

Thanks - though that is quite a shift as AVCs have been able to be taken as part of the total (notional) pot.

Yes it is quite a shift but not unexpected given that the LGPS is the only one (that I'm aware of) in the Public Sector that allows it.

I'll clarify as we have a presentation coming up from our pensions department (and I was rather hoping to take my AVCs as a lump)

I doubt you'll get an answer as yet.

hyubh

taktikback wrote: »

Well, I'm told that Academies do worry about employer rates

They don't need to in practice because central government will either pay what it takes in the short-to-medium term and/or force administering authorities and their actuaries to treat them on grounds more preferable than their legal status would imply prudent. In contrast, central government shows no inclination to do the same for admitted bodies like the outsourced caterer, CABs, housing associations, private schools (a few are in the LGPS), and so forth. And why would it?

mainly because of the effects of the small numbers of employees relative to what they were under the old Local Government structure

That's not a factor.

and the disproportionate effect of higher salaried staff on that small data set

As LGPS employers, schools are relatively bottom-heavy (teaching assistants and cleaners are in the LGPS, teachers and headteachers in the TPS). Indeed, there's a reasonable chance your wife is amongst the highest paid LGPS members at her school, even though she would be only mid-table if you looked at the school's staff as a whole.

It also depends on when the academies converted relative to the triennial valuation date.

Depends on local policies. E.g., some funds adopted a policy of grouping academies with the ceding local authority from the off, in which case it doesn't matter when a school converts.

I don't know what the rest of the point you are making is. We should abolish AVCs because the 2014 changes aren't making much money?

Why do you think the 12/1 commutation rate was introduced in the first place? Its whole point is to cheapen costs while not cutting back the standard benefit package. Encouraging its uptake by removing the (unusual) option of using all AVC proceeds for a lump sum is a natural step.

The 2014 changes are designed to reduce future exposure to the uncertainties and costs associated with living longer.

The 2014 scheme is too generous, given there are historical deficits to make up.

We take advantage of AVCs because they are offered by the scheme

Well... of course.

If the scheme didn't feel it could afford them, then it wouldn't offer them.

'The scheme' doesn't decide anything - it's central government that determines the rules, and the present government is of the mind that the AVC option as it currently stands should go.

I'd like to see some supporting evidence for your theory as to why lower paid workers (or any workers for that matter) would do better with ARCs over AVCs?

Mainly regarding the risk - the more money you have, the more risk you can reasonably take.

The taxman pays for the AVC advantage. If, as you say, the scheme can match that 20% advantage with its ARC offering, then surely that must be to the detriment of the scheme -which rather undermines your original argument don't you think?

Honestly, if you advised your wife to start an AVC rather than an ARC, I'm more than happy to concede this was the best advice for her.

hyubh

Nual wrote: »

I am buying AVCs and hope to put as much as possible into this pot before I retire, including backdated payrise.

Added years contract + late career promotion + (increased?) AVC contributions + falling under generous transitional protections? You need to be super careful of the annual allowance - have you put the numbers through a spreadsheet and/or sought professional advice?

FatherAbraham

jem16 wrote: »

Annuity rates for a 63 year old are not as good as annuity rates for a 65 or older person.

That's nonsense, I'm afraid. They're just as good, taking the younger age into account.

jem16 wrote: »

The whole point of LGPS AVCs is to use the whole AVC pot for the tax-free lump sum. Any other use may well see a PP to be a better choice.

Yes, but what's that got to do with whether one buys an annuity or not? You said that annuity rates were poor value, but it'S unclear what alternative you're proposing which offers the same guarantees for less.

If you don't have an alternative which offers the same for less, then you can't maintain that they're poor value, can you?

Warmest regards,
FA

jem16

FatherAbraham wrote: »

Yes, but what's that got to do with whether one buys an annuity or not? You said that annuity rates were poor value, but it'S unclear what alternative you're proposing which offers the same guarantees for less.

The whole point of this thread is whether or not to use ARCs, AVCs or something else entirely.

AVCs offer good value if used to fund the tax-free lump sum as you are getting the whole pot tax-free having gained either basic rate tax or even higher rate tax.

If you don't use the whole pot for the tax-free lump sum and instead you use it to buy an annuity, the income from that will be taxed as you will more than likely have used up your personal allowance with income from the main scheme. As a basic rate taxpayer with basic rate tax relief, you will then have lost the tax advantage.

If you don't have an alternative which offers the same for less, then you can't maintain that they're poor value, can you?

Warmest regards,
FA

I have given alternatives if you look back through the whole thread.

AVCs that limit your choices are more or less obsolete. Use the money to fund ARCs which will give index-linked income or use the money to fund S&S ISAs which will allow you to build up savings to avoid taking the defined benefit scheme early will be much better value for many people.

A modern low cost PP will offer much better investment options and therefore the potential for much better growth which should result in a higher income, be it through drawdown or an annuity. You will also have the choice of taking it when you want and not when the main scheme dictates that you should take it.

Now perhaps you could let us know why you feel that the AVC where you do not use the whole pot and have to buy an annuity is not poor value?