LGPS and AVC query

Silvertabby

ElephantBoy57 said:

Silvertabby said:

As a retired LGPS administrator, 'without reduction' means exactly that.

I know where you are coming from - that taking early payment would be cost neutral, because you are taking less for a longer period, but that's only an overall scheme average.
The break even point is something like 14 years, so the longer a 55 year old retiree lives beyond 69 the greater the difference.  

My yearly pension statement gives a pension sum to retire now, to retire at 60, at 65 ect. So to say there is a reduction is misleading. There is a calculation for retiring at 60 and there is no reduction on that figure if I do retire at 60. I would get the figure that they quoted.

That's unusual - LGPS annual statements are normally as described by AlanP.

However, if yours really does say what you would get if you retired at 60 - and took your benefits immediately, instead of deferring payment until NRA (SPA) - then the early retirement reductions will already have been factored into the figures.

VXman

To get away from the argument over pedantics. I have a teachers pension not LGPS but my understanding of lump sums and AVC's is...
Pension lump sum tax free whatever other income is around.
AVC 25% tax free regardless
Anything else is taxed in the normal way i.e £12500 no tax, above 12500 taxed. (earned income, AVC income, pension income.)
Also, I can take all the AVC as cash.
Personally I will take AVC tax free lump sum and then withdraw the taxable element gradually over a period of years to reduce tax on it. Ours is with the Prudentail and they have various options of what you can do with the AVC's when you retire ( be that ontime or early) i.e. Annuity, Staged draw down, Cash withdrawal, etc

AlanP_2

VXman said:

To get away from the argument over pedantics. I have a teachers pension not LGPS but my understanding of lumpe sums and AVC's is...
Pension lump sum tax free whatever other income is around
AVC 25% tax free regrdless
Anything else is taxed in the normal way i.e £12500 no tax, above 12500 taxed. (earned income, AVC income, pension income.)
Also, I can take all the AVC as cash.

Yes, but this specific thread is about LGPS AVCs which can be used as the full 25% TFLS i.e. taken entirely tax free up to overall 25% of (DB pension *20 + Scheme Lump Sum + AVC Pot Value). The target for me is to get the AVC pot value to the ideal value when I want to take the LGPS pension.

snookered1

Thankyou Silvertabby, your answer clears this up nicely.

OldBeanz

AlanP_2 said:
Yes, but this specific thread is about LGPS AVCs which can be used as the full 25% TFLS i.e. taken entirely tax free up to overall 25% of (DB pension *20 + Scheme Lump Sum + AVC Pot Value). The target for me is to get the AVC pot value to the ideal value when I want to take the LGPS pension.

My wife is paying into her LGPS AVC. She will hit the sweet spot somewhere around her last year. She intends finishing at the beginning of September (end of school holidays) in a few years. I am quite relaxed about this as who knows how the fund will grow so will take some risk as we can pay more in if needed; there will be scope to buy extra pension with this or buy some before her birthday directly if things are going well. All good.

Silvertabby

Gunner835 said:

AlanP_2 said:

VXman said:

To get away from the argument over pedantics. I have a teachers pension not LGPS but my understanding of lumpe sums and AVC's is...
Pension lump sum tax free whatever other income is around
AVC 25% tax free regrdless
Anything else is taxed in the normal way i.e £12500 no tax, above 12500 taxed. (earned income, AVC income, pension income.)
Also, I can take all the AVC as cash.

Yes, but this specific thread is about LGPS AVCs which can be used as the full 25% TFLS i.e. taken entirely tax free up to overall 25% of (DB pension *20 + Scheme Lump Sum + AVC Pot Value). The target for me is to get the AVC pot value to the ideal value when I want to take the LGPS pension.

I have been asking my LGPS provider how the AVC TFLS is calculated  & this seems to answer my query but can i just check; is the DB pension figure above is the LGPS pension BEFORE  conversion to calculate any LGPS TFLS, that is multiplied by 20  rather than the converted (reduced)  pension figure. 
so in my case my AVC TFLS would be calculated thus; annual pension £2659 * 20 + 11397(LGPS TFLS) + avc pot *25%
 However my provider has stated my AVC TFLS is calculated thus 2659 * 20 + AVC pot * 25% (no mention of LGPS TFLS)  but has also provided a figure for converting LGPS of £2659  to pension of £1710 with a TFLS of £11397.This doesnt seem to fit with the calculation above!
Thus  Question is   ` what calculation is used  to ascertain my max AVC TFLS  when i take the max LGPS TFLS please?` 
Hope that makes sense and Many Thanks

You've got yourself in a bit of a twist, I'm afraid.

The maximum 25% tax free cash initial calculation is indeed:

20 x LGPS pension (after early payment reduction, but before any commutation/conversion to tax free cash)

plus

1 x any automatic lump sum (only applies to pre 2008 service)

plus

1 x AVC fund

X 25%

In your case, your figures indicate that all your service is post 2008, so no automatic lump sum.  On the basis that your annual pension is £2,659, maximum commutation would give you the figures quoted by your LGPS - a reduced pension of £1710 and a tax free lump sum of £11,397.  However, this doesn't take into account the AVC fund. 

Can you post your current AVC fund value?  If you don't want to do that, then the following examples may help (just re-run them yourself using your actual AVC value).

1.  Assuming AVC fund of £10K

20 x £2,659 = £53,180

Plus

1 x £10,000

£53,180 + £10,000 = £63,180 X 25% = £15,795 maximum tax free cash.

This is £5,795 more than your AVC fund, so you have the option of taking the full pension of £2,659 plus £10,000 tax free cash, or commuting part of your pension in order to increase the tax free lump sum.  The LGPS commutation rate is 1:12, so £5,795 tax free cash would cost you 5795/12 = 482.92, giving you a pension of £2,176.09.  Note if you do this, then the reduced overall value of your benefits will result in a lower tax free lump sum - more like £14,830. 

2.  Assuming AVC fund of £20K

20 x £2,659 = £53,180

Plus

1 x £20,000

£53,180 + £20,000 = £73,180 X 25% = £18,295 maximum tax free cash.

AVC fund is more than tax free cash allowed, leaving £1,705 to be taken by other means.  Easiest -and most popular - way would be to use this money to buy a little more LGPS pension. 

Hope this helps.