Pension advice help please

Cazza

Hi!

I wondered if you might be able to start me off with some ideas & guidance so I can start to decide on pension options for OH and I, please?

Background....

• Husband and I are both 32 years old.
• Hubby is self employed and has never had a pension.
• I work for a Local Authority and am a member of the LGPS. I joined in 2008 and transferred in a small pension from a previous employer, equivalent to about an extra 9 months membership
• We are both lower rate taxpayers but long term it is more likely I will become a higer rate taxpayer than him
• My salary will be just over £30,000 in April
• OH last tax return was c£17,000
• Budget for additional contributions now is £100 pcm, this could rise in Autumn next year when my Student Loan is repaid.

I've been reading a little about LGPS 2014 and am trying to decide if it might be worth considering APCs or AVCs in the LGPS, rather than setting up a Stakeholder pension in my husband's own name.

I appreciate there will be other implications to consider if we were to separate or divorce later in life, this is something we will need to discuss separately. For the moment, I want to put that consideration to one side.

I've contacted the Pensions team to find out details of the AVCs & APCs but how do I start to analyse the answers they send me? What aspects / elements do I need to look at to compare them to stakeholder pensions in OH's name?

Thank you

paul5046

Cazza wrote: »

Hi!

I wondered if you might be able to start me off with some ideas & guidance so I can start to decide on pension options for OH and I, please?


Background....

• Husband and I are both 32 years old.
• Hubby is self employed and has never had a pension.
• I work for a Local Authority and am a member of the LGPS. I joined in 2008 and transferred in a small pension from a previous employer, equivalent to about an extra 9 months membership
• We are both lower rate taxpayers but long term it is more likely I will become a higer rate taxpayer than him
• My salary will be just over £30,000 in April
• OH last tax return was c£17,000
• Budget for additional contributions now is £100 pcm, this could rise in Autumn next year when my Student Loan is repaid.

I've been reading a little about LGPS 2014 and am trying to decide if it might be worth considering APCs or AVCs in the LGPS, rather than setting up a Stakeholder pension in my husband's own name.

I appreciate there will be other implications to consider if we were to separate or divorce later in life, this is something we will need to discuss separately. For the moment, I want to put that consideration to one side.

I've contacted the Pensions team to find out details of the AVCs & APCs but how do I start to analyse the answers they send me? What aspects / elements do I need to look at to compare them to stakeholder pensions in OH's name?

Thank you

I;m no expert, but the first thing id ask is how far will your employer go in matching your contributions.

Triumph13

paul5046 wrote: »

I;m no expert, but the first thing id ask is how far will your employer go in matching your contributions.

That's not relevant for the LGPS. The first thing I'd ask is what are you trying to achieve? You potentially get quite different answers depending on whether the aim is to maximise income at statutory retirement age or to try to retire early.

hyubh

paul5046 wrote: »

I'm no expert, but the first thing id ask is how far will your employer go in matching your contributions.

It's a DB scheme, so talk of 'matching contributions' isn't relevant for the main benefits. In the case of additional ones, for a public sector employer at least I'd reckon the chances of securing a shared cost APC or shared cost AVC or top are between highly unlikely and non-existent.

Triumph13

At present you would end up being a taxpayer in retirement and your husband wouldn't. You need to rectify that so at some point over the next 30 odd years you need to build up £3k pa or so of pension for him - assuming he'll get full state pension.

After that, and assuming that you won't pay HRT in retirement, it's all about maximising tax relief on the way in - apart from the issue of LGPS AVCs which, if started before the end of THIS MONTH, can be withdrawn tax free offset against the value of the DB scheme. Good news you get full tax relief, bad news you have to take it at the same time as the main DB pension.
Another consideration is how likely you think you are to pay 40% tax at some point in the future. If you think there is a very good chance of that then parking additional contributions into S&S ISAs now and contributing it later gives a big advantage.
And then you have ARCs which are generally very good value and have the advantage that the amounts are guaranteed so better if you are risk averse.
All in all you are asking a very complicated question indeed!

OldBeanz

1. ARC's are a work life time commitment - the downside to this is you may have an expensive career break or your husband's work may dry up and you would still have to contribute.
2. LGPS AVC's were once a very efficient way of building a lump sum but you will have to open one before April to qualify for this (search back the forum for further reading). After the end of this fy they will then be seen as restricted.
3. It will be of advantage to ensure you stick any money taxed at 40% into a pension rather than feeding your husband's if you cannot do both.
4. Your husband will in thirty odd years time will be forecast to have a pension of £7.5k and a tax free allowance of £10.5k (long time and who knows what will happen) but at sometime it will be worth ensuring he has enough income to at least have £10.5k pa i.e. has income to use all his tax free allowance.

hyubh

Cazza wrote: »

I've been reading a little about LGPS 2014 and am trying to decide if it might be worth considering APCs or AVCs in the LGPS, rather than setting up a Stakeholder pension in my husband's own name.

On the face of it, if you were to get into the higher rate tax bracket, it would be better for you to have an extra pension than your spouse given you'd enjoy (with present rules) a higher rate of tax relief.

That said, if you're thinking of an AVC starting with effect from 1 April or later I'd say do a personal pension instead. This is because a new scheme AVC will have be no particular benefit compared to a personal pension yet carry more limitations, and potentially, a forced transfer down the line if the government were to consolidate LGPS funds and your new one doesn't use the same AVC provider as your old one (this may be happening to some probation officers soon as they are all moved to the Greater Manchester Pension Fund, which only has the Prudential as an AVC provider).

Also, do you understand the basic difference between an AVC or personal pension and an APC? In the case of the former you are building up an investment pot whose end return isn't known; in the latter case you will be purchasing a fixed amount of extra pension.

paul5046

Wow, there is so much to pensions. No wonder people are confused.

Triumph13

paul5046 wrote: »

Wow, there is so much to pensions. No wonder people are confused.

It's not so confusing for anyone in the private sector, particularly for those of us without access to DB schemes, but for someone in the public sector it is crazily complex.

Add in the fact that the LGPS is having major changes in 10 days time and it just gets silly.

Triumph13

The best I could do by means of a 'simple' reply would be:

• As others have said, AVCs post 31 March don't look like a sensible idea as too restricted and no real benefit over any other form of pension saving
• If you want to go down the DC route with maximum flexibilty then plan to do it in your name if you expect to have lots of 40% capacity to use up, but otherwise in your husband's name until he has enough to use up his PA - but you have no hurry to do this.
• S&S ISAs can be a useful holding place for a few years for pension funds that you aren't yet sure of the best way to invest
• Do take a look at the old style AVCs to see if this is something that would strongly appeal as this is the only thing where you would need to make a quick decision - but don't do it just because of that. They give you a 25% return from the tax break because of being able to take them all tax free when you take your LGPS pension, but have no flexibility.
• As always, make sure you have sufficient cash savings to meet emergencies etc and pay off any expensive debt before starting to invest

atush

So, do the two of you as a unit have, any debt (ie non mtg debt and what rate is your mtg?


Is/can your OH register as a Limited company? Great tax benefits down that road.

At the very lest, pay off non mtg dbt, and have an emergency cash savings. then more cahs foir upcoming short term needs (such as home maintenance, new car, holiday). Then into long term savings. This would mean a DC pension for one/both of you.

S&S isas will be a good idea to at some point. A little longer now that pensions may be better. you can always use ISAs for the Tax fre lump sums and excess income later.