Stakeholder Penion or AVC Wise with LGPS

mrclean

I am 51 and have been a member of LGPS for 20 years. I also have been paying £50 pm into a stakeholder pension with Standard Life and the value of this is around £18k. My employer has recently being promoting AVCWise ("Shared Cost Additional Voluntary Contributions using salary sacrifice")

Am I a. better paying my £50 (and possibly more) into this scheme b. if yes should I consider transferring my stakeholder into this too?

thanks

AlanP_2

AVC aligned with Lgps scheme can be taken as a tax free lump sum but only at the same time as main scheme benefits.

So if you are not looking to retire early and live off personal pension before taking lgps pension then there will be a tax advantage to using AVC.

What is your plan?

xylophone

https://www.avcwise.co.uk/

The NI saving could well make it worthwhile.

mrclean

thanks. I am not sure when I will be retiring at the moment, I will probably look to go part time maybe in 5-10 years before retiring. I guess unless I pay significantly more into the stakeholder it wont allow me to retire early anyway.

OldBeanz

You cannot pay another pension into your LGPS AVC.
AVC money can be used to fund a lump sum while any money coming out of your SL pension will be taxable as income. The LGPS is almost unique in allowing AVCs to be used like this with "Govt" supported pensions. It is the cream on top of a gold pension Taxable income going in and coming out as cash, tax free. As already stated the AVC has to be taken at the same time as the main pension for this advantage. NI savings on top of this are excellent as well.
You could use your £18k to retire a year early. With a tax allowance of £12k you could retire a year early and drawing the £18k only in the tax year be only taxed on £1500 (£18k with 25% tax free = £13.5k taxable less £12k) so only £300 tax.
You need to decide which option better suits your needs and what your "number" is i.e. How much money you need each year to retire in the style you want. Great position to be in.
To work out the maximum lump sum you can take tax free you need to make the following calculation (Annual pension X 20 /3*4- lump sum ). So for example you are due a pension of £15k pa plus a lump sum of £5k for your early service then the most beneficial AVC pot would be £15k X 20 = £300k which would allow you to have a total pension of £400k benefitting from a 25% tax free lump sum. Your optimum AVC would therefore be £95k as you are already guaranteed £5k.