LGPS Money Purchase Annual Allowance & AVC

Wentthedaywell?

I am flexibly retiring soon, taking all my LG pension to date and also all the tax free AVC I’ve been contributing to for 3 years.

I want to start another AVC when I take up my half week work, again to take as 100% cash, tax free when I fully retire. I’ll probably work another 1-3 years. I know in order to take the new AVC as 100% cash I have keep it below salary/49 x 20 x years worked + AVC value x 25%, which works out at a contribution of about £230 p.m.

I’ve now just come across more restrictions, the Money Purchase Annual Allowance (https://www.pru.co.uk/pdf/GENM282401.pdf) and don’t understand them. As I will have already taken the previous AVC and flexibly taken pension benefits will I be subject to them? Am I ok if I keep my AVC below £4000 per year, or does the £4000 include my CARE pension too?

Sorry if I sound like idiot. I just begin to understand one element of pension, when another bubbles up from the black pension lagoon.

AlanP_2

At the moment the MPAA is £10k a year although it was proposed to reduce this to £4k in the last budget but was pulled from the Bill due to Election.

I have read on here that there is a "commitment" it will be introduced at the next opportunity.

Even when reduced to £4k your AVC investment of £230pm should be fine as I understand it as ONLY Money Purchase investments count, not Defined Benefit ones.

That all presumes that the LGPS AVC is a "Money Purchase Scheme" within the definition applicable to the regulations. A standard DC or SIPP scheme would be and I have always assumed my LGPS AVC is the same but have never checked in detail. One of the LGPS experts may know for sure.

xylophone

I have read on here that there is a "commitment" it will be introduced at the next opportunity.

http://www.pruadviser.co.uk/content/knowledge/technical-centre/money_purchase_annual_allowance_mpaa/

Wentthedaywell?

Sorry, I'm still unclear.

Is my first pension and the AVC and LGPS lump sum (about £45k each) irrelevant in this consideration?

If so, providing I keep my AVC below £4k pa, I'll be ok, even if the new regulations are implemented?

xylophone

https://www.gov.uk/government/publications/reducing-the-money-purchase-annual-allowance/reducing-the-money-purchase-annual-allowance

Where an individual is subject to the MPAA and they also make other pension savings within the same tax year, essentially savings to a defined benefit pension scheme, those savings are taken into account when calculating the taxable amount, but they are not tested against the MPAA (section 227B of FA 2004).

Wentthedaywell?

xylophone wrote: »

https://www.gov.uk/government/publications/reducing-the-money-purchase-annual-allowance/reducing-the-money-purchase-annual-allowance

Where an individual is subject to the MPAA and they also make other pension savings within the same tax year, essentially savings to a defined benefit pension scheme, those savings are taken into account when calculating the taxable amount, but they are not tested against the MPAA (section 227B of FA 2004).

Sorry Xylo, I am still unclear. I don't know if I am subject to a MPAA or whether an LG GAVC is classed as a DB scheme or DC. Are you saying that I am ok for 100% tax free lump sum if I keep it below £4k pa (even though I will have had £90k lump sum back plus pension in the same tax year)?

xylophone

As I understood it (but I only have knowledge of LGPS through a relative who is a scheme member), FR involves reducing your hours or moving to a lower grade and drawing some or all of your pension benefits whilst continuing in employment – this enables the employee to continue paying into the LGPS and building up additional benefits in the CARE (which is a Defined Benefit) Scheme.

You are intending to continue to contribute to CARE (DB) and to an AVC (Money Purchase/DC) scheme?

https://www.pru.co.uk/pdf/LAVK0846.pdf

https://analysis.hrservices.conduent.com/2017/03/29/money-purchase-annual-allowance-reduces-to-4000/


The MPAA applies for the tax year in which an individual first flexibly accesses money purchase benefits, and for all subsequent tax years. Events which trigger the MPAA include flexibly accessing money purchase savings:

as a one-off payment by taking an uncrystallised funds pension lump sum.
through a flexi-access drawdown fund, where the first income drawdown from the arrangement occurs on or after 6 April 2015.
Money purchase savings include both defined contribution arrangements and the majority of additional voluntary contribution (AVC) facilities operated by defined benefit pension schemes.

You have accessed your"old" AVC - as far as I can see therefore, your new contributions to CARE are not tested against MPAA but your contributions to the new AVC would be.

However, I am no expert and you should check with Prudential.

You might also check with poster Silver Tabby who was an LGPS administrator before she retired.

Wentthedaywell?

Thanks Xylo, it does sound like I'd be taxed on a new AVC, so probably not worth opening another.

I'll wait to see if the LGPS experts have a view too Thanks again.

Silvertabby

However, I am no expert and you should check with Prudential.

You might also check with poster Silver Tabby who was an LGPS administrator before she retired. Posted by xylophone

I've been retired for 18 months now, and have to admit that I'm not 100% re the recent changes to the AA rules . However, instead of speaking to the Pru, I would ask your LGPS provider - they will have the current regulations to hand.

Slightly off piste, but how old are you? A common misunderstanding with flexi retirement is that any Rule of 85 protections are carried forward to the new pension record. That is not the case, unfortunately, so if you intend retiring before your new NRA (which will be the same as your State pension age) then you will need to factor in the early retirement reductions. Sorry if this is teaching you to suck eggs, but I had this conversation/argument many times!

Wentthedaywell?

Thanks Silvertabby, I'll email my provider and see what they say.

I'll be 60 when I retire next month, with 38 years contributions. I'm taking all my pension (pre and post 2014) then. I only intend working a year or so more, so that it's less of a cliff edge when I do so fully. Any pension I pick up going onwards is a little bonus, rather than bread and butter. Thanks for the heads up though.

AlanP_2

Wentthedaywell? wrote: »

Thanks Xylo, it does sound like I'd be taxed on a new AVC, so probably not worth opening another.

I'll wait to see if the LGPS experts have a view too Thanks again.

Why do you think you would be taxed?

I thought the MPAA limited what could be paid in rather than what is withdrawn?

I would have thought you were limited to £4k contribution but withdrawal would be as per normal LGPS rules i.e. can all be taken tax free subject to the overall 25% limit.