LGPS AVC - 25% lumps and AVC performance over time

alastairb25

Hi All,

I am seeking some professional advice on this, I am just after some real world advice too as it never hurts to have more knowledge

Does anyone pay lots into an LGPS AVC, and has it been worth it ?

I realise its a bit of a strange question and everyone's mileage may vary, especially given current circumstances.

For reference

I am 43

State Pension check puts me at £7,928.96 pa payable at 68

Deferred LGPS Pension £2,488.78 pa and lump sum of £7,346.32 payable at 60 (thats what it says dosen't seem right but it was before 2014 so Final salary 2005)

LGPS CARE Pension value of £4,960.74 pa payable at 65

I setup an AVC via LGPS through the Prudential split between Prudential Discretionary and Positive Impact funds. I pay in £800 per month to this, although the cost to me is £640 due to tax relief. As it stands, I have paid £4,000 into my AVC.

The calculator shows an Annual Pension in today's money of £4,750 pa based on what I have paid in retiring at 65. I am not entirely sure that seems right as it seems a high figure given how little I have paid in or if it just reflects the value of money becoming less over time.

LGPS is linked and so does go up where as the AVC portion is not. Within LGPS there is an option to 

"If you take your AVC at the same time you take your main scheme benefits you can take up to 100% of your AVC plan as tax free cash (as long as your total lump sums from the LGPS do not exceed 25% of the combined value of your benefits including your AVC plan, or 25% of the lifetime allowance (£268,275 for the year 2020/21), or 25% of your remaining lifetime allowance if you have previously taken payment of any pension benefits)."

The theory behind my AVC payment is good (its just a theory though!) in so much as I pay in Tax free for a fairly long period of say 20 years, I do not expect to pay in like this for long but I figure taking the chance to while I can afford it will be beneficial later.

Questions

I am struggling to understand what the LGPS quote above means in terms of taking a tax free lump ? versus me skewing this by paying in AVC's

If I happen to screw it up and end up with too much can I just "retire" early to sort a tax situation out and get my max tax free lump?

Thanks in advance

Al

Silvertabby

The AVC calculator first... this is probably saying that you could expect a pension of £4,750 in today's money if you continue to pay £800 a month until 65.

AVCs are popular in the LGPS because they are usually tax free in, tax free out, and are a better way of accruing a lump sum than the alternative of commuting part of your LGPS benefits.
HMRC limits tax free cash to 25% of your total AVC fund and the notional value of your LGPS benefits.  In its simplest form, the calculation is 20 x LGPS annual pension plus 1 x any LGPS automatic lump sum plus 1 x AVC fund x 25%. However, your case is complicated by having seperate deferred and current records.  If these are both with the same LGPS then they may - or they may not - combine the values when they carry out the AVC calculation.  

If you 'screw it up' and your AVC fund ends up higher than your tax free limit - then you can just take the maximum cash and use the residual amount to buy extra LGPS pension.

saucer

Silvertabby, Is there a way of getting a current value for a Pru AVC out of them?  My other half has one that she is paying in 380 gross a month and, although she had an annual statement about her other LGPS AVC, nothing regarding this one.
Thank you 

Silvertabby

saucer said:

Silvertabby, Is there a way of getting a current value for a Pru AVC out of them?  My other half has one that she is paying in 380 gross a month and, although she had an annual statement about her other LGPS AVC, nothing regarding this one.
Thank you 

Will have to ask the Pru for that.  The only information the LGPS has routine access to is the monthly payment amount.  
When the LGPS administrator needs to carry out an AVC calculation he/she obtains a current fund value from the Pru.  

saucer

Thanks Silvertabby, that is what i anticipated but good to have confirmed!

Durban

Are you certain that the CARE part of your pension is due at 65?
I thought that it should be your Normal Retirement date which is 68.
You can get a current valuation from the Pru by signing up and seeing your account online.
There you will see the current valuation as well as your payments in.

Silvertabby

Yes, CARE benefits in this case are only payable in full from NRA /SPA