LGPS benefits sanity check

bioboybill

I am in a similar position to you, except I have 10 years more service and I'm only a basic rate tax payer. The Prudential AVC was very attractive to me due to the opportunity to get 20% tax relief on contributions and the benefit of taking the whole AVC pot tax free so long as my TFLS from the pension and the AVC together are no more than 25% of the nominal pension total amount, which for me it will be. For you the tax relief will be even better, so would likely be a no-brainer. The only advantage a SIPP would have as far as I can see is the flexibility of the SIPP, whereas the AVC has to be taken at the time you take your main pension.

nash0819

Right, this should be amusing. I'm going to have a crack at understanding how the Annual Allowance works in respect to my Defined Benefit LGPS pension ("net pay" contribution method).

I get the basics:

• 40K allowance per annum (unless MPAA is in play)
• the increase in the value of my DB retirement benefits each year is used to calculate my AA consumption for that year (although not fully clear on the forumla, as below)
• carryover of unused allowance from previous three years allowed
• however, cannot exceed income in any one year
• no need to inform HMRC if using carryover but keep records in case they ask

I've (hopefully correctly) followed the rather generic calculation advice given in this link then made an assumption or two to come up with this pseudo-code:

Calculate opening value for start of tax year x
= Basket 1 API: 16*((12.85/80)*start of year x salary) [noting this is pre-2008 and I have 12.85 years of service there]
+ Basket 1 TFLS: 3*((12.85/80)*start of year x salary))
+ Basket 2 API: 16*((6/60)*start of year x salary) [2008-2014]
+ Basket 3 API: 16*(start of year x CARE balance) [post-2014 - particularly unsure about this and whether it needs multiplying by the CPI rate like the other elements?]
Then multiply the total by CPI in September of year x, e.g. multiply by 1.03 if 3% CPI.

Calculate closing value for end of tax year x
= Basket 1 API: 16*((12.85/80)*end of year x salary)
+ Basket 1 TFLS: 3*((12.85/80)*end of year x salary))
+ Basket 2 API: 16*((6/60)*end of year x salary)
+ Basket 3 API: 16*(end of year x CARE balance) I]unsure as above[/I
+ Any contributions to APCs, AVCs or SIPPs I]particularly unsure how to factor these in[/I
Then DO NOT multiply the total by CPI

Consumption of annual allowance = Closing value minus opening value

AlanP_2

There are online calculators that make it a bit easier - https://www.pruadviser.co.uk/xpf_calculators/defined-benefit-pension-input-tool/

Opening values shouldn't need to be calculated as they will be on your Annual LGPS statement, and, unless you have a significant pay rise/promotion(*) in-year then last year's Pension Input Amount (to give it the full title) will be much the same as last years.

(*) Assuming CPI rates applied are broadly the same

nash0819

Thanks AlanP. I had seen that Pruadviser calculator but I don't think I can quite bend it to my needs, becuase of my three different pension income baskets.

A friend nudged me towards this LGPS calculator. Looks like what I need. It matches within 1% my own calculator; I'll see if I can find the error in my formula. Oh and thanks for pointing out that the opening value should be on my annual statement; useful cross-check.

This tax year, I think I'd need to be nudging £23K in AVC contributions to broach the £40K AA. I doubt I will go that large and I have the carryovers from previous years anyway. Like you say, I only have to worry about a significant (and unlikely!) pay rise.