LGPS Advice

SteveJW

Male will be 63 Early April 2015
I have had a pension forecast from my employer with a retirement date of 31st March 2015
The forecast looks good
Taking 25% of my pension as a lump sum (£12 for every £1) I would still be liable for basic rate income tax on just over £2,000.
I have also paid AVCs to the Prudential for a number of years, waiting for a statement
On the 31st March 2015 I will be 90 days short of 40 years in the LGPS, I always said I would retire after 40 years
If I continue working until the end of July 2015 am I putting myself at a disadvantage? I have heard that there are some changes to the tax free status of the lump sum from April 2015
There may also be a chance of flexible retirement
Any advice would be appreciated
Many thanks in anticipation

jem16

SteveJW wrote: »

Taking 25% of my pension as a lump sum (£12 for every £1) I would still be liable for basic rate income tax on just over £2,000.

The commutation rate of 12:1 is normally considered dire and would not be a good choice to make as you would be much better off with the index-linked pension.

Is there a reason you want to take the maximum lump sum?

I have also paid AVCs to the Prudential for a number of years, waiting for a statement

You would be much better off using your AVC pot to fund the increased lump sum. That way you don't have to commute the valuable pension.

If I continue working until the end of July 2015 am I putting myself at a disadvantage?

None at all and it would be to your advantage if you are 90 days short of 40 years.

I have heard that there are some changes to the tax free status of the lump sum from April 2015

There is no change to the tax-free lump sum. Who told you there was?

hyubh

SteveJW wrote: »

Taking 25% of my pension as a lump sum (£12 for every £1) I would still be liable for basic rate income tax on just over £2,000.

As Jem says, it would be better to use the AVC for a lump sum.

On the 31st March 2015 I will be 90 days short of 40 years in the LGPS, I always said I would retire after 40 years

There's no particular meaning to 40 years in the LGPS (or rather, hasn't been for some years) - in particular, there's no maximum accrual. On the other hand, given your age and length of membership you meet the 85 year rule with full protections easily, so at any point since your 60th birthday you could have retired without an actuarial reduction.

If I continue working until the end of July 2015 am I putting myself at a disadvantage?

Accruing more membership = more pension when you do take it. That said, if I recall correctly you won't have an actuarial increase in 'postponing', unless you stay employed past 65 (the 85 year rule cancels an actuarial reduction but but doesn't change the definition of a 'late' retirement, which under the final salary scheme was past age 65).

I have heard that there are some changes to the tax free status of the lump sum from April 2015

No, none.

There may also be a chance of flexible retirement

That would possibly work out most financially opportune, so worth exploring.

SteveJW

Many thanks for the prompt replies

Earlier in the year I suffered a heart attack, have recovered well. But it makes you realise you are mortal.

My wife and I both like foreign travel and know that at some time in the future we will not be fit enough to go abroad. I have never enjoyed driving and know that at some time I will give up driving.

The thinking is enjoy life while we are fit enough to do so
To maintain my present income If I leave my pension as it is I would need to top it up by around £4000 a year, if I take the highest lump sum I would need top up by around £8000 a year (until I get my state pension)

I think the final decision needs to be put on hold until I have the values of theAVCs

The house is mortgage free

Changes in the tax rules, on holiday with a friend who is a nurse she had been advised to retire before the end of March 2015 as the tax rules were changing

I realise the value of my lump sum will decrease due to inflation where as my pension is index linked.

No decision made yet, but may come back for more advice when I have the value / scenarios for the AVCs

Thanks

jem16

SteveJW wrote: »

If I leave my pension as it is I would need to top it up by around £4000 a year, if I take the highest lump sum I would need top up by around £8000 a year (until I get my state pension)

If it's income that is important, then commuting your pension is not the way to go.

Changes in the tax rules, on holiday with a friend who is a nurse she had been advised to retire before the end of March 2015 as the tax rules were changing

The only change that is happening from 6th April 2015 is the way in which you can take a Defined Contribution pension - even those changes do not affect the tax-free lump sum.

The NHS pension is a Defined Benefit scheme and is not affected by those changes except in one way. As from April 2015 transfers from the NHS to a Defined Contribution scheme will be banned. However in most cases it would be a very foolish thing to do anyway.

So in what way was your friend advised to retire and by whom?

hyubh

SteveJW wrote: »

Changes in the tax rules, on holiday with a friend who is a nurse she had been advised to retire before the end of March 2015 as the tax rules were changing

If that's an allusion to the liberalisation of DC pensions, then even the prohibiting of transfers out that Jem mentions doesn't affect you (transfer rules aren't changing for the LGPS because it's a funded scheme).

SteveJW

I've know idea who advised the friend, (more a friend of the wives) she is just a person we met on holiday several years ago and we hit it off with her so we usually meet up at least once a year on holiday. It just came up in conversation one day, I wondered if I had missed something. Searched the Internet, didn't really understand what I found, so decided to ask on here. I did advise her to contact her union

Really appreciate the answers and it has given me food for thought, also given me a different slant on things

OldBeanz

You state that you want to maintain the same income but in retirement you no longer have to pay NI contributions, you will no longer pay into your AVC, will not have any work expenses e.g. suits, lunch, travel etc, will have time to fix things and can downgrade your car.
Your LGPS AVC with Pru can be accessed online for a valuation. It is also directly linked to your pension, usually, allowing all of it to be taken as cash (a great perk allowed by few schemes and now closed to the LGPS).
You appear to be in a better position than 90% of the people on this board. Sit back and enjoy

jem16

SteveJW wrote: »

I did advise her to contact her union

if you can find someone in the Union that actually has a clue about pensions.

Most rumours seem to come from the NHS.

atush

My wife and I both like foreign travel and know that at some time in the future we will not be fit enough to go abroad. I have never enjoyed driving and know that at some time I will give up driving.

So here is perfect pension planing for you. You will need MORE income in the initial phase of 10-15 years, and much less later when you wont travel or drive. So this means you could whack in just before you retire the max left of your yearly allowance into the AVC? or if the AVC is over the 25% lump sum already, into a personal pension. Which could be drawn down slowly.

Or into a pension for your OH.