LGPS calculations - sanity check please

CherubP

I am 56, born Jan 1961. I have a deferred LG DB pension, 13.1 years service, left in 1999, leaving salary was £22k and £6k in AVCs. Pension can be drawn at 60 without reduction. Current forecast is £5657/pa, lump sum of £17k + AVC which can be taken tax free as less than 25 % of pension pot.

Rejoined LG pension scheme in Oct 2012, contributed to DB pension until April 2014 when CARE kicked in, pension can be drawn at state pension age (66.8 yrs) without reduction. Current salary is £44k, at top of band so only a minimal increase per annum

Hoping to stop working (and thus contributing) in April 2019 aged 58. Originally planned to take deferred pension at aged 60 and then to take current emloment LG pension at SPA to avoid the reductions.

Looks as though my current DB & CARE pension will be around £7145/pa. if taken at SPA. Currently AVCs for this pension have a value of £32k which exceeds 25% of the value of the pension so would be partly taxable/would have to buy an annuity with part of it

I have a further small pension due at 65 and additional income from rental properties and have savings so I am not concerned at whether I can afford to retire but how to ensure the LG pensions are taken in a way that is tax efficient for the AVCs and an optimum pension amount to see me up to drawing my state pension

I have been looking at various options re drawing pension and have spoken to the county council pensions department who have been helpful but are limited as to the information they can give so I have done some calculations of my own. The conclusion is that if I combined my deferred and current pensions I will have a pension at 60 of £11k/pa, lump sum of £20.5K and the maximum AVC I could take is £53k, thus allowing me to contribute further to my AVCs up until I Ieave work.

I beieve that if I combine the pensions the calculation figures of all my pensions are based on my salary at leaving in 2019 and not the salary in 1999, but the deferred pension critical retirement age increases to 62.

I have estimated a final salary in 2019 of £44259 and taking my pension in Jan 2021 at 60 the £11k is based on pre 2008 service of 13.1 years (80ths), 1.5 years (60ths), including reduction of 10.8% on 80ths, reduction of 24% on 60ths, then on an assumed CARE pension of £3300 inc a reduction of 31.4%. Lump sum would be £20500 after reduction of 5.7%.

This figure seems so much better than taking deferred pension of £5657 pa at 60 and then having to wait a further 6+ years before being able to take additional£7145/p and also being limited with taking AVCs tax free.

Is there anyone out there who is familiar with the LGPS schemes and can sanity check the assumptions and calculations for me please to ensure I am on the right track and is there any further information you need to know before doing so? Many thanks

Silvertabby

Your starting figures look good, and you have factored in that your first 13.1 years of service will be calculated on your final leaving salary of £44K +, but I can't agree your CRA of 62 (and hence the reductions you have applied).

Did you work it out yourself, or did your pensions administrator confirm it?
Based on your date of birth alone, you are too young for full R85 protections, which would only apply to your pre 2008 service (if at all).

(Whole years for ease)

In the case of your first record:

1986 - 1999 pensionable service = 13 years
2000 - 2019 deferred membership = 19 years

Age at date of payment = 60 (records deferred before 2014 can't be taken before age 60 without special permission)

13 + 19 + 60 = 92 = Rule of 85 met at age 60 (old rules) = pension payable without reductions.

Combine your records, however, and we have:

1986 - 1999 pensionable service = 13 years
Gap of 12 years - does not count towards R85
2012 to 2019 pensionable service = 7 years
Age at date of payment = 58

13 + 7 + 58 = 78 = no R85 protections, not even for your pre 2008 service.

I would ask your pension provider for estimates under both scenarios (but excluding your AVCs) before you make any decisions.

Triumph13

CherubP wrote: »

Looks as though my current DB & CARE pension will be around £7145/pa. if taken at SPA. Currently AVCs for this pension have a value of £32k which exceeds 25% of the value of the pension so would be partly taxable/would have to buy an annuity with part of it.

I think you may be a little confused about how the calculations work for this. The total value of this pension = annual pension x 20 + AVCs = £142,900 + £32k = £174,900. 25% of this is £43,725 so you can still take all your AVCs as tax free cash with a reasonable amount of headroom.

AlanP_2

Can you combine the two given that you rejoined in 2012. Does it not have to be done within 12 months of "joining"?

For the current LGPS not sure why you can't take all AVC as tax free element.

(20*7,145)+32K = £180k'ish and 25% = £45k


TRIUMPH beat me to it!

Silvertabby

Further to my post No 2 - LGPS REGS 2014

Please note that if the rule of 85 applies to part of all of your previous benefits in the LGPS and there is a long gap between the day you previously left the scheme and the day you re-joined the scheme then combining your benefits could impact on your rule of 85 protection as it could make your rule of 85 date later. If this is the case, keeping your deferred benefits separate could protect your earlier rule of 85 date on that deferred benefit but you would not have rule of 85 protection on your benefits accruing in your new employment. The reason the earlier rule of 85 date on that deferred benefit would be protected is because when working out your rule of 85 date the period after you left the LGPS is also included (known as notional service) in the calculation even though you were not a member of the LGPS. If you re-join and combine your previous benefits then the notional service would no longer be used and any gap in membership of the LGPS membership would not be used when calculating when you would meet the rule of 85 in the new employment.

CherubP

Thanks for the replies,at work at the moment but will have a proper read through tonight when home.

CherubP

Hi Silvertabby,

I have based the CRA on the % reductions and a matrix provided by the pensions dept. I will ask them to recheck it.

With regard to an estimate under the combined pension scenario they tell me that "we can only do this when you have left the scheme and it is closer to 2021", hence the DIY calculations.

CherubP

AlanP, I think the limit for combining the pensions is at the discretion of the pension provider and thankfully my pensions department have said I can decide whether to combine them at the point I decide to take the pension.
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AlanP & Triumph - Think I have poorly expressed the AVCs. If I take the deferred pension separately from the current service one then I am fine to take the £6k AVC without penalty but I have been advised the AVCs I hold against the current pension are in excess of 25% of the worth of the pension due to the short length of service. Another reason to combine pensions and even contribute a bit more to my AVCs over the next couple of years

I am just about to query the points made in your and Silvertabby's posts with the pensions department.

CherubP

AlanP, I think the limit for combining the pensions is at the discretion of the pension provider and thankfully my pensions department have said I can decide whether to combine them at the point I decide to take the pension.
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AlanP & Triumph - Think I have poorly expressed the AVCs. If I take the deferred pension separately from the current service one then I am fine to take the £6k AVC without penalty but I have been advised the AVCs I hold against the current pension are in excess of 25% of the worth of the pension due to the short length of service. Another reason to combine pensions and even contribute a bit more to my AVCs over the next couple of years

I am just about to query the points made in your and Silvertabby's posts with the pensions department.