Prudential LGPS AVC

AlanP_2

Pinnypinpin wrote: »

A question for those in this thread that have an AVC, did you consider reducing any mortgage before contributing? We have an interest-only mortgage (£55k remaining), with unlimited lump sum payments allowed. We overpay mortgage each month, so could increase these overpayments further. My husband is 50, higher rate tax payer, in LGPS, considering paying £400 pm into AVC which is the amount he currently puts into savings. (We now have sufficient rainy day/year savings.)
New to this, so bear with.

Financially the AVC payments are likely to come out best as the full pot will be taken tax free at the point of taking the LGPS benefits based on falling within the following limit:

((LGPS Annual Pension * 16) + Pre-2008 Scheme Lump Sum + AVC Pot Value) * 25%

As a HR taxpayer he will get 40% tax relief on contributions so effectively a £400pm contribution would be the equivalent of £240pm of take home pay so he may be able to actually pay in £665pm for an equivalent of ~ £400pm take home.

The AVC Lump Sum could then be used to pay off the mortgage at some point in the future.

No allowance being made here for investment gains or losses, but I find it difficult to imagine a situation where investments would fall to a level that wiped out the 40% tax benefit (would need to be a 66%+ loss). Even so it's worth thinking about the volatility of your chosen AVC investments as he approaches desired retirement age and the need for the lump sum.

Psychologically there is a lot to be said for clearing the mortgage and knowing you are secure in your bricks & mortar home.

My wife and I are both in the LGPS and both have AVCs and we have an offset mortgage that has under £25k left, recently increased as it was the cheapest way to fund a vehicle purchase.

We are balancing AVCs and mortgage overpayments and realise that we are not being optimal in that approach but it is satisfying to see the mortgage level dropping each month.

Durban

Pinnypinpin wrote: »

A question for those in this thread that have an AVC, did you consider reducing any mortgage before contributing? We have an interest-only mortgage (£55k remaining), with unlimited lump sum payments allowed. We overpay mortgage each month, so could increase these overpayments further. My husband is 50, higher rate tax payer, in LGPS, considering paying £400 pm into AVC which is the amount he currently puts into savings. (We now have sufficient rainy day/year savings.)
New to this, so bear with.

We do both