Advice Requested for partners LGPS pension

jem16

billchecker1 wrote: »

Sorry for sounding dim, but I dont know the difference between the term additional pension or AVC>?

Additional Pension is just that - additional pension. You basically buy blocks of additional pension and you get a guaranteed amount. It's just like the main pension scheme except the whole cost must come from your wife as there is no extra employer contribution. It's a defined benefit.

AVCs are just like any pension that is linked to the stockmarket and returns are therefore not guaranteed. You build up a pot of money which in the case of the LGPS you can use to fund the tax-free lump sum which avoids having to commute pension at 12:1 which is pretty dire. AVCs are defined contribution.

As they are both different, you say the minimum contribution amount is £250. What does this actually buy you?

For Additional Pension the least amount you can buy is £250pa. What it will cost you is not set out as it depends on age and number of years till retirement. You ask for a quote if you want to use this method. In the LGPS Additional Pension is know as ARCs - Additional Regular Contributions. I doubt that £50pm would be enough to purchase even the minimum but you would need to ask for a quote.

With AVCs you can decide the amount you want to pay per month and what you will end up with depends on stockmarket returns.

The LGPS site doesnt really add much clarity.

I thought the LGPS site was very clear. The only thing lacking is a calculator for working out the cost of ARCs but everything else is there.

ARCs;

http://www.lgps.org.uk/lge/core/page.do?pageId=102219

AVCs;

http://www.lgps.org.uk/lge/core/page.do?pageId=102221

You really need to sit down and read through.

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?

It's not fixed to SPA yet although will be. However nothing to do with that. The scheme always has a set retirement age - in the case of the LGPS it's 65 just now but obviously that's going to change. ARCs and AVCs are linked to the main pension scheme so follow the same rules.

A separate pension scheme allows you to access the funds from age 55. A S&S ISA you can use the funds when you like. So you really need to think what you are trying to achieve. If it's to retire early then you need to fund the difference between the scheme retirement age and when you choose to retire as you don't want to take the defined benefit pension early if you can avoid it.

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

As will your wife - 2014 for LGPS and 2015 for TPS.

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

Why are you losing your own income?

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?

Additional Regular Contributions buy an amount of pension which has nothing to do with salary. If she moves into the TPS I doubt it will have any effect on that. It's only the main pension that would be affected as far as I know.

jem16

taktikback wrote: »

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.

It's something that would need to be considered now as the TPS does not have the same rules on AVCs as the LGPS.

If she intends to move her LGPS into the TPS at some point she would lose the advantage that the AVCS in the LGPS hold.

taktikback

Yes -I was trying to keep it simple.

Would I be right in saying that now both schemes are going to be CARE schemes, there is no longer any clear benefit to transfering existing LGPS to a TPS? In fact, the AVC rules of the LGPS would make it sensible to retain that arrangement as a separate deferred pension and just join the TPS in the event the OPs wife does go that route?

atush

That is what I was thinking- if she left her LGPS pension and didn't move it, could she use her AVCs as the LS? And start the TPS as new?

Could make sense not to merge them.

jem16

taktikback wrote: »

Would I be right in saying that now both schemes are going to be CARE schemes, there is no longer any clear benefit to transfering existing LGPS to a TPS?

To be honest, I have no idea what will happen to transfers where there will be a mix of service under the Final Salary scheme and CARE scheme.

As it stands there is a very clear benefit of transferring say 10 years of LGPS service and getting the same 10 years of TPS service with possibly double the salary.

If I were to guess I would say that any final salary service should transfer over as final salary service and any CARE service should transfer over as CARE service.

hyubh

taktikback wrote: »

Would I be right in saying that now both schemes are going to be CARE schemes, there is no longer any clear benefit to transfering existing LGPS to a TPS?

There is the precedent of the Nuvos civil service scheme being CARE but with transfers-in producing final salary benefits... so who knows. It's also unclear how club transfers are going to work for the 12 months when the LGPS will be CARE but most of the other club schemes still final salary (would be a bit ironic having the funded scheme losing out to the unfunded ones).

In fact, the AVC rules of the LGPS would make it sensible to retain that arrangement as a separate deferred pension and just join the TPS in the event the OPs wife does go that route?

Possibly, but how much in AVC contributions will the OP's wife be able to make until she moves into the TPS...?

hyubh

billchecker1 wrote: »

It all depends on whether she passes her university course, but I had read earlier on in this thread that pension from LPGS could be carried over into the TPS in any case.

A 'club' transfer works by using the old job's final salary to calculate a service credit in the new scheme against the cash equivalent value of the old pension, and ignoring the fact a new starter is a bigger risk to a final salary scheme than a leaver (many years of potential salary increases). As such, having had an ARC would increase the transfer value of the LGPS pension, and therefore, any potential service credit in the TPS. As the others have said however, by the time your wife becomes a teacher both the LGPS and TPS will probably be CARE, and the terms by which transfers between the two schemes will work (if transfers will be allowed at all - personally I'd just get rid of them) are not yet known.

taktikback

As I understand it, a transfer into the TPS would be benefit neutral -i.e if the starting salary was double what you were previously on, then the service accrued would be halved at the outset. There would be an advantage however, if you were expecting your salary to increase substantially whilst being a teacher (which would probably be the case due to their archaic structure of time based increments)

The alternative would be to leave it in deferment and take the year on year CPI increase, and the probable option of 100% tax free AVC cash.

Quite a complicated calculation by all accounts...

taktikback

you beat me to it, but I think the logic is similar...

jem16

taktikback wrote: »

As I understand it, a transfer into the TPS would be benefit neutral -i.e if the starting salary was double what you were previously on, then the service accrued would be halved at the outset.

That's not how it works.

With a transfer under public sector transfer club rules, the salary that you are transferring to is not taken into account. Basically if the benefits in both are equal, then the transfer of service would be like for like. Both the LGPS and the TPS have a retirement age of 65 and benefits are calculated on a 1/60ths basis. If she had 10 years service in the LGPS, she would get 10 years service in the TPS.

Obviously a great advantage to transfer from LGPS to TPS if it also involves a large increase in salary.