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LGPS AVC's or APC's

7 replies 568 views
recruit18recruit18 Forumite
40 posts
My wife joined a LGPS Warwickshire CC scheme in 2013 and is paying 5.5%. We have some additional money to invest for the future including early retirement and I'm trying to work out if it would be a good use of money to pay additional amounts into her pension. At retirement I am likely to pay tax but my wife is likely to be well under the personal tax allowance.

Her pay is approx £8k and her age is 43. She appears to be in CARE main section not the 50/50 whatever that means? Is this some sort of defined benefit scheme? Can we buy additional years?? Or would we be investing an additional money in some sort of DC pot?

Can any experts please advise what options we have to invest more in this. Is it a good investment? Will we be able to access any additional contributions from age 55 (or 57 if the government increase the age). What is the situation if my wife passes away before or after she draws on the additional pension?

Thanks!

https://www.lgpsmember.org/arm/already-member-extra.php

This appears to say we can buy additional pension with a Lump sum payment. Can we claim any tax relief even know my wife doesn't currently pay tax?

Replies

  • Dazed_and_confusedDazed_and_confused Forumite
    6.5K posts
    Uniform Washer
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    If she had no other taxable income (or maybe just very small amounts of savings interest) then she cannot get any tax relief at all on a lump sum payment into that pension scheme.

    Likewise she isn't really getting any tax relief on her current 5.5% contribution. Yes it's reducing her taxable income but this isn't going to benefit her at all unless she has other taxable income of note.

    She can get tax relief by contributing to a personal or stakeholder pension or a SIPP (if she paid in say £2,000 it would get the 25% relief at source uplift so she'd have £2,500 in the pension fund).

    But she needs to weigh the pros and cons of each option. There may be significant value in the LGPS but there is no tax relief and it may not be very flexible when it comes to taking the pension income in due course.

    Whereas the personal pension does attract tax relief, is more flexible on when you can take the money but has no guaranteed income.
  • recruit18recruit18 Forumite
    40 posts
    Thanks...will look into SIPP style pension for her as well
  • recruit18recruit18 Forumite
    40 posts
    The AVP calculator seems to say a £75k lump sum would buy £7k annual pension from 67, but no idea what that would pay at 55? Also says in small print it doesn't pay out after death...hmmm.
  • edited 15 May 2019 at 11:39PM
    recruit18recruit18 Forumite
    40 posts
    edited 15 May 2019 at 11:39PM
    From MSE:

    "How much can be paid into a SIPP each year?

    While you can save as much as you like towards your retirement, there are limits to the amount you can save in a pension such as a SIPP and still get tax relief:

    Earners

    You can contribute 100% of your annual earnings before tax up to a limit of £40,000 for 2017/18. If you earn more than £150,000, the amount you can contribute is gradually reduced at a rate of £1 for every £2 earned over £150,000, until the tax-free limit hits £10,000.

    Non-earners

    You can contribute up to £3,600 per tax year and still get basic-rate tax relief. So, non-workers can pay in £2,880 per tax year, to which the taxman will add £720."


    So does this mean we can put in up to £8k (excluding the 5.5% she puts into her LGPS) per year?

    Also I see we can get tax relief for 3,600, but what about the other £4k?

    Can we backdate this for previous years?

    Many thanks
  • edited 16 May 2019 at 5:06PM
    SilvertabbySilvertabby Forumite
    5.5K posts
    1,000 Posts Third Anniversary Photogenic
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    edited 16 May 2019 at 5:06PM
    The APC is a relatively good scheme for tax payers who intend to work/not claim their LGPS benefits until State pension age. Not so much for someone like your wife, as she won't get tax relief on her contributions and the pension 'bought' would be subject to a hefty actuarial reduction if taken at 55. Also, APC benefits, unlike the LGPS main scheme, don't pay survivor's pension benefits.

    Have you looked at in-house AVCs? The 'pot' won't be reduced for early payment, and your wife would have the option of possibly taking all of it as tax free cash (subject to HMRC limits) or using it to buy additional LGPS benefits. Unlike APCs, your wife would have the option of buying additional pension with or without survivor's benefits (obviously, the pension offered with survivor's benefits would be lower than the pension without).


    Note: the formula and factors for working out how much pension AVCs would buy are very different from the APC scheme, so please don't put an assumed AVC pot value into the APC calculator.
  • LungboyLungboy Forumite
    1.9K posts
    Eighth Anniversary 1,000 Posts
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    recruit18 wrote: »
    So does this mean we can put in up to £8k (excluding the 5.5% she puts into her LGPS) per year?

    It's not that straightforward, the 5.5% she pays towards her pension isn't actually going into a pot as such, that's the fee for the pension company, in return for which she gets the DB amount each year. There is a way to calculate exactly how much a DB contribution is each year but i can't remember it, hopefully someone can post it for you. It's a tad complicated iirc.
  • girllikeme1girllikeme1 Forumite
    207 posts
    Have you looked at in-house AVCs? The 'pot' won't be reduced for early payment, and your wife would have the option of possibly taking all of it as tax free cash (subject to HMRC limits) or using it to buy additional LGPS benefits. Unlike APCs, your wife would have the option of buying additional pension with or without survivor's benefits (obviously, the pension offered with survivor's benefits would be lower than the pension without).

    I looked into this myself and opted for AVCs.
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