LGPS +£150,000 AVC. Annuity or Drawdown?

qwertyuiop99

My head is spinning!
I'm hoping to take my LGPS pension at 57 whilst i'm still physically able to do the things i want to do.
This will mean taking a big reduction but i should still be able to take £14,000 p.a.
I also have an £150,000 AVC.
The LGPS calculation looks at both the LGP and the AVC so allows me to take £100,000 tax free from the AVC assuming the £50,000 balance is used to purchase an annuity taking me to about £16,000 p.a. plus the lump sum.
I'm also fortunate to have another £200,000 invested in ISAs and shares. No mortgage and a life expectancy of 85 with a 1in4 chance of reaching 93. So we could say 30 years left!

I'm tempted to just use the whole £150,000 to buy an annuity as this will leave me £20,000 p.a. which is comfortable with the added benefit of a predictable income and security. (SP to follow at 67)

Or should I take the whole £150,000 (taking the tax hit) and draw down an income to suppliment the £14000 p.a.?

SonOf

I'm tempted to just use the whole £150,000 to buy an annuity

That would likely be a missale if you were doing it under advice (and its not because of safeguarded benefits). So, why do you think it is a good idea?

Or should I take the whole £150,000 (taking the tax hit) and draw down an income to suppliment the £14000 p.a.?

This is jumping to the opposite extreme.

Why have you not considered the more sensible options in between?

AlanP_2

I think you can use any AVC excess to purchase additional main LGPS benefits which may pay a better rate than an annuity, have you asked about that?

Why would you want to take the £150k out of the LGPS scheme and expose it to a tax rake off?

Taking the ~£100k tax free, which you can then invest, and using the balance in the most optimal way seems like the best way forward to my mind.

Silvertabby

OP may not mean that he/she is considering transferring their AVC benefits elsewhere. One of the options of using AVCs is the purchase of a LGPS annuity, which will almost certainly be at a much better rate than an open market annuity.

To be fair, it tends to be LGPS administrators who use the term 'annuity' (called 'pension top-up' in the information leaflet) - perhaps OP has already discussed this with an administrator?

AlanP_2

Silvertabby wrote: »

OP may not mean that he/she is considering transferring their AVC benefits elsewhere. One of the options of using AVCs is the purchase of a LGPS annuity, which will almost certainly be at a much better rate than an open market annuity.

To be fair, it tends to be LGPS administrators who use the term 'annuity' (called 'pension top-up' in the information leaflet) - perhaps OP has already discussed this with an administrator?

Ahh, that makes more sense - Thanks.

qwertyuiop99

Thanks for your thoughts.
The £150,000 is not part of my LGPS pension. Its an separate AVC administered by them.
The tax free lump sum is calculated using a an algorithm which added the total value together and generates 25%. however i think i may be under a misconception regarding what options i have with within the scheme.

qwertyuiop99

Thanks again to everyone for your comments.

To AlanP and Silvertabby.
Well this is interesting.
Yes I am/was under the impression that i have to take the AVC and buy an Annuity outside to the local scheme.
The literature which we get every year talks about "using your AVC to purchase extra benefits"
When i have asked to use it to buy extra years I'm told i cant because I opened my AVC too late to qualify.
Are you suggesting that the LGPS offer an option to buy an alternative product?
I find it very difficult to pin them down to precise answers answer and they can take months to reply to my email.

qwertyuiop99

Just found this on the web site

"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."

So why are they telling me i cant buy additional years.
This must be an Annuity by another name although it does sound like it might be a better prospect then an independent provider.

AlanP_2

This is the best site as it is the "national" true picture, in my experience local sites can lag a bit in terms of being updated with latest rules, and I have had a situation where the local administrators knowledge has lagged behind as well resulting in incorrect information being given me (since corrected once I pointed them at the latest rule book).

https://www.lgpsmember.org/index.php

This link explains what you can do with your AVC:

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


Essentially take as the 25% tax free lump sum within HMRC limits.

Buy additional annual pension.

Transfer it out and and your own thing.


I will fall well within the HMRC rules and will take mine as TFLS. My wife has two, separated, LGPS entitlements.

The AVC associated with the deferred one will be well within HMRC rules so again TFLS option.

The second, active one, may result in a surplus over and above the 25%, if it does we will put it towards additional annual pension.

OldBeanz

qwertyuiop99 wrote: »

J...

So why are they telling me i cant buy additional years.
This must be an Annuity by another name although it does sound like it might be a better prospect then an independent provider.

Terminology again I would think. There was a time when you could buy "extra years" - now you buy "extra pension".

Durban

qwertyuiop99 wrote: »

Just found this on the web site

"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."

So why are they telling me i cant buy additional years.
This must be an Annuity by another name although it does sound like it might be a better prospect then an independent provider.

Before 2014 you could buy extra years, as the scheme was a final salary one. You cannot do that now as it is a CARE scheme but you can buy extra pension.