LGPS AVC & Pension Dilemas

bonnyrigger

I'm fairly new into LGPS (2.5 years) and therefore only in the newest bit of the scheme. I'm punting money into the AVC to take it all as the 25% LS (20 x your pension/ divided by 4 to be accurate) by the time I activate the LGPS pension at age 67. Most people in my age group (mid-fifties) at work are doing the same thing as it makes much more sense than converting any of the actual pension to LS at the chronic rate of 12 for 1 they offer.
I have a spreadsheet which tells me how much I need to save based on increasing the payment annually and allowing me to muck about with retirement, activation dates and investment returns, I would recommend this to anyone looking at their LGPS options.
One thing I'm not sure about yet is if you have more AVC than the 25% of pension what's the best thing to do with it - it might be only a small amount but of course would be taxable.

Silvertabby

First of all, the intention to pay a £22K pension tax free lump sum into another pension agreement may breach pension recycling rules. These rules are extremely complex, but this question should be addressed before OP goes any further as the transfer in - in the form of APCs or AVCs may be a non starter.

Also note AlanP's comments (post no 4) re contributions cap. This is something you will need to discuss with your LGPS (preferably a senior advisor who is also up to date on recycling regs).

That aside, OP needs to decide his/her priorities - extra income in retirement, or extra tax free cash to leave to his/her children. If it's the latter, then this £22K may make a better return in, say, a SIPP rather then an in-house AVC fund? (One for the investment gurus on these boards). If it's the former, then either would work - as long as OP's employer/LGPS advisor allows lump sum payments into AVC accounts (some don't on account of the LGPS purchase option). Rather than go into all the ins and outs, perhaps OP should check the re-cycling question and AVC lump sum payment in question before we go into more detail?

As for OP's other questions, do not leave the LGPS deferred after 66. The deferral increase is minimal (nowhere near the 5% offered by the State pension) and you won't live long enough to break even.

Deferring benefits with an in-house AVC fund also limits your options when the time comes to take your benefits. Only those who retire from 'live' service can use the option of using the AVC fund to buy extra LGPS benefits. Those who retire from deferred are limited to the tax free cash/pension income from AVC provider or open market only.

Flexible retirement (a la LGPS) means substantially reducing your hours/grades and carrying on working whilst drawing your (reduced for early payment) pension accrued to the date of the FR.

Typical flexi retirement is staying in your same job, but on reduced hours. I see that you are already part time, so a further reduction in hours may not be practical - for you or your employer. Note that once flexible retirement has been approved, and hours reduced, you can't increase your hours back to - or higher - than your original level !

Hope this helps.

Silvertabby

bonnyrigger wrote: »

I'm fairly new into LGPS (2.5 years) and therefore only in the newest bit of the scheme. I'm punting money into the AVC to take it all as the 25% LS (20 x your pension/ divided by 4 to be accurate) by the time I activate the LGPS pension at age 67. Most people in my age group (mid-fifties) at work are doing the same thing as it makes much more sense than converting any of the actual pension to LS at the chronic rate of 12 for 1 they offer.
I have a spreadsheet which tells me how much I need to save based on increasing the payment annually and allowing me to muck about with retirement, activation dates and investment returns, I would recommend this to anyone looking at their LGPS options.
One thing I'm not sure about yet is if you have more AVC than the 25% of pension what's the best thing to do with it - it might be only a small amount but of course would be taxable.

Max tax free cash is 25% of the sum of 20 x annual pension, plus 1 x any automatic lump sum, plus 1 x AVC Fund. Only those LGPS members with pre 2008 service will have an automatic lump sum.

What to do with your surplus AVC fund depends on your status at retirement. If you retire from 'live' service then you will have the option of using all or some of your AVC funds to purchase extra LGPS benefits. This is what most people do with their 'residual' AVCs, if that helps.

If you take your pension from deferred status, however, then your 'residual' options are limited to taking pension benefits of whatever description from the AVC provider or on the open market.

woolly_wombat

The rules on recycling have been tightened up to prevent abuse.

The following is an extract from the form I had to sign when applying to take tax-free cash from a pension in 2018:

Once you have ticked a box, there is no need to go any further , as recycling will not apply.

• The total of all the lump sums I will have received in the last 12 months up to and including [DD MM YYYY] from all my pension arrangements (including the tax free lump sum from this Plan) is less than £7,500. [ ]

• I confirm that I am not intending to pay (or have paid on my behalf) additional contributions (above my usual amount) of more than 30% of the tax free lump sum I will receive from this Plan. This takes into account any additional contributions paid in the current year, the previous two tax years and those I intend to pay in the next two tax years. [ ]

• I confirm that over the same five year period, as a result of being able to receive the tax free lump sum from this Plan, I am not intending to pay (or have paid on my behalf) cumulative additional contributions exceeding 30% of my usual amount of contributions. [ ]
  

If none of the statements above apply to you, you should contact a registered financial adviser for help and then write and let us know what you intend to do.

The Royal London website has some good guides with links:
https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/
Extract:

What are the consequences of recycling?

If a member is caught by the recycling rules, the amount of the tax-free lump sum is regarded as an unauthorised payment and any of the following charges may be applied:

• An unauthorised member payment charge of 40% of the tax-free lump sum paid

• An unauthorised payments surcharge of 15% of the tax-free lump sum paid

• A scheme sanction charge of 40% of the tax-free lump sum

• A de-registration charge of 40% of the scheme's assets.

However not all of the charges are automatic.

Take care:eek:

kidmugsy

woolly_wombat wrote: »

The following is an extract from the form I had to sign when applying to take tax-free cash from a pension in 2018:

.....The total of all the lump sums I will have received in the last 12 months up to and including [DD MM YYYY] from all my pension arrangements (including the tax free lump sum from this Plan) is less than £7,500.

When I checked the rules my immediate reaction was that the OP could take a TFLS of £7,400 in November 2018, another in January 2020, and his third in March 2021.

OldBeanz

I doubt very much whether you would fall foul of any pension re-cycling traps over the timeframe you are looking at. The re-cycling provisions were put in place to trap any large accumulators rather than standard rate tax payers.
Given that you want to leave in 6 years and want extra income rather than another lump sum I would be looking to the lower risk option of APC rather than AVC's.
Your decision; good luck

ashpan

would i not be able to take £7500 this (financial) year as a tax free lump sum before april 2019, and again in 2020 and 2021?