Paying into LGPS, considering AVCs but not sure

AlanP_2

Triumph13 wrote: »

Whether or not that makes sense depends entirely on what you plan to do with it. If your are planning to pay off a mortgage or buy an annuity then it makes perfect sense. If you are planning to draw an income from it for the next 30 years then possibly not.

You can't withdraw an income from an LGPS AVC.

On a specific date, the point you take your main scheme benefits, the provider calculates the value of your AVC pot and you get this a Lump Sum so it really, really, really does make sense :beer:.

What you then need to do is think about how you are going to use that pile of cash.

Reinvest it and take an income over 30 odd years? Buy that A-Class Motor Home?

AlanP_2

swanny65 wrote: »

My mate works at Birds Eye ex: Unilever Pension Scheme. When Unilever sold the business the new owners changed the pension for employees to one offered by the Pru.

The money purchase Pru pension will never match the final salary Unilever pension (my god it was a hell of a scheme, better than my CS scheme). The choice of Pru funds is limited. Check out what funds you can invest in via the Pru, does it offer third party funds. What are the AVC charges.

My Standard Life AVC has, in my opinion, some excellent performing funds from a range of providers eg Black Rock, Henderson, Jupiter as well as there own smaller companies fund. (A expert my disagree and shoot me down)

I have spread my AVC across 11 funds. I try and ensure no one fund has more than 15% of the value of my pension pot.

Each AVC scheme that Pru or SL or whoever offers on behalf of the employer is likely to offer different fund options as agreed with the Trustees. So what your Civil Service SL one offers may not be the same as a Unilever SL one offered and so on.

My wife and I have LGPS AVCs with two different providers and they both offer a "life styling" option of some kind that aims to move you towards less volatile assets (reduced equities, more bonds typically and an increasing level of "cash" like options towards the very end) as you approach the date you told them you are likely to retire, starting somewhere between 5 and 10 years out. This does make it easier for less experienced investors, or less interested investors, to "fire and forget" in something that they will re-balance automatically and de-risk as the years roll by.

We are aiming to be virtually in "cash" at least a year before we think we will be accessing them. The thinking being that with the tax free element we are getting a massive "return" so why worry about taking any investment risk at that stage.

Triumph13

AlanP wrote: »

You can't withdraw an income from an LGPS AVC.

On a specific date, the point you take your main scheme benefits, the provider calculates the value of your AVC pot and you get this a Lump Sum so it really, really, really does make sense :beer:.

What you then need to do is think about how you are going to use that pile of cash.

Reinvest it and take an income over 30 odd years? Buy that A-Class Motor Home?

I'm well aware that you can't do income drawdown from an LGPS AVC. The whole name of the game is to withdraw them all in one go without tax. Nowhere is it written that you then have to spend them all in one go.

If your intention was to invest this withdrawal in an equity-rich portfolio for long term drawdown OUTSIDE the pension, then it would make absolutely no sense to 'de risk' the portfolio whilst it was still inside the pension. The investment profile should remain exactly the same before and after - although it will probably have to spend a day or two as cash in the transition.

AlanP_2

Triumph13 wrote: »

I'm well aware that you can't do income drawdown from an LGPS AVC. The whole name of the game is to withdraw them all in one go without tax. Nowhere is it written that you then have to spend them all in one go.

If your intention was to invest this withdrawal in an equity-rich portfolio for long term drawdown OUTSIDE the pension, then it would make absolutely no sense to 'de risk' the portfolio whilst it was still inside the pension. The investment profile should remain exactly the same before and after - although it will probably have to spend a day or two as cash in the transition.

Fair point and totally correct.

In my experience of talking to other members of the LGPS they either don't even realise they can have an AVC (and if they were to have one, how it works), and of those select few that do have one some don't realise that they get a "pot" at a fixed date and that "pot value" is based on what their (often defaults chosen a few years ago) investments are worth so was highlighting this aspect.

Moby

I'm putting funds into the pru LGPS AVC scheme as well, I'd be grateful if someone knew the calculation as to whether its better to take the lump sum or buy extra pension? Also if you retire but defer taking your LGPS pension can you still buy extra pension through the AVC when you do start taking it or are you then limited to the lump sum option only?

Silvertabby

Moby wrote: »

I'm putting funds into the pru LGPS AVC scheme as well, I'd be grateful if someone knew the calculation as to whether its better to take the lump sum or buy extra pension? Also if you retire but defer taking your LGPS pension can you still buy extra pension through the AVC when you do start taking it or are you then limited to the lump sum option only?

1. Not as far as I'm aware - but, if there is, I'd have thought that it would require one essential piece of information to be input in order to be accurate. Your date of death.

2. No. You can only buy LGPS pension if you retire from 'live' service. Your only options from deferment would be to take your AVC as a tax free lump sum (as long as it it's within HMRC limits) or use it to buy pension benefits from the Pru or another provider.

Moby

Silvertabby wrote: »

1. Not as far as I'm aware - but, if there is, I'd have thought that it would require one essential piece of information to be input in order to be accurate. Your date of death.

I just saw Swindiff's comments above?

Silvertabby

“ 1. Not as far as I'm aware - but, if there is, I'd have thought that it would require one essential piece of information to be input in order to be accurate. Your date of death.

Originally posted by Silvertabby

Moby wrote: »

I just saw Swindiff's comments above?

Yes - if your date of death is within (approx) 10 years of retirement, then you'll be better off with the cash instead of the pension. Live for more then 10 years, and the bigger pension wins. However, if you take your LGPS benefits/AVC from deferred status, then you don't have this option.

If you really want income instead of cash, then you are looking at an annuity (if you stick with the Pru) or some other means of investing/drawing a private pension.

These alternatives are unlikely to be as generous as the LGPS purchase option, so don't get fixated on '10 years'.

When calculating LGPS benefits with AVCs it was the norm to ask the Pru to supply the pension fund member with details of the options they would offer. They sometimes sent copies to us for inclusion with the member's records - and they certainly made interesting reading. The annuities offered by the Pru differed according to choice - single life, index linked, spouses benefits, etc, but the index linked and spouses benefits were way, way different to the equivalent pension purchase offered by the LGPS. 2 to 3 x different.

Gin_and_Milk

Since I initially posted this thread, my circumstances have changed, mainly my mortgage (much better) and I have a new job, so I am earning around 6K more per annum.

Since I last posted, I feel I'm in a much better position to consider the AVC, but there's also a very good chance I'll be able to retire earlier too.

There used to be a forecast calculator on the Pru's website which gave you an idea of how much of a lump you might get, but I can't find it anywhere.

I realise retiring early will make a difference to my pension - especially if I go at 55, but since my pension contributions have increased by quite a bit, it might be a hit I can afford to take.

Does anyone know how I can find the forecast calculator? I'm starting to think it's disappeared!

Thanks

geoffers4

Gin_and_Milk wrote: »

There used to be a forecast calculator on the Pru's website which gave you an idea of how much of a lump you might get, but I can't find it anywhere. Does anyone know how I can find the forecast calculator? I'm starting to think it's disappeared!

I'm LGPS with a Pru AVC too...don't recall ever seeing a forecast calculator on the Pru website ,although I may have missed it?? You're not thinking of the lump-sump calculator on the LGPS site are you? (e.g. for my area - https://lancslive.yourpension.org.uk/)