Lgps experts

chiefie

Hello any lgps experts.

http://www.lgps2014.org/content/additional-voluntary-contributions-avcs

This page in the lgps website suggests any avc contract taken after April 2014 can be taken as cash (subject to it being 25% or less of the total pension value)

May be me going mad but I thought they stopped this in 2014 - was I mistaken ?

Additionally, if you take pension at 55 how do the lgps calculate the total pension value - at NRA I think they multiply it by 20. This is quite crucial if anyone is thinking of banging in abc's to take at early retirement.

Thank you in advance 😃

Silvertabby

There was talk of HMRC stopping this - as far as I know, the LGPS is the only pension provider which adds the value of the LGPS to the AVC pot and then allows 25% of the total to be taken as tax free cash. Other providers - including other public sector schemes - keep the sums separate, and only allow 25% of the AVC to be taken as cash.

If you take reduced benefits at 55, then the notional value (for 25% tax free cash purposes) is still 20 x the reduced pension plus any automatic lump sum.

Sambella

So if you have a 5,000 pension and a 10,000 automatic lump sum:-

5000 x 20 + 10,000 = 110,000

25% of this is 27,500

Does this 27,500 consist of the 10k automatic lump sum plus £17,500 from your AVC if you have it?

Silvertabby

So if you have a 5,000 pension and a 10,000 automatic lump sum:-

5000 x 20 + 10,000 = 110,000

25% of this is 27,500

Does this 27,500 consist of the 10k automatic lump sum plus £17,500 from your AVC if you have it?

No - you have to factor the actual value of the AVC fund into your calculations. In your example, the £27,500 = the £10K automatic lump sum plus £17,500 commuted from the annual pension (subject to adjustments for the 1:12 commutation factors)

So,
£5K pension
£10L lump sum
£20K AVC

20 x £5K + £10K + £20K = £130K x 25% = £32,500 maximum tax free cash,

The tax free cash would be made up of £10K automatic lump sum, plus £20K AVC, plus £2,500 commuted from original pension (if that is what you want - it isn't compulsory). Again, subject to adjustments for commutation factor.

However,
£5K pension
£10K automatic lump sum
£30K AVC

20 x £5K + £10K + £30K = £140K x 25% = £35K maximum tax free cash.

In this case, the tax free cash would be £10K automatic lump sum plus only £25K from the AVC. The remaining £5K AVC can't be taken as cash, only as a pension of some description (depends on when you started to pay into the AVC fund).

greenglide

Other providers - including other public sector schemes - keep the sums separate, and only allow 25% of the AVC to be taken as cash.

As long as they are technically the same scheme then I believe that all DB schemes can do it but it is up to them whether they chose to.

Is it not the difference between free-standing AVCs and "proper" AVCs.

My ex-employers scheme, from whom I retired last year, certainly allowed AVCs to be allowed to fund the PCLS - I took advantage of this. This was not a public sector scheme. The AVCs were retained within the scheme rather than using a third party party as public sector scheme tend to.

Of course, in the days of "automatic" lump sums in public sector schemes, it didnt matter, now it often does.

Sambella

Ahhh

Thank you. I always wondered how this would be factored in.

I plan to use my AVC to boost my pension income as I was a later starter to pensions and then was part time for 10 years before going full time so my yearly pension income , if I want to retire early, needs boosting.

chiefie

Silvertabby wrote: »

There was talk of HMRC stopping this - as far as I know, the LGPS is the only pension provider which adds the value of the LGPS to the AVC pot and then allows 25% of the total to be taken as tax free cash. Other providers - including other public sector schemes - keep the sums separate, and only allow 25% of the AVC to be taken as cash.

If you take reduced benefits at 55, then the notional value (for 25% tax free cash purposes) is still 20 x the reduced pension plus any automatic lump sum.

Do you know if one county scheme can go against this ? Mine seem to be saying you can't do this yet the overarching lgps administrators say you can ?

Silvertabby

“ There was talk of HMRC stopping this - as far as I know, the LGPS is the only pension provider which adds the value of the LGPS to the AVC pot and then allows 25% of the total to be taken as tax free cash. Other providers - including other public sector schemes - keep the sums separate, and only allow 25% of the AVC to be taken as cash.

If you take reduced benefits at 55, then the notional value (for 25% tax free cash purposes) is still 20 x the reduced pension plus any automatic lump sum.
Originally posted by Silvertabby ”
Do you know if one county scheme can go against this ? Mine seem to be saying you can't do this yet the overarching lgps administrators say you can ?

Chiefie - I can't rule it out. There are LGPS rules and there are LGPS 'discretionary' rules. What does your specific scheme booklet say? HMRC has been wittering about this for a while now, so I suppose it's possible that your LGPS provider has decided to pre-empt the inevitable(?) ruling. If that's that case, then I'm afraid that I can't see that there's anything you can do about it.

Slightly off track, but there are some LGPS providers who have applied their discretions in order NOT to pay pensions as trivial commutations. Doing so wipes out the spouse's benefits as well as the pension member's pension entitlements, so they are protecting themselves against any complaints from bereaved spouses who had been banking on receiving pension benefits.

marlot

greenglide wrote: »

As long as they are technically the same scheme then I believe that all DB schemes can do it but it is up to them whether they chose to...My ex-employers scheme, from whom I retired last year, certainly allowed AVCs to be allowed to fund the PCLS...

I'm told my one of my employers that I can do it too. It's a private sector employer.

OldBeanz

My wife is likely to receive a small LGPS pension. At present it is valued at £32k giving her a pension of £1.7k. She has another 4.5 years contributions to make which will give her a final pension of about £2.7k. Can I just divide £32k by 17 then multiply by £2.7k and add on her AVC to attain the correct figures for her max AVC lump sum?

chiefie

Silvertabby wrote: »

Chiefie - I can't rule it out. There are LGPS rules and there are LGPS 'discretionary' rules. What does your specific scheme booklet say? HMRC has been wittering about this for a while now, so I suppose it's possible that your LGPS provider has decided to pre-empt the inevitable(?) ruling. If that's that case, then I'm afraid that I can't see that there's anything you can do about it.

Slightly off track, but there are some LGPS providers who have applied their discretions in order NOT to pay pensions as trivial commutations. Doing so wipes out the spouse's benefits as well as the pension member's pension entitlements, so they are protecting themselves against any complaints from bereaved spouses who had been banking on receiving pension benefits.

Thanks - the scheme rules suggest not but I can't rule out they haven't updated things - at least that's what I am forlornly hoping :j
Darn it !