Pensions (LGPS) and LISA

girllikeme1

Hello. Hoping for some advice about pensions and best options for me.

I'm 38 and have some company pensions from working in the private sector. Since 2014 I have worked part time in the public sector and a member of LGPS, earning £22k per annum and paying in 6.5% of my salary.

I am wondering whether to salary sacrifice some more into either AVCs or APCs to get my tax and SLC contribution lower and put more into my pension.

I am currently paying £27 per month off of my student loan through my salary (about £2K outstanding).

I have opened a LISA but haven't contributed anything yet.

I am a homeowner with two young children.

snowqueen555

I recently joined the LGPS and considered AVC, but for now have decided against it for now. Each council uses a different provider, so it is worth looking into that and seeing how good the scheme is.

I am leaning towards a separate savings pot in a sipp or similar to tide me over from say, age 60 to 68, then claim the LGPS with the state pension.

You said you had a previous pension, I am thinking (90% likely) of transferring in my previous pension, have you looked into that?

OldBeanz

Obviously on here we do not provide pension advice and you have not said whether your aim is to retire early, pay off a mortgage or a bigger pension when you retire.
There are time constraints for moving pensions into most Government backed schemes which is usually 12 months.
LGPS AVCs are best taken with your pension as under the rules the money can be taken tax free. It is difficult to see how everyone in the LGPS who can afford to and is a tax payer, is not contributing taxed income for a tax free PCLS. So if your LGPS pension was going to be £15k pa your total pension pot would be considered to be worth 20 times this = £300k. This would allow you to have an AVC worth £100k giving you this tax free as 25% of the total £400k. Taxable income on the way in and tax free on the way out is the way to go as the Government has already added 25% to your savings. This is the cherry on top of a gold pension.
If you want to retire early you should be looking to see what your other pensions could provide to fill the gap.

saucer

Couldn’t agree more with OldBeanz.

My wife is in LGPS and we only realised quite recently the very generous rules surrounding the AVC. This is now part of our mortgage repayment plan! Many of these AVCs are provided through Prudential but the choice of how any contributions are invested will vary depending on which LGPS you are in. More details here https://www.pru.co.uk/rz/localgov/

As OldBeanz says contributions are grossed up (taken before income tax deducted) and when you come to retire will be tax free. It is a great perk. :j

girllikeme1

Thanks all. I didn't realise that it would be tax free on retirement.

I can't transfer in my pensions as I've been there a few years now.

Silvertabby

girllikeme1 wrote: »

Thanks all. I didn't realise that it would be tax free on retirement.

I can't transfer in my pensions as I've been there a few years now.

Tax free only up to HMRC limits.

ie, 20 x annual pension plus any automatic lump sum plus AVC fund x 25%. If the answer is more than your total AVC fund then no problem - but if it is less than your AVC fund then the difference (the 'residual') can only be taken as a taxable pension.

girllikeme1

Thanks for all the above information. I note that the benefits of AVCs (e.g. PCLS being tax free - up to a certain limit) are greater if I take my AVC with my LGPS.

My current 'normal retirement age' being 68, I hope to take some of my pension sooner. Of course, I may change my mind as I get closer to that age.

Even so, for now I do think that contributing an extra 10% into AVCs works for me, because I am only losing £100 per month of my net salary, whilst contributing a lot more than that into my pension.

This is because if I add to my pension through salary sacrifice, I avoid repaying student loan contributions (I would rather keep paying the 1.5% interest on the loan, and save the money elsewhere - either in my 3% account or into my LISA) and some of what would otherwise go to the tax man.

Does this make sense?

Kynthia

girllikeme1 wrote: »

Thanks for all the above information. I note that the benefits of AVCs (e.g. PCLS being tax free - up to a certain limit) are greater if I take my AVC with my LGPS.

My current 'normal retirement age' being 68, I hope to take some of my pension sooner. Of course, I may change my mind as I get closer to that age.

Even so, for now I do think that contributing an extra 10% into AVCs works for me, because I am only losing £100 per month of my net salary, whilst contributing a lot more than that into my pension.

This is because if I add to my pension through salary sacrifice, I avoid repaying student loan contributions (I would rather keep paying the 1.5% interest on the loan, and save the money elsewhere - either in my 3% account or into my LISA) and some of what would otherwise go to the tax man.

Does this make sense?

LGPS pension contributions are made from gross pay but aren't "salary sacrifice" as they are different things. I don't know if that would change things at all.

girllikeme1

Kynthia wrote: »

LGPS pension contributions are made from gross pay but aren't "salary sacrifice" as they are different things. I don't know if that would change things at all.

I don't understand the difference, but I suppose I will see on my payslips if the deductions are affected as I expect them to be.

AlanP_2

Salary Sacrifice means the NI is saved as well as the tax that would have been due.

Normal LGPS contributions won't be SS so NI paid on them. I have read on here of at least one LGPS area that allows AVC payments to be paid via SS but it is not very common I don't think.

Either way you won't pay tax due.

If not SS you will still pay Student Loan element as gross pay not affected.

OldBeanz

I believe that your salary comes down (not for pension purposes) so your Student Loan repayment will be reduced. Let us know, if you go ahead.
As stated further up, central Government Pensions don't (let's say tend not to as there may be one) allow you to save on NI but the LGPS can but varies from authority to authority whether they do.