Advice Requested for partners LGPS pension

billchecker1

Hi all, am after advice please for the pension provision for the OH who is in the above named local government scheme.

I must admit my knowledge of the scheme is minimal. We have just simply paid into it wthout looking into the changes that will take place or how to maximise our gain.

I accept that this is our mistake, but one which we hope to rectify with this post.

The wife is currently a teaching assistant in a school. A job that she has only been doing for 8 months. Prior to this she did around 6 years in another council role where she was also in the same scheme.

Two negatives are that she is on a very modest current salary of 14500 and that for a period in 2007 she had cancelled paying in until rejoining in Feb 2008 (After a stern word from me!!).

We have recived statements every year and to be honest I don't really understand it.

The one from 31/3/2013 says that pensionable pay this year is 17190 which doesn't make sense as her earlier job paid less than her current one.

It does however go on to say that accrued pension until 31/03/2008 is 177 days and post 01/03/2008 is 3 years and 340 days with total membership of 4 years and 152 days.

It then says that at age 65 she would get an annual pension of £9700 and a lump sum grant of £300.

As this seems low is there anyway I can increase this.

I know most schemes have stopped AVCs. Does this apply here?

If I can, is it possible to put in £4000 thus making her a non tax payer, or does this type of loophole no longer work?

To add further complication, she is currently training to be a teacher, a course which will last 4 - 5 years, after which I believe that she will have to go into a new pension.


Also I may become a higher rate tax payer in the next two years.

Sorry for all the questions and also for my ignorance ref the scheme. This is something that I should have sorted out a long time ago and I fear it may be a little late.

Thanks

jem16

billchecker1 wrote: »

I know most schemes have stopped AVCs. Does this apply here?

No AVCs still exist with the LGPS and very favourably. With the LGPS, the AVC can be used to fund the tax-free lump sum and avoid having to commute post 2008 pension at a dire rate.

If I can, is it possible to put in £4000 thus making her a non tax payer, or does this type of loophole no longer work?

Still applies - she is entitled to tax relief. As long as she is paying monthly from gross pay she will have automatic tax relief. She is still a taxpayer but she is gaining full tax relief.

To add further complication, she is currently training to be a teacher, a course which will last 4 - 5 years, after which I believe that she will have to go into a new pension.

If she became a teacher she would join the TPS. AVCs with the TPS cannot be used to fund the tax-free lump sum. She can leave her LGPS pension where it is but with the increase in salary she may choose not to.

Also I may become a higher rate tax payer in the next two years.

Your situation should not necessarily influence your wife's. Planning should be done jointly to maximise tax-free allowances in retirement.

You will need to look at it in 2 years time should you go into higher rate tax territory - currently over £41,450. Meanwhile make the best use of what's available now.

taktikback

The £17190 could be the FTE (full time equivalent). Membership is calculated from actual hours worked. So if you are working part time at say 75% of normal hours , you accrue 75% of the membership, so for 4 years worked at 75% hours -you get 3 years membership.

4 years and 152 days membership for the period you mention, sounds about right for the period she has been working on that basis.

Yes, there is an AVC scheme and you would do well to check it out because potentially you could take 100% of it tax free. (although there are some members on this forum who would frown on that..)

Your wife could also pay in £4000 per year to take her salary down to zero tax...why not...it's very tax efficient..!

The Teacher's pension scheme is different, so you would be moving schemes, but that's not a good reason not to capitalize while you can.

billchecker1

Thanks for your response Jen.


With the LGPS, the AVC can be used to fund the tax-free lump sum and avoid having to commute post 2008 pension at a dire rate.

I'm confused with what this means? Could you kindly explain? Am I right in saying that AVCs then only go towards the lump sum? At the moment this is a low £300. So by paying in more that this would increase? This then doesn't affect the annual pension?


Still applies - she is entitled to tax relief. As long as she is paying monthly from gross pay she will have automatic tax relief. She is still a taxpayer but she is gaining full tax relief.

Thanks. So how do I calculate this? Can I simply go with the £4000 divided by how many months until 31/2/2014? Do I just call the fund and ask to pay more?


If she became a teacher she would join the TPS. AVCs with the TPS cannot be used to fund the tax-free lump sum. She can leave her LGPS pension where it is but with the increase in salary she may choose not to.

I think I will worry about this closer to the time. I believe that the teacher scheme is also changing.


Thanks again.

billchecker1

taktikback wrote: »

The £17190 could be the FTE (full time equivalent). Membership is calculated from actual hours worked. So if you are working part time at say 75% of normal hours , you accrue 75% of the membership, so for 4 years worked at 75% hours -you get 3 years membership.

4 years and 152 days membership for the period you mention, sounds about right for the period she has been working on that basis.

Yes, there is an AVC scheme and you would do well to check it out because potentially you could take 100% of it tax free. (although there are some members on this forum who would frown on that..)

Your wife could also pay in £4000 per year to take her salary down to zero tax...why not...it's very tax efficient..!

The Teacher's pension scheme is different, so you would be moving schemes, but that's not a good reason not to capitalize while you can.

Wow yes. That does sound good. I know others may frown but the uber rich tend to benefit from this kind of thing why not the little man. My wife earns so very little anyway.

billchecker1

Ok I think that you are right. After talking to the wife. It may be because she does not work during term time. So even though she is full time during normal weeks, she has the summer holiday off and also term time.

I have had a look at her recent wage slip and after calculating her gross monthly by 12 I get a yearly gross salary of:
£14485.80

So am I correct in saying then, that if I do:
£14485.80 - £9440 (yearly allowance) = £5045.80.

So if I then split that into the months left until April 2014. This means a monthly overpayment of: £5045.80/3 = 1681.94 per month.

Is that how it could work?

It seems an awful lot to put in compared to her salary.

Would they allow this?

Can someone give me an indication of what benefit this may have? I mean at the moment her income tax is only £70 per month but I presume this will mean the lump sum will greatly increase?

Also does this change from 2014? Will I then be able to do this for the next tax year?

Thanks in advance. And please I don't want to enter into any debate on ethics or public vs private sector.

I am simply trying to maximise our future provision.

jem16

billchecker1 wrote: »

I'm confused with what this means? Could you kindly explain? Am I right in saying that AVCs then only go towards the lump sum? At the moment this is a low £300. So by paying in more that this would increase? This then doesn't affect the annual pension?

Pre 2008, her pension would include an automatic lump sum of 3 times the pension. This was based on a 1/80ths scheme. Post 2008 it changed to a 1/60ths scheme with no automatic lump sum. If you wished to take a lump sum of up to 25% of the total pot (including pre 2008), you could commute some of the pension at a rate of 12:1. This is not a great rate. However with LGPS AVCs you could use that to fund the tax free lump sum instead.

Thanks. So how do I calculate this? Can I simply go with the £4000 divided by how many months until 31/2/2014? Do I just call the fund and ask to pay more?

If you're talking about jus this tax year, then yes it's whatever she is above the personal allowance. If she doesn't already pay into AVCs she would have to make an application to do so.

I think I will worry about this closer to the time. I believe that the teacher scheme is also changing.


Thanks again.

Like all public sector pensions, it's changing to a CARE scheme.

jem16

billchecker1 wrote: »

Would they allow this?

I think it may be limited to 50%of salary but you would need to check with the LGPS.

Can someone give me an indication of what benefit this may have? I mean at the moment her income tax is only £70 per month but I presume this will mean the lump sum will greatly increase?

Not entirely sure I'm following you here. If her AVC payment was enough to bring her taxable pay down to below the tax free allowance then no tax would be due at all.

Also does this change from 2014? Will I then be able to do this for the next tax year?

Tax free allowance is due to rise to £10k. If you elect to pay AVCs monthly you are electing to do so from now on, not just this tax year.

hyubh

Edit: when I started writing this, there were no responses. By the time I'd actually posted, there were several!

billchecker1 wrote: »

The wife is currently a teaching assistant in a school. A job that she has only been doing for 8 months. Prior to this she did around 6 years in another council role where she was also in the same scheme.

Has the membership from the old job been combined with the membership for the new? (Or in more jargon-y terms, has she had a 'notional transfer' if both memberships were with the same pension fund or an 'interfund transfer' if different?) If not, she should look at whether the rate of pay in the new job is higher than the rate of pay in the old, allowing for inflation (specifically, uprating for CPI) - combining memberships would mean the old job's service goes against the final salary of the new job rather than the final salary of the old one.

For low-paid jobs especially, the current era of wage restraint means it can be better to keep older memberships separate though - i.e., CPI has been running a lot higher than average wage increases amongst LGPS employers (public, private or third sector).

The one from 31/3/2013 says that pensionable pay this year is 17190 which doesn't make sense as her earlier job paid less than her current one.

Pensionable pay for benefit purposes is whole-time equivalent pay; any part time working then diminishes the reckonable membership instead. E.g., if someone has worked 10 years at 18.5/37 hours per week for 44.1/52 weeks per year (term timer!) and has a final actual gross salary of £10,000, then her pensionable pay will be

10,000 x 37/18.5 x 52/44.1 = £23,582.77

and her reckonable membership

10 years x 18.5/37 x 44.1/52 = 4 years and 3 months

It does however go on to say that accrued pension until 31/03/2008 is 177 days and post 01/03/2008 is 3 years and 340 days with total membership of 4 years and 152 days.

The reason for the split is because when the LGPS last changed in 2008 (or 2009 in Scotland), everyone was moved into the new scheme, but with prior membership still producing benefits under the old rules. In a nutshell, membership before April 2008 has a less generous 'accrual rate' (1/80) but a standard lump sum (3 x the pension); membership since then has a more generous accrual rate (1/60) but no standard lump sum, and an unfavourable 'commutation rate' (1/12) for buying lump sum from the pension.

I know most schemes have stopped AVCs.

Every LGPS fund administrator by law has to have at least one (private sector) AVC provider. In effect, an AVC is like a personal pension whose contributions are deducted through payroll. However the LGPS currently has the perk that on retirement, AVC investment returns can be put against the total value of the main pension to avoid having to commute the latter if the member wants a lump sum.

Beyond AVCs are 'ARCs' (Additional Regular Contributions - in April they will be rebranded under the heading of 'Additional Pension Contributions' or APCs). An ARC contract buys a fixed amount of additional pension at a certain rate:

http://www.kentpensionfund.co.uk/i_am_a_current_scheme_member/increasing_your_benefits/arcs.aspx

(The nature of ARCs is set nationally, so the fact this is from Kent doesn't matter.)

If I can, is it possible to put in £4000 thus making her a non tax payer, or does this type of loophole no longer work?

There are currently limits on how much you can pay into an AVC.

To add further complication, she is currently training to be a teacher, a course which will last 4 - 5 years, after which I believe that she will have to go into a new pension.

Yes, she will be eligible for the Teachers Pension Scheme (TPS), and as such, ineligble for the LGPS at that point. At present, a person in that situation would likely want a 'club transfer' from the LGPS to the TPS - a 'club' transfer is a transfer done on preferential terms, which in the LGPS to TPS case - or vice versa - would buy pretty much like-for-like service in the new scheme. Given career progression for a teacher is much better than for a teaching assistant, this would give the new teacher a nice pension boost. It is not known how things will work once the final salary schemes are retired however (the TPS is moving to a career average structure in 2015, the LGPS next year).

Also I may become a higher rate tax payer in the next two years.

Not particularly relevant IMO given current restrictions on what extra contributions an LGPS member can make.

hyubh

jem16 wrote: »

I think it may be limited to 50%of salary but you would need to check with the LGPS.

Currently, yes. That limit is currently set to be removed in April as a simplifying measure... but then the status of the lump sum perk is currently unknown. (If I were a betting man I'd say the current situation in both cases will be maintained however, at least for another year.)

jem16

hyubh wrote: »

Currently, yes. That limit is currently set to be removed in April as a simplifying measure

In Scotland there is no limit to the amount paid into AVCs so it really depends on where the OP is situated.