Pay extra into LGPS or private pension - advice please

Tortoiseshell20

Calling pension experts - can you help me with this query.
I have recently joined the LGPS (a year more vesting period to go), and also have a very small private pension from previous employment and self employment. If I stay in my current job, the LGPS is obviously great, but only pays out fully at state retirement age. The private pension is predicted to pay less than 100pcm in retirement, but I can access it from 55.
If I have any extra money e.g £100pcm, which of the two am I better putting money into? Or should it go into an ISA or off the mortgage?
I am early 40s and have no debt, apart from mortgage.

JoeCrystal

Have you considered a transfer in your private pension scheme into LGPS? The transfer in quotes is rather generous for the members. Nothing is stopping you from buying extra pension with LGPS as well.
Also bear in mind that the age that you can access the pension schemes can change for the worse. The UK Treasury said a few years ago that they would like to link the age to 10 years before the SPA although not yet legislated. So it might as well be 58 by the time you get there.

Tortoiseshell20

Thanks - unfortunately my council is one of the few that don't seem to accept a transfer of my private pension into the LGPS!

ZeroSum

The lgps doesn't only pay out at state retirement age. You can take it early but will be hit with actuarial reductions 

Retireinten

You ideally want to read up on APCs (additional pension contributions) and AVCs.  Visit this site, the APC calculator gives you a bit more information:

https://www.lgpsmember.org

Your pension administrator should have an arrangement with a pension company to provide these services, find out who that is and visit their website also for more information. 

APC's allow you to build up additional LGPS benefits, but without the employer contribution this may well look expensive... and if you take this early it's subject to actuarial reduction. I don't pay into APC's.

AVCs allows you to invest in a pension that is invested in funds (like a private pension) and the key benefit of this is that you can take it to create a tax free lump sum, which you don't want to create by converting annual pension, as its poor value for money.  But again, this has to be taken with your main pension to use it in this way.  AVCs can be used in other ways so it's worth reading up on this and some Authorities run these as salary sacrifice schemes so you may save National Insurance too!

I'm in the LGPS and will be taking my pension at 60, but I'm a longstanding member and get some protection from actuarial reduction for a portion of my pension at this age.  I intend to retire at 55 and I'm saving into ISAs, and a private pension to plug the gap. I will be using AVCs to boost my tax fee lump sum. 

ZeroSum

I thought the APC's had been scrapped? Unless you were doing it before the cut off.

Anyway AVC's are just defined contributions with the pru. So it's basically a just private pension. There may be better options, but as you can just go through your employers payroll it does make it easier 

Tortoiseshell20

Thanks both. If the only benefit to AVCs over a private pension is going through payroll, I would prefer to set up a standing order into my private pension. I didn't know if there were any rules against this. Either way, I'm sticking to pension over ISA - partly because I can't access it until I retire and won't be able to fritter it!

JoeCrystal

ZeroSum said:

I thought the APC's had been scrapped? Unless you were doing it before the cut off.

No, you can still buy them. The maximum amount of additional pension you can buy is £7,194 per year at the moment. It is still pretty cheap compared to doing it in DC pension for example. For someone at the age of 34, it would only cost £44,890 net lump sum if paying direct or £275.53 gross per month for 34 years to get £7,194 added pension on top.

marycanary

Tortoiseshell20 said:

Thanks both. If the only benefit to AVCs over a private pension is going through payroll, I would prefer to set up a standing order into my private pension.

As Retireinten says, this is not the only benefit. For many, the major benefit is being able to take the whole lump sum tax free. With a SIPP only 25% is tax free and tax is due on the other 75%. This may or may not be an issue for you depending on your financial circumstances. 
The downside of LG AVC is that you have to use one company and have a limited range of funds from which to choose. 
Mary

Reg_Smeeton

JoeCrystal said:

ZeroSum said:

I thought the APC's had been scrapped? Unless you were doing it before the cut off.

No, you can still buy them. The maximum amount of additional pension you can buy is £7,194 per year at the moment. It is still pretty cheap compared to doing it in DC pension for example. For someone at the age of 34, it would only cost £44,890 net lump sum if paying direct or £275.53 gross per month for 34 years to get £7,194 added pension on top.

Can confirm this is correct, I’ve just started paying APCs myself

Tortoiseshell20

Thanks - APCs look good but I guess you just have to hope you live long enough to get your money back (True with any pension, I know, but if I pay £100pcm for 10 years, I'll get an extra thousand pounds per year from age 68). Still unsure where to put any extra money.