LGPS with AVC...take 25% tax free

Tiggy777

Hi all
Hope everyone is well.
I am hoping to 'finally' retire at the age of 58 at the end of this year.
I have been fortunate to have been able to put must of my salary into an AVC over the past few years and also paid into the LGPS since I was 18
When I retire my pension and some rental income will be about £40K per year.
I plan has always been to take the maximin I can tax free from my LGPS +AVC which will be most of my AVC put it in the bank and then withdraw and when over the next 20 years
My 'simply' view has been if I invest the tax free sum (into an annuity as an example) ...........is when I withdraws/draw down an amonut I will be taxed on it at 40% and didn't think I would re-cope that in any investment.  So does my approach sound logical to people and the right way forward or I am barking up the wrong tree.... (I am risk adverse)
Would appreciate any views on this please
Thank you for your time
Regards
Tiggy 

Linton

Taking the maximum lump sum from the AVC is very sensible but your plan to keep it in the bank seems foolish:

If you put your tax free money in the bank it will steadily lose value to inflation.  Over the extended time frame you could reasonably hope to live  this loss is likely to be significant.  To match the buying power of £10K 20 years ago would now need £17.5K.  £10K 30 years ago would be equivalent to £25K now.

 A better option would be to invest the money in an S&S ISA which shelters you from all tax on both capital gains and income.  Within the ISA you could invest some or all of the money very cautiously with the aim of at least matching inflation.

You say "we" so I assume you have a spouse.  In which case you can put a total of £40K into his& hers S&S ISAs each year, which I guess would protect any cash you dont need in the short term well before you have the extra income from State Pension.  Money you need to spend in say the next 5 years should be kept as cash.

Tiggy777

Many thanks for the reply Linton.....it's really got me thinking now which is not 'good'
Any ideas if it's possible to buy some extra LGPS with a lump sum when I retire (on the basis I 'think' it would have some retail link increase) and then hold some cash for a few nice holidays ?
Wonder if that is a possible way forward.
Would appreciate any ideas ...many thanks for people's time
Regards
Tiggy

Silvertabby

Tiggy777 said:

Many thanks for the reply Linton.....it's really got me thinking now which is not 'good'
Any ideas if it's possible to buy some extra LGPS with a lump sum when I retire (on the basis I 'think' it would have some retail link increase) and then hold some cash for a few nice holidays ?
Wonder if that is a possible way forward.
Would appreciate any ideas ...many thanks for people's time
Regards
Tiggy

Yes.  Although most people use in house AVCs in order to maximise their tax free cash (tax relief in, tax free out) you do have the option of buying extra index linked LGPS pension with some or all of your AVC fund.

The factors aren't the same as the transfer in factors, so you would have to ask your LGPS for an estimate - but the extra pension bought will be far higher than an annuity pension purchased on the open market.

jamjar92

Silvertabby is that done via purchasing an APC? APC’s I read does not increase the spouses pension element, only the main pension holder.

Silvertabby

jamjar92 said:

Silvertabby is that done via purchasing an APC? APC’s I read does not increase the spouses pension element, only the main pension holder.

No, nothing to do with APCs.  When using AVC funds to buy extra pension, you have the choice of including spouses benefits or not.  

Tiggy777

Silvertabby said:

Yes.  Although most people use in house AVCs in order to maximise their tax free cash (tax relief in, tax free out) you do have the option of buying extra index linked LGPS pension with some or all of your AVC fund.

The factors aren't the same as the transfer in factors, so you would have to ask your LGPS for an estimate - but the extra pension bought will be far higher than an annuity pension purchased on the open market.

Hi Silvertabby.... great to hear from you and thanks for the 'information'... just wondered if there is a limit to how much 'extra index linked LGPS pension you can buy ?  and when you say but the extra pension bought will be far higher than an annuity pension purchased on the open market.  Can I just check you are referring to the rates paid/returns.  Many thanks again.  Kind regards  Tiggy

Silvertabby

Tiggy777 said:

Silvertabby said:

Yes.  Although most people use in house AVCs in order to maximise their tax free cash (tax relief in, tax free out) you do have the option of buying extra index linked LGPS pension with some or all of your AVC fund.

The factors aren't the same as the transfer in factors, so you would have to ask your LGPS for an estimate - but the extra pension bought will be far higher than an annuity pension purchased on the open market.

Hi Silvertabby.... great to hear from you and thanks for the 'information'... just wondered if there is a limit to how much 'extra index linked LGPS pension you can buy ?  and when you say but the extra pension bought will be far higher than an annuity pension purchased on the open market.  Can I just check you are referring to the rates paid/returns.  Many thanks again.  Kind regards  Tiggy

Hi Tiggy.  You are very welcome !  If there is a limit to the amount of pension you can buy with your AVC fund, I never came across it in my 20 years, so it must be substantial.  Your LGPS should be able to tell you if a limit exists or not.

Depending on when you started your AVCs, you will be given the option of buying additional service (if you started your AVC before Nov 2001) or a top-up pension with the LGPS.  The top-up pension used to be called a LGPS annuity (may still be by the administrators) but it used to cause consternation due to normal annuities having a bad name.

Yes, I do mean rates paid/returns.

Mistermeaner

Off topic but the lgps offers annuities (in all but name) at better than annuity market rates ??

What madness is this ? And how does one become eligible ?

Tiggy777

Silvertabby said:

Tiggy777 said:

Silvertabby said:

Yes.  Although most people use in house AVCs in order to maximise their tax free cash (tax relief in, tax free out) you do have the option of buying extra index linked LGPS pension with some or all of your AVC fund.

The factors aren't the same as the transfer in factors, so you would have to ask your LGPS for an estimate - but the extra pension bought will be far higher than an annuity pension purchased on the open market.

Hi Silvertabby.... great to hear from you and thanks for the 'information'... just wondered if there is a limit to how much 'extra index linked LGPS pension you can buy ?  and when you say but the extra pension bought will be far higher than an annuity pension purchased on the open market.  Can I just check you are referring to the rates paid/returns.  Many thanks again.  Kind regards  Tiggy

Hi Tiggy.  You are very welcome !  If there is a limit to the amount of pension you can buy with your AVC fund, I never came across it in my 20 years, so it must be substantial.  Your LGPS should be able to tell you if a limit exists or not.

Depending on when you started your AVCs, you will be given the option of buying additional service (if you started your AVC before Nov 2001) or a top-up pension with the LGPS.  The top-up pension used to be called a LGPS annuity (may still be by the administrators) but it used to cause consternation due to normal annuities having a bad name.

Yes, I do mean rates paid/returns.

Hi Silvertabby thanks so much for the reply. 
I started paying into the LGPS when I was 18 back in 1979 but only started to pay into an AVC from 2017.  My provider 'suggest' I could buy through them if required but I am not sure now based on reference to starting an AVC from 2001.  That said 'my provider' has given me some much contradictory information it's mind blowing  
As always really appreciate the informative information you give me
Thanks
Tiggy

hyubh

Mistermeaner said:

Off topic but the lgps offers annuities (in all but name) at better than annuity market rates ??

What madness is this ? And how does one become eligible ?

By being an active member. Any DB scheme that still offers the ability to purchase additional DB pension when added year contracts (and transfers in buying added years) are no longer a thing will be offering 'annuities (in all but name)'.