Advice Requested for partners LGPS pension

jem16

billchecker1 wrote: »

Am I correct in saying the 25% amount is based on the final salary.

Final salary plus AVC pot.

Which could mean that if merged with the teachers pension would mean a nice lump sum of that amount?

Then, as has been said already, she will lose the advantage of the AVC pot being used to fund the tax-free cash lump sum. The Teachers' scheme does not allow this and you would only be able to take 25% of each - ie final salary and AVCs.

I say this as her current salary is rather low and will only go up if she becomes a teacher.

Low as it is, if she puts in the amounts you are talking about the AVC pot would be greater than the maximum lump sum allowed.

jem16

atush wrote: »

Of course, if she moves into the teachers pension she can't use this. Bur AFAIK, the teachers AVC can be transferred out to a PP or Sipp? Ask Jem perhaps. This is useful if she might want to reture earlier than her scheme age.

As far as I'm aware this is possible as the AVC scheme is entirely separate from the main scheme. However I am not 100% sure so it would need checking.

hyubh

FatherAbraham wrote: »

ARCs can't be paid by lump sum, they are (obviously) paid by regular contribs, taken from salary.

This is an LGPS 2008 feature; some believe that ARC contracts will all be terminated in April 2014, since LGPS 2008 finishes them.

New ARCs will still exist in LGPS 2014 under the rubric of 'Additional Pension Contributions' (APCs) which will allow lump sum payments (unlike 2008 scheme ARCs), but under what terms exactly is still unclear. That said, the word on the street is that the government is dropping its previous commitment to cancelling all existing ARC and added year contracts on 1 April given the threat of legal action by those affected...

The AVC loophole on LGPS 2008 is that the AVC pot is tightly bound to the scheme, and can be used to fund a tax-free lump sum, whilst leaving the main scheme regular distribs untouched.

Not really a 'loophole' but an intentional perk, as you know...

the AVC operator Prudential finally realized that everyone was paying in huge lumps in their final year before retirement, getting tax relief, then sucking it out again a few months later -- at tremendous admin cost to the insurer.

To be fair, the Prudential do very well all told from their LGPS business. If they haven't been quietly but persistently lobbying for the preservation of the lump sum perk, I'd be surprised.

billchecker1

Right guys. Well after doing some research and having now used up most of my funds on a house purchase I am no where near closer to understanding this!>?

So I now don't have the ability to pay down a large lump sum into the pension.

I however would like to increase my monthly contributions, maybe by £50 or so.

Could someone kindly explain the benefits of doing so please:

Will this buy additional years?
Will this mean she can retire earlier?
Does this mean a higher lump sum?
As she is going to become a teacher, her salary will go up, does this impact upon my decision.


Thanks all, I have read and reread documents online and I still cant figure it all out!

jem16

billchecker1 wrote: »

I however would like to increase my monthly contributions, maybe by £50 or so.

Could someone kindly explain the benefits of doing so please:

Will this buy additional years?

No - additional years purchase was stopped from around 2008. Her options now are Additional pension or AVCs. Or she can use a PP or S&S ISA.

Will this mean she can retire earlier?

Not if she uses AVCs or Additional pension as they are linked to the scheme retirement age.

Does this mean a higher lump sum?

It can do but depends on her choice at retirement.

As she is going to become a teacher, her salary will go up, does this impact upon my decision.

It can do if Additional pension chosen. AVCs with the TPS are not such a good choice as AVCs with the LGPS.

However £50pm may not buy even the lowest Additional pension of £250 so her choice may be limited.

hyubh

billchecker1 wrote: »

So I now don't have the ability to pay down a large lump sum into the pension.

Correct, though that may change in April.

I however would like to increase my monthly contributions, maybe by £50 or so.

To be clear, additional contributions to your wife's LGPS pension would have to be deducted through payroll, so even if they will only be possible because of your/shared money, they will formally be a deduction from her pay.

Will this buy additional years?

No, if she takes the ARC/APC option, it will buy a fixed amount of extra pension, indexed linked to CPI; if she takes out an AVC, the contributions will be separately invested a bit like a personal pension, and under present rules, could then be used to buy a lump sum on retirement without reducing (or not so much reducing) her main pension. Otherwise, AVC investment returns would go on purchasing an annuity like with a personal pension.

Will this mean she can retire earlier?

No.

Does this mean a higher lump sum?

Unless she has pre-April 2008 membership, there is no default lump sum and you instead buy it at a rate of £12 of lump sum for every £1 of pension foregone.

As she is going to become a teacher, her salary will go up, does this impact upon my decision.

Yes, because as a teacher she will move into the TPS which is a completely different pension scheme.

jem16

hyubh wrote: »

Correct, though that may change in April.

I took it to mean he couldn't pay a large lump sum as he'd used up the funds for a house purchase rather than it being anything to do with LGPS changes.

billchecker1

Thanks all for your replies:

No - additional years purchase was stopped from around 2008. Her options now are Additional pension or AVCs. Or she can use a PP or S&S ISA.

Sorry for sounding dim, but I dont know the difference between the term additional pension or AVC>? As they are both different, you say the minimum contribution amount is £250. What does this actually buy you?

The LGPS site doesnt really add much clarity.

Not if she uses AVCs or Additional pension as they are linked to the scheme retirement age.

Is this because the retirement age is fixed at the SPA?

To be clear, additional contributions to your wife's LGPS pension would have to be deducted through payroll, so even if they will only be possible because of your/shared money, they will formally be a deduction from her pay.

No thats fine and understood. We share all our finances, as I earn more its no problem. We are married and I pretty much do all the finances in our house as the wife cant be bothered with it and by her own admission, she doesnt understand these things. Although judging myself byt his post, neither do i!.

No, if she takes the ARC/APC option, it will buy a fixed amount of extra pension, indexed linked to CPI; if she takes out an AVC, the contributions will be separately invested a bit like a personal pension, and under present rules, could then be used to buy a lump sum on retirement without reducing (or not so much reducing) her main pension. Otherwise, AVC investment returns would go on purchasing an annuity like with a personal pension.

So the inflation linked investment sounds better than the others as I plan to pay off my house before retirement and at that stage securing income will be important for us.

Just to make it clear, on retirement I will have a part final salary scheme and a career average scheme after 2015.

If I can finish off the mortgage before then, this should compensate for the loss of my own income.

So the ARC/APC, will a regular contribution be allowed and what level of benefits will it provide?

Yes, because as a teacher she will move into the TPS which is a completely different pension scheme.

It all depends on whether she passes her universityu course, but I had read earlier on in this thread that pension from LPGS could be carried over into the TPS in any case. So will additional contributions now help her later on when she will be earning a higher salary?

billchecker1

PS jen, you are right. Decided to use some extra funds to pay for some house essentials. Therefore cant use these for additional pension any more.

What I am seeking to do is increase her pension at her retirement.

taktikback

I think you really need to take some time and read each relevant section of the website. It really does explain things clearly and in depth. Your replies are just going around in circles.

If you are looking to increase her pension at retirement then go for ARCs -the section is clear in every detail and it tells you what you will get for the contributions she is making

If you are looking to take a lump sum which is potentially 100% tax free at the same time as she takes her main pension - consider AVCs - but beware of their rules on ceasing after a short time - read about it on the AVC website.

If she gets to be a teacher - you have another set of options - so don't worry about that until it happens.

and payments into her additional pension arrangements need to come from income she is earning.