LGPS and AVC Early/Flexible Retirement Feedback Sought

Crabby

If the total of your AVC fund and standard lump sum (from any pre 2008 service) exceeds 25% of your total fund notional value, then you have a number of options. Assuming that the rules don't change before you retire, the most popular use of any AVC 'residual funds' is to used to buy extra pension in the LGPS (not to be confused with APCs - different factors). These rates were always more generous than any annuity offered by the AVC provider. Or transfer on the open market and draw down (but at least consider the amount of pension the LGPS would offer you before going down that route).

Mrs C's AVC is roughly equivalent to her lump sum, how much would this equate to of her pre 2008 pension?

Silvertabby

Crabby wrote: »

Mrs C's AVC is roughly equivalent to her lump sum, how much would this equate to of her pre 2008 pension?

The pension accrual rate pre 2008 was 1/80th, with an automatic lump sum of 3 x the annual pension. (Post 2008, the accrual rate increased to 1/60th and then 1/49th but with no automatic lump sum). If you have an estimate which gives the total pension plus the automatic lump sum, then:

20 x total annual pension plus

1 x automatic lump sum plus

1 x AVC fund

= £X x 25% = maximum tax free cash.

The automatic lump sum has to be taken/can't be reduced, so if the lump sum plus AVC is more than 25% then the excess will have to be taken as some form of pension. If it is less, then there will be the option to give up some of the annual pension (commute) in order to realise the maximum tax free cash allowed.

Crabby

Mrs C would like more pension, because the lump sum and AVC is less than 25%, the AVC can not be used to by more LGPS pension. It can be taken as tax free cash, or used to buy an Anuity, Is that correct?

Silvertabby

Crabby wrote: »

Mrs C would like more pension, because the lump sum and AVC is less than 25%, the AVC can not be used to by more LGPS pension. It can be taken as tax free cash, or used to buy an Anuity, Is that correct?

Mrs C should be able to use some or all of her AVC fund to buy added pension if she wishes - it's just that most people go for the maximum cash option with AVCs because of they are usually 'tax relief in/tax free out'.

The following LGPS extract should help.

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.
  
  If you left the LGPS before 1 April 2014, you can only buy a top-up pension with your AVC plan if you take immediate payment of your main scheme pension benefits when you leave the scheme and you take your AVC plan at the same time i.e. you are not allowed to buy a top-up pension with your AVC plan if you defer your main scheme pension benefits when you leave the LGPS and take them at a later date. You have the option to provide for dependents' benefits in the event of your death. The top-up pension you buy will increase in line with inflation.
• Buy extra membership in the LGPS You can buy extra membership in the LGPS but only if your election to pay AVCs was made before 13 November 2001. You should contact your pension fund if you think this applies to you.

However, if Mrs C left the LGPS (and deferred her benefits) before 1 April 2014, then her only extra pension option would be to buy an annuity from the AVC provider/on the open market or take some form of drawdown.