Seeking Advice re. LGPS AVC

Apodemus

OldBeanz wrote: »

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.

I guess that is an option, assuming that taking the SW pension early doesn't trigger MPAA.

But it doesn't achieve the certainty that I am looking for at this stage. I want to balance a guaranteed retirement income portion against the risk element in my investment income. The return on an LGPS APC seems good to me in comparison to any other guaranteed-payment, inflation-linked, lump-sum purchase that I have seen.

AlanP_2

Apodemus wrote: »

I guess that is an option, assuming that taking the SW pension early doesn't trigger MPAA.

But it doesn't achieve the certainty that I am looking for at this stage. I want to balance a guaranteed retirement income portion against the risk element in my investment income. The return on an LGPS APC seems good to me in comparison to any other guaranteed-payment, inflation-linked, lump-sum purchase that I have seen.

If you took anymore than the 25% PCLS / TFLS from the SW scheme it would trigger the MPAA and you would be limited to £4k pa into the LGPS AVC.

As an alternative you could, as you get closer to retiring and starting on your LGPS pension investigate whether using "other cash" if you have any and / or a 0% purchase card for 18-24 months to live on and put virtually all of your taxable LGPS salary into the AVC with the non-taxable portion going into your SIPP and attracting additional tax relief (that you haven't even paid!).

Start LGPS and repay card / top savings back up from AVC Lump Sum.

For example if you earn £24k from your LG job and had a tax allowance of £12k (not accurate but makes sums easy).

Pay £1k per month LESS your standard LGPS contribution into LGPS AVC = NO TAX PAID.

Pay your normal NI out of the non-taxable £1k per month (say £200 p/m).

Pay the residual £800 p/m take home pay into a SIPP and HMRC top it up to £1000, even though you haven't paid that tax.

If you had spare cash available you could increase the £800 p/m being paid into the SIPP up to £1k and get it topped up to £1250.

Worth considering maybe at some stage.

Apodemus

Yes, all sort of tricks you can do to maximise a lump sum available at retiral date, but you are not picking up on my aim of building a guaranteed income component to my retirement planning.

In your scenario, say you buy your avc for a cost to you of £10k, giving a tax-free lump sum of £12.5k. Wisely invested that might give you a safe withdrawal of £400-£500 per annum, perhaps £600-700 if you aim to run it to zero after 30 years of retirement. But it comes with investment risk.

In my scenario, putting £12.5k into an APC (and claiming back £2.5k from HMRC, so the same net cost), gives roughly £1,000 per annum additional pension for as long as I happen to live. That is a higher annual return, with no investment risk, but a risk that I don't live long enough to match your total return.

I am ignoring inflation, as it applies equally (and is taken care of) in both scenarios. I am ignoring the growth in the AVC, as the number of years to retiral for avc growth is matched by the lower price of an APC at a younger age.

OldBeanz

The only downside to that is that the money will be taxed, given that the OP is likely to have a full state pension and accumulate more than £4K from the LGPS. In addition, returns greater than CPI are achievable from investment. Do both

Apodemus

OldBeanz wrote: »

The only downside to that is that the money will be taxed, given that the OP is likely to have a full state pension and accumulate more than £4K from the LGPS. In addition, returns greater than CPI are achievable from investment. Do both

Agreed, and as I say, the guaranteed, inflation-linked income is part of a wider strategy and perhaps only makes sense for someone (like the OP and I) who is coming late to LGPS.

In regards to tax, though, chances are that any tax-free lump sum is going to be invested (at the very least for a year or two as it is fed into S&S ISA) in taxable assets. While the lump sum will be tax-free, the long term income from it may not be.

As with most pension decisions, a lot comes down to personal circumstances.

NickShadow

Thanks for the additional info, Apodemus, although I must admit a lot of it has gone above my head! As your situation is similar to mine, it sounds more beneficial to start paying AVC's rather than increasing my SW contributions, and even consider stopping SW contributions altogether to concentrate on the AVC's. I can't really see how to compare the benefits of the 2 schemes although from what little I've found out online it seems the AVC's are more worthwhile.