LGPS AVC & Pension Dilemas

ashpan

I am able to take £22,000 tax free from my private pension and i am considering using it to buy extra pension from my LGPS which im due to receive in 6 years. I have worked part time for the past 20 years so my income from the LGPS will only be around £7k pa on retirement, the total transfer value is currently £47k

Firstly I am not sure whether to get AVC's or APC or avoid this altogether

Secondly im not sure whether to leave the LGPS in situ after age 66 (in 6 years time) and let it increase as i will have other forms of income and not reliant on this

Thirdly i get £2,800 pa as a pension contribution from a family member which i think increases to £3,600 with tax benefits, should i put this into my LPGS as well or continue with private pension?

I am not married so i understand that when i die my pension dies with me-id rather this did not happen as i have children who i would like to benefit rather than no-one at all!

At age 66 years i will be getting £186 pw State Pension plus around £550 after tax NHS pension

Ive had some really great advice on this forum before so hoping people dont mind me asking for more, i need this explaining in pretty basic terms as im easily confused with numbers etc-my strengths lie elsewhere!!

Durban

I would be inclined to go for the AVC's.

You would be able to take the whole amount out tax free as long as your total AVC pot did not exceed 25% of the total of your LGPS main pension plus your AVC pot ( The formula used to find out the total of your LGPS pot is 20 x annual LGPS pension plus any LGPS lump sum ).


So if your LGPS pension is around £7000, you would be able to take out a pot of around £45,000 tax free.
Being able to take out the whole AVC pot tax free is excellent.

Your APC's would die with you, so you wouldn't be able to leave your children anything which you mentioned, whereas with the AVC pot , you would be able to.

I would put as much as I possibly could into the AVC's , over the next 6 years, making sure that you don't exceed 25% of the total. It is tax free on the way in and tax free on the way out.

ashpan

thank you, i think im moving forward with this but i need to go even more basic im afraid, do you see my problem?!

so i have some questions to clarify.........

when you say 25% of the total do you mean each year, so if i put £6k in to AVCs each year with a total of 36k over 6 years plus the existing transfer value of £47k- would this be ok?

the transfer value of my LGPS will surely change over the years so how do i know if im exceeding the 25%?

when would i be able to take the 25% out, do i have to wait for a while after i start the AVC's?

do AVCs have to all be paid in at once or can i do a couple of lump sums over each year?

AlanP_2

A few points come to mind:

1) you are capped at annual relevant earnings or £40k a year pension contributions. If you are working part time I guess your salary will be the limit. This may mean you can't pay in as much as you hope. You need to take off what you are contributing to LGPS and the £3600 going in to the other pension. So what does that leave?

2) AVC contributions are taken out before income tax is calculated each month. If taxable salary is below tax allowance you don't get the tax relief benefit so no gain from being able to take it tax free.

3) why take a tax free lump sum and pay it into LGPS AVC so you can take it out tax free again?

What are you trying to achieve - more guaranteed income in retirement or more cash that could be inherited?

If we know where you want to get to some suggestions could be made.

kidmugsy

AlanP wrote: »

why take a tax free lump sum and pay it into LGPS AVC so you can take it out tax free again?

Because it would be profitable, I'd imagine. It certainly has been when we've done it.


OP, you intend to recycle some tax-free lump sum into new pension payments. There are rules that restrict that. You should google for the "pension recycling rules" and then ensure you don't break them. That will probably be straightforward in your case.

ashpan

id like to achieve more guaranteed income in retirement

kidmugsy

ashpan wrote: »

when you say 25% of the total do you mean each year, so if i put £6k in to AVCs each year with a total of 36k over 6 years plus the existing transfer value of £47k- would this be ok?

the transfer value of my LGPS will surely change over the years so how do i know if im exceeding the 25%?

"The 25%" is a notional amount because a Defined Benefit pension such as LGPS doesn't contain a pot of money. The transfer value plays no part in the calculations - you can just put that out of your mind.

The way they do it (I think) is that they calculate a notional pot by multiplying your standard annual pension by 20 and then adding on your standard lump sum and the money in your AVCs. Your maximum permitted tax-free lump sum is 25% of that total.

Our great expert here on LGPS pensions is "silvertabby". Perhaps you could message her and invite her to comment on the thread. Or edit the title of the thread so that "LGPS" appears in it.

AlanP_2

kidmugsy wrote: »

Because it would be profitable, I'd imagine. It certainly has been when we've done it.

Only if you get tax relief added as per my 2nd point, I should have been clearer there that point 3 followed on from point 2.

Durban

You have to take the AVC pot at the same time as your LGPS pension.

If it is guaranteed pension income that you want , then APC's rather than AVC's would be better. But then you said that you didn't like the idea of your pension dying with you and unable to leave some to your children. Unfortunately , APC's would die with you. There would be no pot with APC's but guaranteed , index linked income for life.


There is a second thought. You could put as much as you're allowed to into AVC's , and , when you come to retire , you could buy APC's with your AVC pot, or , you could do a mixture of both , take part lump sum and buy APC's with the balance.


As Kidsmugsy said , edit your title to include LGPS , so that the LGPS experts will read.

ashpan

Ive also seen some LGPS threads talking about flexible retirement, what is this?

Moby

ashpan wrote: »

I am able to take £22,000 tax free from my private pension and i am considering using it to buy extra pension from my LGPS which im due to receive in 6 years. I have worked part time for the past 20 years so my income from the LGPS will only be around £7k pa on retirement, the total transfer value is currently £47k

Firstly I am not sure whether to get AVC's or APC or avoid this altogether

Secondly im not sure whether to leave the LGPS in situ after age 66 (in 6 years time) and let it increase as i will have other forms of income and not reliant on this

Thirdly i get £2,800 pa as a pension contribution from a family member which i think increases to £3,600 with tax benefits, should i put this into my LPGS as well or continue with private pension?

I am not married so i understand that when i die my pension dies with me-id rather this did not happen as i have children who i would like to benefit rather than no-one at all!

At age 66 years i will be getting £186 pw State Pension plus around £550 after tax NHS pension

Ive had some really great advice on this forum before so hoping people dont mind me asking for more, i need this explaining in pretty basic terms as im easily confused with numbers etc-my strengths lie elsewhere!!

I don't think you can fund AVC fund purchases by lump sums. Your AVC can only be funded by your pre-tax salary.