LGPS AVC's

Toddy2

Hi All,
I've reached early 40's (42yrs old) and am really focusing on my retirement, and would really appreciate some advice in particular LGPS AVC's. I think I know my plan....

My situation is:
Previously worked for 14 yrs at a Local Authority (pre 2008) which will give me a pension of £5,600 per annum. Plus a lump sum of £26k, I can draw these at 65yrs old without deduction.

Left Local Authority and went to work in the private sector for a number of years, didn't really grow much of a pot, I managed a £16k pot.

I have now joined another Local Authority (18 months service to date), in haste I transferred my £16k private pot into the LGPS which bought me approximately 3 additional years. As I wasn't sure I'd be staying in Local Government. I'm pretty settled now an will likely remain in Local Government until I retire. My current gross salary is £48k per annum (I've probably reached the limit on career progression). I contribute £100 per month into Additional Pension Contributions.

I am planning on retiring at 60 yrs old. I'm looking to invest a further £200 per month (if Theresa May manages to give us an inflation related pay rise) into Additional Voluntary Contributions, with the aim to grow a pot to live off for 5 years until my previous Local Government Pension and lump sum will be drawn upon, which will then cover me until my current LGPS and full state pension can be drawn upon without penalty.

I've looked into the AVC's my LG uses Zurich and Pru, I understand you cannot draw upon the fund without drawing the pension too. I'd like to keep things simple and run it through my payroll. Any thoughts greatly appreciated....
Perhaps I should defer my additional pension contributions and set aside £300 per month into AVC's.

Wider circumstances are married (she has little or no pension and opted out of the 2nd state pension), and two dependants.
We have a large house which we intend to downsize on retirement, current value £650k mortgage £270k, other debts are £30k 0% credit cards which we used for our extension which we hope to clear off.

I've thoroughly enjoyed reading through the forum and wish I'd started getting my finances in order sooner!

chiefie

The advantage of avcs at the moment in lgps is that you can take them tax free as long as they form less than 25% of the total pot. This works for your current employment. But as you said you must take them at the same time as your lgps benefits.

hyubh

Toddy2 wrote: »

Previously worked for 14 yrs at a Local Authority (pre 2008) which will give me a pension of £5,600 per annum. Plus a lump sum of £26k, I can draw these at 65yrs old without deduction.

Two questions - (a) What are the actual dates, and (b) have you combined this earlier membership with your current one?

Going by the other details you've given, I (tentatively) make it that the pre-2008 element of your earlier membership will have 85 year rule protections and not be reduced from 60, even if you've subsequently combined the memberships. (Depending on dates, combing two periods of service with a large gap in between can have a negative effect on rule of 85 protections, due to them being very generous for preserved members.)

If you've kept the memberships separate though, then drawing the earlier one at your target retirement age of 60, taking the actuarial reduction on any service from April 2008, may be a reasonable option.

I have now joined another Local Authority (18 months service to date), in haste I transferred my £16k private pot into the LGPS which bought me approximately 3 additional years.

Surely it's bought you a fixed (well, CPI-linked) amount of extra pension, not added years? Unless you're in Scotland or NI, so did it just before the scheme went CARE...?

I've looked into the AVC's my LG uses Zurich and Pru, I understand you cannot draw upon the fund without drawing the pension too.

Right.

I'd like to keep things simple and run it through my payroll.

Having a personal pension and doing a tax return to claim the higher rate tax relief isn't that much of a big deal. Dare I say, if your financial affairs are pretty simple, the self-assessment process nowadays is actually quite efficient (I write as someone whose own financial affairs are pretty simple, but has needed to complete a tax return for the past 5 years, albeit for additional earnings rather than pension contributions).

she has little or no pension and opted out of the 2nd state pension

What do you mean by this? Before the single tier pension came in last year, a person 'contracted out' of the State Second Pension (S2P) only if they were a member of contracted-out pension scheme, like the LGPS. Even when contracting out on an individual basis was possible, it involved an NI rebate being made into a personal or stakeholder pension.

Toddy2

Thanks for the reply. Is there a way I can get the same benefits without drawing the main pension?

Toddy2

Two questions - (a) What are the actual dates, and (b) have you combined this earlier membership with your current one?

Going by the other details you've given, I (tentatively) make it that the pre-2008 element of your earlier membership will have 85 year rule protections and not be reduced from 60, even if you've subsequently combined the memberships. (Depending on dates, combing two periods of service with a large gap in between can have a negative effect on rule of 85 protections, due to them being very generous for preserved members.)

If you've kept the memberships separate though, then drawing the earlier one at your target retirement age of 60, taking the actuarial reduction on any service from April 2008, may be a reasonable option/QUOTE]

I have kept this pension deffered and separate from my new LGPS, for that very reason - i know this is the gold plated pension! I joined the scheme in March 1994 and left in January 2008. I'm aware of the 85 year rule and will explore more.

Surely it's bought you a fixed (well, CPI-linked) amount of extra pension, not added years? Unless you're in Scotland or NI, so did it just before the scheme went CARE...?/QUOTE]
Yes amount of pension which roughly equates to 3 years service: £2,800.00 per annum.

Having a personal pension and doing a tax return to claim the higher rate tax relief isn't that much of a big deal. Dare I say, if your financial affairs are pretty simple, the self-assessment process nowadays is actually quite efficient (I write as someone whose own financial affairs are pretty simple, but has needed to complete a tax return for the past 5 years, albeit for additional earnings rather than pension contributions)./QUOTE]
I shall explore further, but wanted to try and keep it simple for when I'm older.

What do you mean by this? Before the single tier pension came in last year, a person 'contracted out' of the State Second Pension (S2P) only if they were a member of contracted-out pension scheme, like the LGPS. Even when contracting out on an individual basis was possible, it involved an NI rebate being made into a personal or stakeholder pension./QUOTE]
Indeed she contracted out and is in a small Scottish Windows pot, but took a number of years off to raise our children.

I really appreciate your response and has given me cause to check my 85 year rule further and other options.

Thanks again,

hyubh

Toddy2 wrote: »

I have kept this pension deffered and separate from my new LGPS, for that very reason - i know this is the gold plated pension! I joined the scheme in March 1994 and left in January 2008.

You can take it from age 60 without reduction then. Given you've been at your current employer more than 12 months, you are (very likely) unable to change your mind and combine even if you wanted to.

Surely it's bought you a fixed (well, CPI-linked) amount of extra pension, not added years? Unless you're in Scotland or NI, so did it just before the scheme went CARE...?

Yes amount of pension which roughly equates to 3 years service: £2,800.00 per annum

OK, but thinking in terms of added years can get a bit confusing when that isn't what you've actually bought. ('Added years' in a DB context usually means a final salary-related benefit, which isn't what a 'non-Club' transfer into the CARE LGPS is.)

Toddy2

hyubh wrote: »

You can take it from age 60 without reduction then. Given you've been at your current employer more than 12 months, you are (very likely) unable to change your mind and combine even if you wanted to.

Looked into this some more. Unfortunately, I had not fully appreciated the impact and had not opted to combine with my new LGPS, this cannot be changed. What a huge mistake!! So my new service does not count towards my previous length of service, absolutely gutted.

hyubh

Toddy2 wrote: »

Looked into this some more. Unfortunately, I had not fully appreciated the impact and had not opted to combine with my new LGPS, this cannot be changed. What a huge mistake!! So my new service does not count towards my previous length of service, absolutely gutted.

I'm confused... you seemed to say previously you deliberately kept the deferred period deferred in order to take it separately at 60.

Nothing of your new service would have 'counted towards' your previous service anyway - given your relatively young age, you get rule of 85 protections for pre-2008 service and that's that. If you actually had any later final salary service, its NPA would be 65 whether it was combined with your CARE membership or not.

If however you meant, have your old service count towards your current salary, that also wouldn't have happened given final salary links are now broken if you are out of a 'public service' pension scheme for more than 5 years. Instead, your old deferred benefit would have bought additional pension with your current membership, similar to your 'non-Club' transfer in. This would (I think) have the CARE scheme NPA attached, i.e. your state pension age.

Toddy2

hyubh wrote: »

I'm confused... you seemed to say previously you deliberately kept the deferred period deferred in order to take it separately at 60.

Nothing of your new service would have 'counted towards' your previous service anyway - given your relatively young age, you get rule of 85 protections for pre-2008 service and that's that. If you actually had any later final salary service, its NPA would be 65 whether it was combined with your CARE membership or not.

If however you meant, have your old service count towards your current salary, that also wouldn't have happened given final salary links are now broken if you are out of a 'public service' pension scheme for more than 5 years. Instead, your old deferred benefit would have bought additional pension with your current membership, similar to your 'non-Club' transfer in. This would (I think) have the CARE scheme NPA attached, i.e. your state pension age.

I really appreciate your comments, and has opened my eye's into needing to explore the 85 year rule fully. I understood it's the number of years service plus your age. So at 60 with only 14 years service this wouldn't qualify?

Indeed my break has been greater than 5 years, so would not be able to be combined.

I will asking my pension provider these questions in the morning, it would be great if I could take this pension at 60 without penalty.

Thanks again

hyubh

Toddy2 wrote: »

I really appreciate your comments, and has opened my eye's into needing to explore the 85 year rule fully. I understood it's the number of years service plus your age. So at 60 with only 14 years service this wouldn't qualify?

With a deferred membership, you include the notional years from when you left. If you had combined memberships, then the period between initially leaving the scheme and rejoining would have no longer counted for rule of 85 purposes.

Things would likely have been explained in your deferred benefit statement on leaving, and possibly your annual deferred benefit statements since (you should have been receiving these from 2005).

Indeed my break has been greater than 5 years, so would not be able to be combined.

Or more exactly, not be able to have your 94-08 service go against your latest salary. It's a bit like the 'added years' point I made before - if you had transferred in your private sector pension when the scheme was still a final salary scheme, you would have earned added years that produced benefits against your final pensionable pay, rather than a set amount of additional pension determined on transferring in.

Toddy2

hyubh wrote: »

With a deferred membership, you include the notional years from when you left. If you had combined memberships, then the period between initially leaving the scheme and rejoining would have no longer counted for rule of 85 purposes.

Things would likely have been explained in your deferred benefit statement on leaving, and possibly your annual deferred benefit statements since (you should have been receiving these from 2005).

Apologies for my ignorance, so would I still be able to take my old LGPS at 60 without penalty?

I had thought that keeping them separate was the best course of action, my previous LG service was a trainee through to a senior (ish) level so final salary suited me well. In my new service I'm unlikely to progress so career average suits me now.

Thanks again,