Dilemma with lgps

madeinireland_2

My wife works in a school and is a member of a lgps which she has just started.she earns about £8k per year and has a couple of small pensions that would currently give her an income of about £5k from previous employment with BT and another Lgps period of work. She is 47 years old and wants to stop work at 55. My pension benefits are much greater but just really want to ensure she uses her full tax allowance in retirement.

We are looking at boosting her pension - whats the best option - buying extra years, in house AVC or pay into a separate personal pension which I suppose has the advantage that she can start to draw it at 55 now.

Thanks for any advice...

kidmugsy

madeinireland wrote: »

My wife works in a school and is a member of a lgps which she has just started.she earns about £8k per year and has a couple of small pensions that would currently give her an income of about £5k from previous employment with BT and another Lgps period of work. She is 47 years old and wants to stop work at 55. My pension benefits are much greater but just really want to ensure she uses her full tax allowance in retirement.

We are looking at boosting her pension - whats the best option - buying extra years, in house AVC or pay into a separate personal pension which I suppose has the advantage that she can start to draw it at 55 now.

(i) Would the BT scheme, or either of the LGPS schemes, let her start her pension at 55? If so, how big would the actuarial reduction be?

(ii) If her current LGPS scheme wouldn't let her retire early I don't see how extra years or the AVC help her retire at 55.

hyubh

madeinireland wrote: »

We are looking at boosting her pension - whats the best option - buying extra years,

You haven't been able to start a new added years contract in the LGPS since March 2008. Instead, members are able to buy a flat amount of additional pension, revalued by CPI every year - see here: https://apc.lgps2014.org/

in house AVC or pay into a separate personal pension which I suppose has the advantage that she can start to draw it at 55 now.

I'd be inclined towards the last option, essentially for the reason you yourself give. Under the CARE scheme the returns of a new AVC can be used to purchase additional pension in the LGPS on retirement, but (albeit without survivor benefits) you can do that at any time with a normal APC. Also, whereas under the 2008 scheme the returns of an AVC could be used to offset the 12/1 commutation rate, that's no longer allowed for AVCs started since April.

madeinireland_2

Hi and thanks for responses so far...

I perhaps have not been clear enough but this is not about enabling her to retire - she could do that now with me supporting her. This is about ensuring we make full use of her income allowance. The bt scheme is payable from 60 and is roughly £3k. The other lgps is about £2k and payable from 65. We could take either earlier but don't want an actuary reduction. I suppose I'm trying to work out which option is the most tax efficient but it sounds like it does not matter. Apologies but I meant buy extra pension rather than added years.

I think the option of buying into her own personal pension sounds like it may be the most flexible way forward if the other options don't add any more benefit as they would probably require her to take the additional alongside her current lgps pension.

I think she could save about £64k over the 8 or so years left and then draw out the 25% lump sum and drawdown between 55 and 60 before her other pensions start kicking in.

Does this sound an OK strategy?

Thanks...

xylophone

And you will both have state pension under the new scheme.

https://www.gov.uk/new-state-pension/overview

Teaandscones

There is no point in setting up an AVC within the LGPS after 2014 as there are no special benefits, and you are restricted currently to take the benefits at the same time or after the main scheme benefits. (The position was different before April 2014 when usually you could take 100% of the AVC as a tax free lump sum which made them a very useful tool).

Additional pension can be a good idea but is not cheap, but you only get full value from this if you don't take it early as the actuarial reductions in the LGPS don't reflect fair value.

I would check your wife's position regarding aggregation of her previous LGPS service, as the default position now is that service is automatically aggregated unless the employee opts out within 12 months. Depending on her relative pay in the new and old service, it may or may not be a good idea to aggregate. I would take advice from the scheme administrators as to what this means in her position.

If you want to maximise the tax benefits (rather than provide a long-term additional pension), you could set up a personal pension or SIPP, pay in 8k p.a. over 8 years until she is 55, and then take out £14k p.a. tax free (£10,500 personal allowance + £3,500 25% lump sum) assuming she has no other income. This would continue until the personal pension was exhausted. Not quite a Lambourghini.