Prudential LGPS AVC

berbatov10

Does anyone have any experience or thoughts/knowledge around Prudential AVC's

dunstonh

yes.........

Silvertabby

What do you want to know?

Laycity

berbatov10 wrote: »

Does anyone have any experience or thoughts/knowledge around Prudential AVC's

I'm using them to try to build a total of 25% of the value of my final lgps fund in order to take it all tax free. This makes it very attractive together with the obvious salary sacrifice benefits.

A downside is the very limited choice of funds you can choose with them.

Durban

I have been paying into them for almost 4 years, steadily increasing the amount that I pay every year. I have done this for exactly the same reason as laycity, to build up a tax free lump sum. They have done fairly well, although I know that past performance is no guarantee of future performance.
The only downside for me is that you have to take it at the same time you take your main fund LGPS benefits and not before

Unclefoobar

Laycity wrote: »

I'm using them to try to build a total of 25% of the value of my final lgps fund in order to take it all tax free. This makes it very attractive together with the obvious salary sacrifice benefits.

A downside is the very limited choice of funds you can choose with them.

Could you expand on this?
My understanding was that I have to take my AVC at the same time as my LGPS but then the AVC would be subject to tax for any withdrawals over 25%.
Are you suggesting that you can take the whole AVC if its less than 25% of your total LGPS?
I intend to use the 25% of my AVC in retirement to pay off my mortgage but if I can take out more tax free then I would.

xylophone

https://www.pru.co.uk/rz/landing_page/lgps_landingpage/

Unclefoobar

xylophone wrote: »

https://www.pru.co.uk/rz/landing_page/lgps_landingpage/

Thanks for the link.

How and when do I find the total value of my LGPS, I've not noticed it on my 'members self service' website?

Silvertabby

“ I'm using them to try to build a total of 25% of the value of my final lgps fund in order to take it all tax free. This makes it very attractive together with the obvious salary sacrifice benefits.

A downside is the very limited choice of funds you can choose with them.
Originally posted by Laycity ”
Could you expand on this?
My understanding was that I have to take my AVC at the same time as my LGPS but then the AVC would be subject to tax for any withdrawals over 25%.
Are you suggesting that you can take the whole AVC if its less than 25% of your total LGPS?
I intend to use the 25% of my AVC in retirement to pay off my mortgage but if I can take out more tax free then I would. Posted by Unclefoobar

This is a VERY simplified version of the LGPS/AVC scenario, and assumes that you will retire and take your benefits straight away:

The value of the LGPS 'pot' for the purpose of this exercise is 20 times your standard pension plus any automatic lump sum, plus your AVC fund at the date of the calculation.

Example 1:
£10K pension plus £5K automatic lump sum plus £30K AVC =
20 x £10K + £5K + £30K = £235K.
25% maximum tax free cash = £58.75K

£58.75K is MORE than the AVC pot, so the full £30K AVC may be taken as tax free cash, PLUS the £5K automatic lump sum, PLUS maximum pension commutation.
You could, of course, opt to just take the AVC and the standard lump sum as tax free cash (£35K), thus keeping the £10K standard pension intact.

Example 2:
£10K pension, no automatic lump sum, plus £100K AVC
20 x £10K + £100K = £300K
25% maximum tax free cash = £75K

In this case, the AVC is more than the 25% tax free cash limit, so the residual £25K would have to be taken by other means - usually the purchase of additional pension with the LGPS.

Unclefoobar

Silvertabby wrote: »

This is a VERY simplified version of the LGPS/AVC scenario, and assumes that you will retire and take your benefits straight away:

The value of the LGPS 'pot' for the purpose of this exercise is 20 times your standard pension plus any automatic lump sum, plus your AVC fund at the date of the calculation.

Example 1:
£10K pension plus £5K automatic lump sum plus £30K AVC =
20 x £10K + £5K + £30K = £235K.
25% maximum tax free cash = £58.75K

£58.75K is MORE than the AVC pot, so the full £30K AVC may be taken as tax free cash, PLUS the £5K automatic lump sum, PLUS maximum pension commutation.
You could, of course, opt to just take the AVC and the standard lump sum as tax free cash (£35K), thus keeping the £10K standard pension intact.

Example 2:
£10K pension, no automatic lump sum, plus £100K AVC
20 x £10K + £100K = £300K
25% maximum tax free cash = £75K

In this case, the AVC is more than the 25% tax free cash limit, so the residual £25K would have to be taken by other means - usually the purchase of additional pension with the LGPS.

My current figures are (for retiring early at 60)

LGPS £20,348 x 20 = £406,960 + £16,422 lump sum + £114,000 AVC = £537,382

25% maximum tax free cash = £134,345

Meaning as things stand at present, I could take the full AVC as tax free cash, is that correct?

Silvertabby

My current figures are (for retiring early at 60)

LGPS £20,348 x 20 = £406,960 + £16,422 lump sum + £114,000 AVC = £537,382

25% maximum tax free cash = £134,345

Meaning as things stand at present, I could take the full AVC as tax free cash, is that correct?

Yes - your compulsory lump sum of £16,422 plus £114,000 AVC = £130,422, which is just under the maximum 25%. If you want the full £134.345 then you would have to commute the difference by giving up some of your pension at a rate of 1:12.

Depending on how much longer you have to do - and how much you are paying into your AVC fund - it's possible, however, that your compulsory lump sum plus your AVC will total more than 25%. In theory, you would have the option of transferring this residual amount to another pension scheme under 'freedom' rules - but if it's only a tiny amount you may wish to consider using it to buy more benefits in the LGPS.

Your own LGPS provider may have already told you this, but it would speed things up considerably if you were to cease your AVC payments the month before you retire. The reason for this is that your lump sum payment can't be made until your LGPS have all your forms and documents, your final pay details from your employer and - the cruncher - they have received the funds from your AVC pot. If you carry on paying AVCs right until the bitter end, then the process would be:

Your employer sends your AVC contribution to the Pru, along with all other employee's contributions.
The Pru receive the list, wait for the monies to be transferred to them, then update everyone's records.
The Pru won't make the payment of YOUR AVC fund to your LGPS provider until this has been done - typically a whole month after your last day of service.