Can I run a SIPP alongside my LGPS pension?

jamesd

The price for later payments can change so there is some benefit in doing it earlier. Doing it with a lump sum guarantees the price. A reason for a higher price for a longer term is that the change of you retiring early due to ill health increases the older you are at the end of the period. So it might be necessary to pay out earlier than expected and that has to be allowed for in the price.

blizeH

Thank you James, we're both generally quite frugal (our general outgoings are probably less than £10k, or will be once I've sold my car) so I'm thinking of investing quite heavily in the ARC for the next 5 years or so then to ensure that the full amount is paid in, then I guess the only risk is if the country gets into a really bad way that they cannot afford to payout the pensions... but if it comes to that we'll probably have bigger things to worry about!

blizeH

I feel like I must be missing something here, but I’ve just done some very quick calculations:

An ARC calculator shows that paying £173.80pm for 36 years will result in an annual pension of £5,000. Not bad!

However, if I put that same amount (less the tax benefits of 25%, so £130.35p/m) into the stock market and achieve a fairly modest 5% return, I will have £153,937 generating £7,696 in income each year... plus at the end of it, I’ll still have £150k+ in the bank to either spend if needed, or pass to kids/charity/whatever.

I know it’s a lot riskier, but it’s also a lot more flexible, and I will still hopefully have my LGPS pension to fall back on too.

I think for anyone who can fill their S&S ISA allowance each year, or anyone who is in the 40% tax bracket then ARCs/ACPs are fantastic, but after just a quick look at the numbers I’m not sure they’re for me... unless I have actually missed something (which is very likely)

Any thoughts please?

Triumph13

Did you remember to factor in that the pension amount is indexed throughout the contribution period, but the contribution remains flat? Makes a big difference to the numbers!

blizeH

Oh, I see... thank you... so the £5,000 could actually turn out to be much more depending on inflation?

Triumph13

Just tried the numbers myself and can see how you calculated your figures, except that with 2% inflation per year the ARC is paying £10,000 per year rather than £5000 at that point. At 3% inflation it is paying £14k

blizeH

Oh, I see! Thank you!

I guess then it's a bit of a gamble as to whether the stock market will outperform inflation by a clear 4% or more... historically I think it has, but that's not a particularly good reason to disregard the ARC.

jem16

jamesd wrote: »

You can do the S&S ISA and personal pension or AVC later, since there's no prospect of a ban on using them. Get the ARC while you can.

ARCs are going to be replaced with APBs - Additional pension benefits - which are very similar. It's really just bringing the LGPS in line with most other Public Sector schemes.

AVCs however are changing dramatically as you will no longer be allowed to take the whole AVC pot for your tax-free lump sum. If you don't get this by end of March it will no longer be available. After that you're stuck with the less advantageous 25% tax-free lump sum and having to commute valuable pension from the main scheme.

blizeH

Thank you, so if I get in soon I should be able to take the whole lot as a lump sum if needed? I can see lots of references to the 25%, but not the entire amount.

jem16

blizeH wrote: »

Thank you, so if I get in soon I should be able to take the whole lot as a lump sum if needed? I can see lots of references to the 25%, but not the entire amount.

Please don't take this the wrong way but have you done any research?

The one advantage of the LGPS AVCs is the ability to take all or part of your AVC fund as the tax-free lump sum. This avoids having to commute pension from the main scheme - especially the post 2008 scheme which does not include an automatic lump sum. The commutation rate of 12:1 is dire and not to be recommended.

However from April 2014 that advantage is lost as the AVC rules for the LGPS fall in line with all the other Public Sector schemes.

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

On retirement you may be able to take all or part of your AVC fund as a lump sum - see the section on retirement benefits.

As others have said even starting one with a small amount keeps your options open.

You will then need to decide what you really want to do. ARCs or APBs offer guaranteed return. AVCs before end of March give you the tax-free lump sum advantage - after that not much use.

Or do you want to use a S&S ISA to give you more flexibility of retirement date as you can use that pot however you wish as opposed to being limited to a specific income from a PP or SIPP?