Prudential LGPS AVC

Unclefoobar

Silvertabby wrote: »

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.

All understood, many thanks.:beer:

I hadn't looked too far into the 25% tax free as I still have 15 years to go till my (hopeful) retirement age of 60.

I had assumed I would transfer my AVC out, use the 25% tax free lump sum and the remainder would be a pension. However if I cash in the AVC in full, I can pay off my mortgage and then effectively drawdown the remaining amount until my state pension kicks in at 67.

I'm currently paying 12% of pensionable salary towards my AVC (in addition to the compulsory 8.5% towards my LGPS) but I'll be increasing that soon to avoid the 40% tax threshold ( yes I know, bad person!)

Silvertabby

Keep an eye on things if we're talking 15 years ahead - rules can and do change!

The_Big_Bamboo

Silvertabby wrote: »

Keep an eye on things if we're talking 15 years ahead - rules can and do change!

How true!
…I wonder how long it will be before ‘they’ start to nibble away at the 25% tax free pension lump-sum ‘concession’ or start playing around with the £1M lifetime allowance.

Anything seen as ‘a little too generous’ is always a target for change. Many view a tax free lump-sum of anything up to £250,000 as ‘a little too generous’.

Maybe even scrap the ‘tax free’ concession on pension contributions altogether,… but make our Pensions (when we eventually get them) completely tax free.

Nobody can be sure what it will be like in 15 years time;…but we can be pretty sure that things will change.

Perhaps for the better! :rotfl:

AlanP_2

Unclefoobar wrote: »

All understood, many thanks.:beer:

I hadn't looked too far into the 25% tax free as I still have 15 years to go till my (hopeful) retirement age of 60.

I had assumed I would transfer my AVC out, use the 25% tax free lump sum and the remainder would be a pension. However if I cash in the AVC in full, I can pay off my mortgage and then effectively drawdown the remaining amount until my state pension kicks in at 67.

I'm currently paying 12% of pensionable salary towards my AVC (in addition to the compulsory 8.5% towards my LGPS) but I'll be increasing that soon to avoid the 40% tax threshold ( yes I know, bad person!)

I'd run your current numbers and proposed AVC payments through a s/sheet and check a few things just to be on the safe side.

Contributing 12% to your AVC with "hopefully" investment growth could easily take you over the 25% of total pot value in your AVC in which case you wouldn't be able to take it all tax free as per Silvertabby's 2nd example.

If you would have to pay tax on it I would suggest you consider the approach we are taking with my OH's (HR taxpayer) LGPS:

Contribute enough to keep it on target to be ~25% of overall pot value with the remainder of what we could pay into the AVC going into a standalone SIPP.

The AVC pot is building up out of income that would have been taxed at 40% and can be taken tax free.

The SIPP pot is building up out of income that has attracted 40% tax but is reclaimed so net cost the same as for the AVC effectively.

The benefit is that she can access the SIPP ahead of the LGPS if she decides to retire early without incurring any/lower actuarial reduction on her main LGPS pension so we have increased flexibility.

The final point is keep an eye on the Annual Allowance limit of £40k pa - sounds a lot I know but a decent pay rise as a result of a promotion or job change boosts your LGPS pension which when added to your quite substantial AVC / SIPP contributions can get used up.

Final, Final point - and this applies to anyone in the LGPS:

IF YOU CHANGE TO A NEW EMPLOYER in a different "county / scheme admin block" don't forget to transfer your old pension into the new one.

I know 2 people who forgot that or, TBH, never got around to completing the form that they were sent. New jobs were at substantially higher salaries but were never linked to the 20+ years service they "forgot" to bring forward, instead they remained linked to their lower salary as at the point they moved over.

johnnyboy6363

Could someone please clear up one small point I have regarding the calculator( 20x pension +tax free lump sum + avc pot/ 25%. ) In the tax free lump sum would you include tax free money from a private pension as well or is that totally separate.. Thank you

chiefie

AlanP wrote: »

I'd run your current numbers and proposed AVC payments through a s/sheet and check a few things just to be on the safe side.

Contributing 12% to your AVC with "hopefully" investment growth could easily take you over the 25% of total pot value in your AVC in which case you wouldn't be able to take it all tax free as per Silvertabby's 2nd example.

If you would have to pay tax on it I would suggest you consider the approach we are taking with my OH's (HR taxpayer) LGPS:

Contribute enough to keep it on target to be ~25% of overall pot value with the remainder of what we could pay into the AVC going into a standalone SIPP.

The AVC pot is building up out of income that would have been taxed at 40% and can be taken tax free.

The SIPP pot is building up out of income that has attracted 40% tax but is reclaimed so net cost the same as for the AVC effectively.

The benefit is that she can access the SIPP ahead of the LGPS if she decides to retire early without incurring any/lower actuarial reduction on her main LGPS pension so we have increased flexibility.

The final point is keep an eye on the Annual Allowance limit of £40k pa - sounds a lot I know but a decent pay rise as a result of a promotion or job change boosts your LGPS pension which when added to your quite substantial AVC / SIPP contributions can get used up.

Final, Final point - and this applies to anyone in the LGPS:

IF YOU CHANGE TO A NEW EMPLOYER in a different "county / scheme admin block" don't forget to transfer your old pension into the new one.

I know 2 people who forgot that or, TBH, never got around to completing the form that they were sent. New jobs were at substantially higher salaries but were never linked to the 20+ years service they "forgot" to bring forward, instead they remained linked to their lower salary as at the point they moved over.

My understanding of the annual allowance is that you have to take into account the value of pension you accrue your In year. Say you are paid £49,000 then the value of the pension you accrue in that year is £49,000/49=£1,000. You then multiply this by 16 to get the in year value foR the pension - I.e £16,000. So you can put another £24,000 into an avc or sipp. Is my thinking correct ?

Also not sure if the 20*multiplier still counts if you take it early at 55?

Linton

johnnyboy6363 wrote: »

Could someone please clear up one small point I have regarding the calculator( 20x pension +tax free lump sum + avc pot/ 25%. ) In the tax free lump sum would you include tax free money from a private pension as well or is that totally separate.. Thank you

Any private pension you have is completely separate - unless pensions are specifically linked, as in the case with your DB and AVC pensions, you cant use one to give you the TFLS from another.

AlanP_2

chiefie wrote: »

My understanding of the annual allowance is that you have to take into account the value of pension you accrue your In year. Say you are paid £49,000 then the value of the pension you accrue in that year is £49,000/49=£1,000. You then multiply this by 16 to get the in year value foR the pension - I.e £16,000. So you can put another £24,000 into an avc or sipp. Is my thinking correct ?

Also not sure if the 20*multiplier still counts if you take it early at 55?

AFAIK it is 16* the increase in value of the pension so if it was only CARE i.e. post 2014 membership your £16k would be about right as it is essentially "This Years Pension Value" - "Last Years Pension Value".

The value of contributions from previous years would have increased as well as the CARE part is uprated by inflation, and any pre-2014 Final Salary element will have increased if salary has gone up. In practice the CARE increase would be offset by the uprating of "last years pension value" by inflation.

The problem can occur (and it is a nice problem to have) if you have a reasonable amount of pre-2014 Final Salary service and get a significant pay rise, promotion for example.

You will then have a much higher "This Years Pension Value" in the year after the promotion, as the 60ths/80ths FS element will have increased as will the 49th for the CARE element. If you have maxed out previous years £40k limit by using AVC / SIPP alongside LGPS you will have no carry forward allowance to play with.

With the current public sector 1% pay regime unlikely to be an issue but worth tracking if a significant salary increase occurs.

As for calculation at 55 I thought it was the same but open to be corrected by one of the LGPS experts on here as the calculation is based on 20* Annual Pension and I haven't seen any reference to an age based exception to that.

G4OJR

I understand that there is now no penalty for transferring out of the Pru LGPS AVC.

AlanP_2

G4OJR wrote: »

I understand that there is now no penalty for transferring out of the Pru LGPS AVC.

Sorry, can you please expand on this?

What penalty was there in the past?