LGPS tapered protection

Wentthedaywell?

I flexibly retired at 60 (September 2017) taking all my 37 years’ pension to date and an AVC as a tax free lump sum. I started a new one and a new AVC to be taken as a lump sum again. It would have been silly not to have done, even though the amounts are very small as I work part time now and I understand I need to keep the AVC below 25% of the capitalised pension.

I was previously told that I had tapered protection against reductions for taking the new pension before SPA and that the full reduction would only apply to the post-March 2020 element. However I’m now being told that it’s all to be actuarially reduced with no protection from the September 2017 start.

Could the LGPS experts here please give a view on this? Thanks. The amounts will be quite small anyway, but I’m trying to work out if it’s better to defer for two years and take it at SPA or suffer the reduction (about 10.7% I think) and have two years’ extra money.

Silvertabby

Sorry, but either you were given the wrong information or you misunderstood.

When you re-joined the LGPS in 2017 it was as a new joiner, with none of your previous R85 protections (which ended for new joiners in 2006).

If you don't need this money straight away then deferring payment for two years would give you the 10% uplift in your annual index linked pension - but you would have to offset that against the 'loss' of 2 years of the reduced pension and the immediate AVC lump sum.  

That's the trouble with pensions.  Without being able to factor in that one vital piece of information - your date of death - it's very difficult to give a definitive 'best option'!

Wentthedaywell?

Thanks Silvertabby - I'm reassured to know the current info is correct.
I'll not get 10% in a bank so will probably defer and hope I don't cark it before break-even point! It's only a small amount anyway.

Wentthedaywell?

May I ask another question please?

If I defer taking my AVC until SPA, I presume it sits there without any extra contributions but still gaining any increases (hopefully) in share value. My pension stays static, except for the annual CPI increase.

If the AVC increases above the 25% of the capitalised pension, could I be in danger of not being able to take it as a tax free lump sum? Or could I take 25%, and something else (what?) happens to the tiny surplus?

As I've been part-time working for three years, the sums are very small - I estimate a second pension of about £1,300 pa and a lump sum <£9,000 .

Silvertabby

Any surplus AVC can be used to buy a top up LGPS pension, and so wouldn't be lost.

If you wanted it all in cash then you also have the option of transferring the AVC surplus to a private pension draw down scheme - but if you don't already have such a scheme to transfer it into then it would probably be too much faff.

Wentthedaywell?

Thanks Silvertabby. The surplus might be tiny - say £500-1000. Any pension from that would be microscopic! Is there a charge for buying a top up LGPS pension that would nullify doing so for such a tiny amount?

Silvertabby

No, no charge - and the conversion factors are pretty good!

Wentthedaywell?

Thanks Sivertabby. I might up my monthly contribution till I retire next year; I've been keeping it low to ensure it's under 25%. Would you happen to know what the conversion factor is please?

Silvertabby

I'm afraid not as I no longer have access (retired) but if it's any help,  in the cases I've dealt with in the past, the LGPS added pension has been 2 or 3 times the annuity offered by the AVC provider.

Wentthedaywell?

Thanks Silvertabby. I've learned more and the benefit of people's expertise on this thread than I ever have from work!