Seeking Advice re. LGPS AVC

NickShadow

I'm after some advice from knowledgeable folk re. LGPS AVCs – I’ve received my Annual Benefit Illustration from my employer and there’s a leaflet enclosed for Prudential AVCs which has made me start wondering whether it would be more beneficial for me to start an AVC or should I increase contributions to my Scottish Widows personal pension instead?

I’m 48 with no plans to retire early. The value of my Scottish Widows pension is approx. £55,000 (Mixed Fund) and I currently contribute £60 per month. I know it’s not a great deal but I spent a few years living abroad during which time I wasn’t able to contribute anything. I then returned to UK and started working full time 4 years ago so I’ve been able to restart Scottish Widows contributions, in addition to my LGPS.

My salary is a bit less than £20,000 but I could probably afford an additional £100 per month towards either my Scottish Widows pension or to start an AVC but I have no idea what would be more beneficial. I've done a bit of searching on this forum and noted that some people think the Management Charge for an AVC is very expensive, which makes me think I’d be better off increasing my Scottish Widows contributions instead.

Many thanks in advance for advice, or links to articles I can read for further info.

dunstonh

've done a bit of searching on this forum and noted that some people think the Management Charge for an AVC is very expensive, which makes me think I’d be better off increasing my Scottish Widows contributions instead.

You havent stated what the AMC for the AVC is or what the AMC for the SW PPP is either. Given how old fashioned most SW plans are (by modern standards), chances are that the SW pension is not a great option either.

NickShadow

I've just done some searching online and in the leaflet - the AMC is 1% for both. I check the value of my SW pension online every month or two and am quite pleased with how well it's doing, although I'm certainly no expert and don't know what to compare it to. I didn't realise SW was old fashioned. Could you recommend any links online so I can look into alternatives? I would be cautious about transferring what I consider to be a large amount, into another Plan.

dunstonh

I check the value of my SW pension online every month or two and am quite pleased with how well it's doing,

Its a benchmark fund. It more or less follows the benchmark. With your fund value, you are paying over twice as much as you would be on modern pensions.

I didn't realise SW was old fashioned.

SW have been starved of funding by Lloyds Bank and their product range and pricing is that of the early 2000s. You could do worse but there are better.

ould you recommend any links online so I can look into alternatives?

I cannot as I am regulated and there isnt enough to go on to say. However, others will be along in due course who do not have to consider regulation and will post their opinions.

I would be cautious about transferring what I consider to be a large amount, into another Plan.

It may be large to you but in pension terms, it's a relatively small fund. Transferring carries no risk. The risk is purely where and how you invest.

AlanP_2

The LGPS AVC option v SIPP/PP has things going for it on both sides.

The AVC attracts tax relief on contributions on the way in and can be taken tax free but only at the same time as your main LGPS scheme benefits - so a downside if you want to retire early and delay taking your LGPS pension.

The tax free amount is limited to ((20 * Annual LGPS Pension) + AVC Pot Value) * 25%

SIPP / PP provides more flexibility if you wanted to retire earlier and delay taking LGPS pension without a reduction, or at least a smaller reduction, for early payment.

Given that you have a £55k personal pension pot already even if you did decide to go early that might last you 2/3 years or so depending on how much you need with it being at least partly "replaced" as a cash pot by the AVC payout.

You haven't said anything about your personal circumstances, some of which might have a bearing on your options.

For example is there a partner / spouse in the picture as retirement planning should look at your whole / family situation.

Does he / she have a pension to look froward to? Contribute to a pension now? If not, or if expected pension is quite low paying more into their pension may be a better option as you want each partner to have at least the annual tax allowance in income each year when retired rather than having one half getting £18k pension and the other half getting £9K.

You said you had worked abroad - I'm no expert but this could affect how much State Pension you have built up, have you obtained an up to date forecast?

BTW - My LGPS AVC gets a discounted rate from the provider, so I get 0.37% (from memory) off the "list price" so it may not be 1% in reality.

NickShadow

Thank you Alan, for your response. A bit more detail - despite my Username I am female - my husband is 57 and his work pension is very small as he's only been there a couple of years. Unfortunately he is still making back payments on his NI contributions as he was self employed for years, then he spent a few years abroad (that's where we met) and did not pay any NI then. So I made sure he got a State Pension forecast and he's gradually paying the previous years' NI contributions at £689 per year (another 4 to go I think) so that at least he should get almost a full State Pension.

While I was abroad I made sure I paid voluntary NI contributions each year and I was working full time before I moved abroad and for the last 4 years, so I shouldn't have any gaps. We don't have any children. My husband says he wants to carry on working beyond 66, maybe part time. But 66 is only 9 years away for him, meaning that if he wanted to retire completely, his income will be his State Pension, as his work pension forecast is currently about £12 per month!!!

From what I read in the Prudential leaflet (I don't have it to hand) it said that you can withdraw funds from the age of 55, separately from the main LGPS pension.

I hadn't even considered paying more into my husband's pension, in fact I'm not sure that's an option with his work pension - we would need to look into this further.

OldBeanz

AVCs are one of the great features of the LGPS scheme. As stated above you can pay in from taxable income to the AVC and then enhance your pension by drawing the full sum tax free. So by doing the calculations above you can work out your target figure. Most Governement pension based AVCs have low costs.

NickShadow

Thank you, OldBeanz. I'm leaning towards setting up an AVC rather than increasing contributions to my SW private pension, although I expect only an IFA could explain all the figures and options to me - I like to search for info on the internet but am not sure how to compare different pension providers to see what would be a better option than my Scottish Widows pension.

AlanP_2

NickShadow wrote: »

Thank you Alan, for your response. A bit more detail - despite my Username I am female - my husband is 57 and his work pension is very small as he's only been there a couple of years. Unfortunately he is still making back payments on his NI contributions as he was self employed for years, then he spent a few years abroad (that's where we met) and did not pay any NI then. So I made sure he got a State Pension forecast and he's gradually paying the previous years' NI contributions at £689 per year (another 4 to go I think) so that at least he should get almost a full State Pension.

While I was abroad I made sure I paid voluntary NI contributions each year and I was working full time before I moved abroad and for the last 4 years, so I shouldn't have any gaps. We don't have any children. My husband says he wants to carry on working beyond 66, maybe part time. But 66 is only 9 years away for him, meaning that if he wanted to retire completely, his income will be his State Pension, as his work pension forecast is currently about £12 per month!!!

From what I read in the Prudential leaflet (I don't have it to hand) it said that you can withdraw funds from the age of 55, separately from the main LGPS pension.

I hadn't even considered paying more into my husband's pension, in fact I'm not sure that's an option with his work pension - we would need to look into this further.

It would be worthwhile him asking if the employer would match more if he paid in more - unlikely maybe but still worth exploring.

He could open a PP / SIPP if he can't add to the employer fund and start to build up a bit more that way - Every Little Helps as they say on TV.

Apodemus

Remember that another option to consider is making Additional Pension Contributions (APCs) to the LGPS itself.

Depending on your age and circumstances that can be a good option, adding to your guaranteed, inflation-linked pension payments. There is a calculator on the LGPS website that lets you work out return based on regular or lump-sum payments.

Additional pension doesn't come with spouse benefits, so you have to weigh that up in your decision-making but (trying not to be too morbid about all this!) if you are significantly younger than your partner, this may be less of an issue.

Like you, I have come late to LGPS myself and also have an older SW scheme, which I am not contributing to. My aim is to get the core of my retirement income from LGPS and State Pension, leaving SW and investment income to provide me with flexibility and the potential to fund retiral before my state pension age. I've made lump sum APC payments, which at my age work out at about £10k per £1k annual pension.

OldBeanz

Apodemus wrote: »

Remember that another option to consider is making Additional Pension Contributions (APCs) to the LGPS itself.

Depending on your age and circumstances that can be a good option, adding to your guaranteed, inflation-linked pension payments. There is a calculator on the LGPS website that lets you work out return based on regular or lump-sum payments.

Additional pension doesn't come with spouse benefits, so you have to weigh that up in your decision-making but (trying not to be too morbid about all this!) if you are significantly younger than your partner, this may be less of an issue.

Like you, I have come late to LGPS myself and also have an older SW scheme, which I am not contributing to. My aim is to get the core of my retirement income from LGPS and State Pension, leaving SW and investment income to provide me with flexibility and the potential to fund retiral before my state pension age. I've made lump sum APC payments, which at my age work out at about £10k per £1k annual pension.

Then consider starting to draw your SW pension at 55 and paying it into your LGPS AVc. Take the tax deductions and then draw the lump sum tax free at retiral (churn them again through £2880 in £3660 out SIPP post retiral) No other (? That I know of) Government based scheme has this benefit for a reason, it is still extremely good value for money.