LGPS help !!!!

earlybirdsunshine

Hi. I am 50 years old in May with a LGPS pension since the mid 1990's. My partner and I plan to retire as close to 55 as possible so we are trying to get our finances in order but I am confused !
I have requested a statement assuming a retirement date of Oct 2026 (so aged 57 not 55), I cannot (apparently ask for lots of various follow up statements/items/questions) as I not 55 or over, and I assume they would be swamped if they did !
Anyhow the statement quotes the following ...
Annual pension of £15574
Tax free lump sum £16055
Spouses pension £8160
So I have lots of questions flow from this.


1. Can somebody let me know if the annual pension payment is index linked in anyway ?

2. It include reductions that take the pension down from £22009 - is there anyway to negate these reductions ? I believe I can ask for the Rule of 85 to be applied but not until I am 60 - is that correct ?
3. I am not interested in a tax free lump sum, the pension is worth far more to me over my retirement so how do I work out how much extra annual pension not taking the £16K lump sum would be ?
4. I can see I have options for accuring extra APC and AVC - I understand that both have tax benefit as they are deduceted pre-taxation calculation.
With APC's I would accure extra LGPS pension benefit but I think there is a cap on this - can anyone provide further detail ? Also would APC value be subject to the same early retirement reductions quoted in my statement ?
AVC's - are truly like a SIPP from what I can make out - is that a fair comparison.
I guess my fundamental query about APC vs AVC is which is better if you are retiring early ? And are there any ready reckoners to help me balance the decison ?
THANKS !!!!

xylophone

https://www.lgpsmember.org/tol/thinking-leaving-when.php

https://www.lgpsmember.org/tol/thinking-leaving-conv.php

may help.

earlybirdsunshine

Hi - yes I have read them and they are useful as thats were a lot of my assumptions have come from. I guess I am looking for folks to sense check my assumptions and help me with the finer detail - if anyone can fathom their way through the LGPS !!! I find it incredibly complex !!!

Silvertabby

1. Can somebody let me know if the annual pension payment is index linked in anyway ?
Yes, uncapped CPI.


2. It include reductions that take the pension down from £22009 - is there anyway to negate these reductions ?

No ( unless you can sweet talk your employer into paying a lump sum of mega Ks into the pension fund to offset the reduction - unicorns and hens teeth spring to mind).


I believe I can ask for the Rule of 85 to be applied but not until I am 60 - is that correct ?
Yes, but even then (in view of your age) it will only apply to benefits accrued pre 2008. Taking your benefits at 55 really means that you will be throwing away your R85 protections.

3. I am not interested in a tax free lump sum, the pension is worth far more to me over my retirement so how do I work out how much extra annual pension not taking the £16K lump sum would be ?
Not an option, I'm afraid. This £16K is your automatic lump sum from your pre 2008 benefits and can't be inverse commuted.

4. I can see I have options for accuring extra APC and AVC - I understand that both have tax benefit as they are deduceted pre-taxation calculation.
With APC's I would accure extra LGPS pension benefit but I think there is a cap on this - can anyone provide further detail ? Also would APC value be subject to the same early retirement reductions quoted in my statement ?
APC's seem expensive as you will have to pay your employer's contributions as well as your own. They're not a bad deal for those who intend to stick it out until State pension age, but taking them at 55 will indeed incur a hefty early payment reductions.

AVC's - are truly like a SIPP from what I can make out - is that a fair comparison.
More like a DC pension scheme.
I guess my fundamental query about APC vs AVC is which is better if you are retiring early ? And are there any ready reckoners to help me balance the decison ?

THANKS !!!!

As you seem to be wanting pension over tax free lump sum, are you aware of the options open to you should you go down the AVC route? Admittedly, most people take AVCs with the intention of maximising their tax free cash - but you could opt to use them to buy additional LGPS pension. Unless the terminology has changed in the last couple of years, this would be called 'buying an annuity' - but don't compare this with normal annuities as the rates offered by the LGPs are far better. Note this is only an option for those who retire and take their benefits straight away - those who leave, defer their benefits and take them later can't do this.

earlybirdsunshine

Thanks Silvertabby. A couple of follow on questions if I may ?


WRT pre2008 benefits and R85. So R85 does not apply post 2008 ? Is there any protection ? Was my assumption correct about the age 60 for R85 kicking in ? Also I had read (somewhere !) that R85 applies up to 2014 - is this incorrect ?


Now only AVCs/APCs. Thanks, I had thought exposing APCs to potential early retirement reductions without the R85 cover would be costly and the AVC route might be better. But I did not understand that a LGPS annuity was an option - I have read information from the AVC providers that the LGPS have relationships with and it sounds much more like a SIPP/DC scheme - can you provide any greater detail ?


Thank you !

Happier_Me

Hi

I'm younger than you and I'm planning on retiring at 55. My plan is to leave my LGPS untouched until I'm 60 to minimise the actuarial reduction on my pension via the 85 rule. I think you need to consider this as an option. I'm looking to pay into AVC's over a personal pension of some sort for two reasons: flexibility - if I can afford it I will leave the pot untouched and take as a tax free lump sum otherwise I will use this to fund the 57-60 period, and: value of money - AVC's are planned to become a salary sacrifice scheme soon and this will save NI as well as tax.

You must be a reasonably decent earner to have accrued the pension you have in the time you've been in the scheme - not trying to pry, but it's worth checking your figures to make sure they are sound.

Silvertabby

earlybirdsunshine wrote: »

Thanks Silvertabby. A couple of follow on questions if I may ?


WRT pre2008 benefits and R85. So R85 does not apply post 2008 ? Is there any protection ? Was my assumption correct about the age 60 for R85 kicking in ? Also I had read (somewhere !) that R85 applies up to 2014 - is this incorrect ?


It depends on your age. R85 was stopped for new members from 2006, and a sliding scale of protections set up for those already in the scheme. ie, those under 60 on 31 March 2016 only have protections in respect of pre 2008 service. When the LGPS rules changed (in 2014) allowing access to benefits from age 55, the R85 regs retained the link to an earliest retirement date of 60.

Who is protected and how much? The various levels of protections depend on a member’s date of birth as follows: A member born on or before 31 March 1956 will have all benefits built up to 31 March 2016 protected. A member born between 1 April 1956 and 31 March 1960 will have all benefits built up to 31 March 2008 protected with benefits accruing between 1 April 2008 and 31 March 2020 being protected on a sliding scale of reductions. A member born after 31 March 1960 will only have benefits built up to 31 March 2008 protected with service from 1 April 2008 being liable to full reductions.

Now only AVCs/APCs. Thanks, I had thought exposing APCs to potential early retirement reductions without the R85 cover would be costly and the AVC route might be better. But I did not understand that a LGPS annuity was an option - I have read information from the AVC providers that the LGPS have relationships with and it sounds much more like a SIPP/DC scheme - can you provide any greater detail ?


Thank you !

LGPS annuities from AVC funds are done in a similar way to a transfer in - ie, if you go for this option then your AVC provider pays over your fund value to the LGPS. I think you may have read the AVC provider's literature detailing what they would do if you left the money with them? Once you are within 12 months of your intended retirement date, you should be able to ask for a full retirement quote including AVC options (although some LGPS providers may not be as ameniable as we were!)

ADD: Now called a top-up LGPS pension rather than an annuity.

Buy a top-up LGPS pension If you were an active member of the scheme on or after 1 April 2014, you can buy a top-up pension LGPS pension with your AVC plan. Dependents' benefits will be automatically provided in the event of your death. The top-up pension you buy will increase in line with inflation.

Hope this helps

earlybirdsunshine

Thanks for your responses. I am on a reasonable salary and the figures come from the local LGPS administrators so I hope the numbers are accurate !



Great news to hear that I could opt to buy a top-up LGPS and I like the idea of letting the pension ride until I am 60 to avoid early retirement deductions - I hadn't considered that.


I assume I could pile extra cash into an AVC pot. Take some as a lump sum to help support over the 55-60 year period and convert the rest into a top-up LGPS pension. Sound sensible ?

earlybirdsunshine

Silvertabby I am just looking into "top-up LGPS" and this comes out as APC's - is this what you are referring to ? With a total value of £7026 per annum of pension ?

hyubh

earlybirdsunshine wrote: »

Silvertabby I am just looking into "top-up LGPS" and this comes out as APC's - is this what you are referring to ? With a total value of £7026 per annum of pension ?

The scheme regulations themselves use the (generic) term 'additional pension'. The main difference with a normal APC is that the benefits bought are joint- not single-life, i.e. additional spouse's pension is involved.

Teaandscones

Have you thought of retiring at say age 57 but leaving your LGPS pension untouched until your 60th birthday to get your rule of 85 protections.

To bridge the gap, you could save in a separate pension (HL SIPP for example) and pick very conservative investments. You would then be getting the benefit of tax relief and can then (using 25% tax free lump sum plus personal allowance) get £16,666 p.a. tax free from age 57 until age 60. You would then be deliberately running down the SIPP to preserve the LGPS pension.

That option may be better to get extra pension because the APC's would be subject to significant actuarial reductions.