Boosting pension - APCs or Lifetime ISA

shinypenny

I'm keen to explore options to boost my pension, and I'd be grateful for any advice.

I work for a Local Authority and now have a career average pension (CARE) into which I contribute 6.2% of my salary.

Following a period of maternity leave I have returned to work part-time, which affects the value of both my monthly pension contributions and salary for the career average calculations.

I can made Additional Voluntary Contributions (AVCs) through a private company as part of my work pension scheme. I can also make either regular, or a one-off, Additional Pension Contributions (APCs) neither of which attract additional employer contributions.

Having done a quick quote, a one-off APC payment of £1,000 will buy me £116.98 a year extra on my pension however £1,000 invested now at 2% for 27 years will be worth £1,715.

There is also now the option of a Lifetime ISA. I turn 40 at the end end of April so am (just!) eligible to apply.

I like the idea as I can take it as a tax free lump sum from aged 60 – instead of converting part of my pension into a lump sum, therefore maximising my annual pension payment, however I don’t like the idea of my cash sitting doing ‘nothing’ for ten years inbetween ages 50 and 60.

Ideally, I’d like to be able to retire at age 60, which is perhaps wishful thinking! I can save a maximum of £200 / month.

I am a Basic Rate Tax payer.

Which additional pension/retirement savings product should I go for?

Silvertabby

Don't forget that if you you take your APC before your normal retirement age it will be reduced for early payment.

Having done a quick quote, a one-off APC payment of £1,000 will buy me £116.98 a year extra on my pension however £1,000 invested now at 2% for 27 years will be worth £1,715.

Apples and oranges.

£1K plus 25 years investment = £1715 = £715 profit, but will £1715 have the same buying power in 27 years as £1K today?

£1k APC at normal retirement age = £116 .98 per annum in today's money. Multiply by possible life span from age 67 = £116.98 x 20 = £2339.60 - £1K original outlay = £1339.60 profit.
Likely to be in the region of £76 if taken at 60, which would give 27 x £76 = £2052 - £1K initial outlay = profit of £1052. However, the APC figures are in today's money, whereas this would actually increase with CPI.

Plus you would get tax relief on your APC contributions, but not on your £1K ISA input.

shinypenny

SilverTabby,


Thank you so much for your reply. The information provided was very helpful.


SP