Lgps apc

Dimmu

Hello,
I have at long last decided to post on this forum. I know that there are many individuals who are experts in the field of pensions and I know I will get good advice.
I am a 47 year old male and have 19 years in the LGPS. My query is that I know I want to purchase an APC but am unsure on a number of things. My view is to purchase as much as I can afford. Hence I could buy the full £6.5k over 17years and this would cost £452 per month. Alternatively, I could buy £4k over 8 years costing a similar amount per month.

Could someone advise here?

atush

Ok, my first thoughts are, that buying additional index linked pension is a good idea.

Do you already have an LGPS AVC set up? This is useful too, if you set one up before april this year as this fund could be used to provide a tax free lump sum (rather than raiding your index linked pension for one). Buying extra pension, to only then squander it by retiring early with an actuarial reduction may not be the best use of your money.

So if you don't already have an AVC that qualifies to provide the TFLS, then do look at your lower option and alongside this (or after you have finished) at paying into a DC personal pension alongside. This could give you a lump sum (25% tax free and the rest taxed as income when taken) which means you would not have to use your valuable DB pension to give you your lump sum.

Plus, you have a personal allowance, and if you decided to retire early, you could drawdown up to your PA each year tax free before you take your DB pension at normal scheme age unreduced.

hyubh

Dimmu wrote: »

Could someone advise here?

As atush says, indexed-linked pension benefits are intrinsically a good thing. However, here's some things to consider from the other direction:

• The LGPS Regulations explicitly allow the government to bend the rate (see para. 8 here) - the current government rather incompetently tried to do this a few years back with existing ARC contracts, but had to backpedal then because the Regulations of the time (and subsequently, the individual contracts) didn't allow for it; the new ones do however. Now, the rate won't radically change, but with a contract running for 17 years there is a risk it might a bit (and not in your favour).
• An APC doesn't earn survivor pension benefits (see para 4(d) here).
• While AVCs taken out now don't have the big attractive feature of AVCs taken out under the old, final salary scheme, and moreover, any AVC comes with investment risk, the current regulations give the option of using the investment returns to buy a special sort of 'APC' on retirement (see para 7(b)(i) here).
• Nearly a third of this special sort of 'APC' would earn survivor benefits (see para 4(e) here).
• You have 20 years to go, so 20 years of potential investment growth if taking out an AVC (with risk comes opportunity...).
• On the other hand, spending 'as much as you can afford' on either an APC or an AVC might not be wise, purely because you are locking it away until retirement. Perhaps it might be an idea to go 50/50 on an APC and stocks & shares ISA instead?