Lgps AVC's

Dunnsdale

My wife is aged 60 and in the lgps. Is it possible to buy an additional AVC and get higher rate tax relief on the contribution and take out the amount as a tax free lump sum on retirement?

AlanP_2

Yes.

AVC contributions will be taken monthly from salary before tax so no tax paid on them.

AVC pot can be taken as tax free lump sum (within limits) at the point main scheme benefits are taken.

pandora205

It's what I've been doing and increasing this annually as it's a good deal especially for higher rate tax payers. There is sometimes a minimum period for contributions through so worth reading the small print.

Dunnsdale

Thank you for the kind responses. Is it possible to pay in a lump sum too and what are the maximum limits? Also if you leave the scheme early does this effect your tax free lump sum?

pandora205

I was leaving this for someone more knowledgeable to answer but as no responses I'll have a go. Yes, you can pay lump sums into AVCs. I'm not sure about maximum annual amounts but there are limits to how much can be paid in regarding lifetime allowance for taking them tax free. There are calculators on some of the providers websites (Prudential) I think.

I don't know about leaving early though I do know the AVCs do need to be taken at the same time as LGPS pension to avoid paying tax.

The LGPS website it quite helpful about all this.

Dunnsdale

Thanks Pandora. The lifetime allowance is an issue given that she is already over the 90% mark and is hoping to retire at 62.

OldBeanz

Different authorities have slightly differing schemes but many are managed through the Prudential. So not knowing the authority you are referring to google 'Lgps prudentilal (local authority name)", you may we'll find your authority and the pertinent information online.
For my wife's authority:
There are no penalties in the length of time the investment has to be held.
Technically you can invest a lump sum but the Pru do not give you any tax relief it is done through PAYE (Net Pay not Tax relief at source). So to benefit from tax relief you have to pay tax. So if your wife pays £20 per month tax then paying in more than £100 (whether paying in a lump sum or monthly contributions) would not get her any tax benefits above th £20. I believe the terminology lump sum should actually be one-off payment and very liable to easily miss tax benefit if a large amount.
As for the optimum target amount the figure is worked out as follows. Use the LGPS calculator to predict the annual pension likely to be paid so for example £15k pa. then you multiply that amount by 20 which gives you £300k. Your maximum tax free amount in this example would be £100k giving you a total pot of £400k with 25% tax free. Remember to include any pre-2008 tax free lump sum in the £100k and you can buy extra pension if you go over £100k. If leaving early adjust the AVC pot target to reflect a lower target ( the AVC is not touched you just have a lower optimum amount).

Dunnsdale

Thanks Beanz. She currently has a very old avc(circa 10k) with Standard Life, from the time when West Sussex was responsible for the scheme. Capita then took over administration of the scheme, from this April it will be administered by Hampshire.

AlanP_2

Not sure you will be able to pay in a lump sum without going via payroll as Beanz outlined if that is what you meant.

If already at 90%+ of LTA and with 2 years to go you do need to be careful to work out the overall pot value including pre2008 lump sum and the old AVC pot.