LGPS- How is APCs different to using AVCs to buy top up pension from LGPS

Wellgood

I am investigating for my partner on how to increase pension contributions into the LGPS and as far as i can tell there is APCs or AVCs. One thing i am not clear on is the difference between 1. Buying APC and 2. Buying AVCs and then using them to buy a top up on their LGPS pension.Is there a difference between the two ? Is one better value then the other? As i understand it they both increase the amount of guaranteed inflation linked pension you get. Thanks for any thoughts on the matter.

From my reading so far it also appears not to be a great idea to take the LGPS early due to the reduction factors. Therefore I guess to retire earlier then 67/68 we would have to use SIPP / Isas to bridge the gap? Aim is to retire at 60.

Note: My partner who is 40 has undercontributed to pensions historically so we are trying to make up for this

Silvertabby

Based the scenario you suggest - in 40s, but intend to retire at 60 and leave LGPS pension deferred until until 67/68:

Any APCs purchased would be paid in full if left until 67/68 (if taken earlier, would be reduced for early payment in the same way as the standard LGPS pension).

AVCs, however, can only be used to purchase LGPS benefits when retiring from 'live' status. Only options from deferred status, which seems to be your plan, would be the maximum tax free cash option or pension benefits from the AVC provider or on the open market.

Wellgood

Thanks Silvertabby. Got it. As it is highly likely my partner will want to retire before 67\68 it follows that they will be deferred status. So we just need to decide on APC vs AVC.

ATM we are thinking AVCs as can get the whole AVC pot tax free as long as to comes to under 25% of the whole "pot" and it can be passed down to children .

Will probably have to use Sipp / ISA to fund from retirement until get LGPS pension

hyubh

Wellgood wrote: »

As it is highly likely my partner will want to retire before 67\68 it follows that they will be deferred status.

No, that is incorrect. It's whether your partner draws his/her LGPS pension immediately on stopping being an active contributor that counts, not whether it is drawn prior to the scheme's normal pension age.

So we just need to decide on APC vs AVC.

By the by, buying additional scheme pension with the proceeds of an AVC = buying an APC. However, whereas an ordinary APC doesn't have survivor benefits, an APC bought directly from an AVC does.

Caveat - if your partner goes for an APC directly, then the terms are basically fixed. If the terms of new APCs get worse in the future, you can be reasonably confident there won't be any retrospective diminishing of existing contracts. In contrast, aside from investment risk with an AVC (flip side of the investment opportunity of course), there is also the risk that in 20 or so years time either buying a scheme annuity from an AVC isn't possible, or is but only on much worser terms than now. That said, if the idea of wanting additional scheme pension isn't overriding, then this is naturally less of a concern.

dunstonh

I am investigating for my partner on how to increase pension contributions into the LGPS and as far as i can tell there is APCs or AVCs.

And stakeholder pensions, personal pensions, SIPPs and S&S ISAs to give you the full range of options.

Wellgood

So ignoring the fact that the rules may change in the future ( which is impossible to predict) it seems to me that the AVC option gives more flexibility as we have the option of taking all as cash tax free as long as is less than 25% of the total "pot" or to buy top up to the LGPS pension which is essentially what the APC would do (you could even argue it is better as you could get survivor benefits). Thanks to all of you for your inputs. Lots to think about

Silvertabby

Wellgood wrote: »

So ignoring the fact that the rules may change in the future ( which is impossible to predict) it seems to me that the AVC option gives more flexibility as we have the option of taking all as cash tax free as long as is less than 25% of the total "pot" or to buy top up to the LGPS pension which is essentially what the APC would do (you could even argue it is better as you could get survivor benefits). Thanks to all of you for your inputs. Lots to think about

Yes, as long as you remember that using the AVC fund to purchase extra LGPS benefits is only possible if your partner takes his LGPS pension when he retires (at 60?) and doesn't defer payment until no reduction is applicable/SPA.


ADD 27 September 2019. Rules have since changed and it is now possible - subject to date of starting AVC contract - to buy additional LGPS benefits from deferred status.