Pension advice help please

Cazza

Thank you for the advice, much appreciated. To answer some questions...

*No plans to retire early. You can always dream but realistically I'm looking to ensure we have an affordable retirement.

*From the guidance I've read I'm not expecting employer contributions on any AVCs / APCs. This only appears to apply when making up career break periods.

*I don't believe ARCs are available under LGPS 2014 and I don't feel I have enough knowledge to enter into any of the "old" arrangements before 31st March. I'd like to base my decisions on the new scheme, rather than rush into something I'm not certain I understand under the old one

*Long term I think it likely I will be a higher rate taxpayer. I've just qualified as a Chartered Accountant and I would be disappointed by my career if I didn't have that earning capacity at some time

*I am happy about the differences between AVCs and ARCs, but not certain of the decision between AVCs and a stakeholder pension for OH (although do agree OH needs at least a small pension to benefit from his personal allowance, thank you for this)

Current financial circumstances...
*Joint mortgage at c75% LTV. We will move up the ladder but not in the next 5 years. This is a 3.29% 5 year fix which started in Nov 2013.
*I have a Student Loan which end in Autumn 2015.
*No other debts
*We have savings for c9 months of bills
*We have savings in cash ISAs to do some fairly extensive work to our house - it was a "project" when we bought it and this is OH's line of work.
*We are likely to have a family in the next couple of years but (as far as it is possible to say this) I expect to return to work full time.

The information I have been using is from this website, http://www.lgps2014.org/ which was the info provided by my employer.

My gut instinct so far based on the advice above is for a!small stakeholder pension in OH's name and then as much as we can afford into APCs. I'm assuming our current budget will run out before the APC calculated contributions are maximised.

Does this sound like a sensible start towards planning for life ofter we retire?

kidmugsy

There's a case for waiting until you are a Higher Rate payer before you make unsubsidised contributions to a pension, unless you can do them by salary sacrifice.

Cazza

Thank you, I'm not certain I understand the second part of your advice as all contributions to LGPS will be dealt with by my employer, via payroll?

Regards waiting until I am a higher rate taxpayer, I appreciate the tax benefits of lower vs higher rate tax in pensions but I have no idea how long it will take me to work my way to that level of pay, it is likely to be a number of years and 2/3 promotions, the impact of waiting until our 40s will outweigh the benefits.

PeacefulWaters

Hubby is in a position where, with Budget changes, he can get 20% tax relief on contributions and is unlikely to pay any tax if he draws an income from it in a tax effective way post-retirement.

You sound like you will pay tax on any pension income. I'm also assuming you can't get any further employer contributions.

I'm further assuming no change to the tax regime in the best three decades or so, or rather that it will keep the same "shape".

For me, I'd be throwing money into hubby's pension. If he's a limited company talk to the accountant about how to get the biggest benefits.

Review as you reach the 40% threshold.

NOTE1: Hubby pays in £80. Tax relief £20. If he withdraws amounts under the personal threshold on retirement he gets the full amount out tax free.

NOTE2: You pay in an additional £80. Tax relief £20 (plus a saving on national insurance). You get to retirement and any income you draw will get taxed because the rest of your pension is above the tax threshold.

Triumph13

Cazza wrote: »

Regards waiting until I am a higher rate taxpayer, I appreciate the tax benefits of lower vs higher rate tax in pensions but I have no idea how long it will take me to work my way to that level of pay, it is likely to be a number of years and 2/3 promotions, the impact of waiting until our 40s will outweigh the benefits.

The impact of waiting until your 40s need not be significant at all. If you make the 'contribution' now AND INVEST IN A S&S ISA then it should grow, tax free, in exactly the same way as it would inside the pension. You then withdraw it in your 40s and pay it into your pension with HRT relief and end up in the same position as if you had contributed it today with HRT relief.

Obviously this only works if you will have both unused 40% tax relief and unused annual allowance when the time comes to contribute, but other than that it is fine and, were I in your position, it is something I would be seriously considering (ie getting out the spreadsheets and modelling your likely income and potential for contributions in the future)

I suspect the correct answer in your case is going to be a blend of several different solutions based on your attitudes to risk and reward. LGPS 2014 AVCs though are probably unlikely to be one of them, just because of them being tied to your main pension whereas a freestanding pension would give much more flexibility about when you could take it - which is the only real difference between the two.

Moby

hyubh wrote: »

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.

Hyubh,
I'm one of those Probation Officers moving to the LGPS Manchester scheme. I have a Prudential AVC started a few years ago. I'd be grateful if you could say whether you know if I can still carry on with this unchanged ie 100% tax free and vary my contributions. I'm aware CARE will bring it into line with other AVC's meaning only 25% lump sum but does this only apply to new applications from April?

atush

kidmugsy wrote: »

There's a case for waiting until you are a Higher Rate payer before you make unsubsidised contributions to a pension, unless you can do them by salary sacrifice.

There WAS a case, but not so sure now. With the changes to DC pensions i think even a BRTax relief is now sufficient reason to use them for at least some of your money for both of you. But most certainly for the OH. He could put in as much of his income as he wants.

jem16

Moby wrote: »

I'm aware CARE will bring it into line with other AVC's meaning only 25% lump sum but does this only apply to new applications from April?

It's only for new applications after 1st April. Yours will carry on as before.

Triumph13

atush wrote: »

There WAS a case, but not so sure now. With the changes to DC pensions i think even a BRTax relief is now sufficient reason to use them for at least some of your money for both of you.

There is an important point here that could easily be missed.

I completely agree with both atush and kidmugsy - despite their posts appearing to be contradictory.

Before the change in the rules it was often a marginal decision whether to use a pension or an S&S ISA. Atush is right that the change in DC pension rules has moved the balance very strongly in favour of pensions in many more cases.

It generally does not make sense to not make any contributions whilst a 20% payer and wait to start when you are a 40% payer. It can however make sense to park those contributions in the ISA temporarily so as to get 40% relief on them later - but only in certain circumstances.

A possible scenario might be OP gets her promotions, ends up with a salary of say £55k, but her OH gives up work for a few years to look after the kids. She has about £10k of possible contributions with HRT relief in this case, but with one income and OH and kids to support it could be she can't afford to contribute all of it.

This is the case where it works out well that rather than contributing earlier and getting 20% relief, she parked it in the ISA (in the same fund(s) as she would have used in the pension) and now she can transfer from the ISA to the pension getting 40% relief.