Are APC's worth it?

chocoholic1_2

Hi, I'm in the lgps scheme, aged 43 and I pay approximately £40-£50 per month in tax.  I currently pay £73 per month into the lgps scheme, and I'm conscious my pension forecast is very low. But I'm going round in circles trying to find out how to increase it. Are APC's worth it? Because the calculator appears to say that if I put in £100 per month for 10 years, I get back £90 per year. Have I misunderstood the calculator because I'd have to live a long time to break even!  
For someone in my position, paying a small amount of tax, and with NI contributions up to date, what would you recommend to increase my pension? 

chocoholic1_2

Just to add, we've prioritised overpaying the mortgage up till now, so we are now looking at what to do with the 'extra' money. I intend to retire at 67, but redundancies are fairly common in my line of work, and you never know what the future holds health wise.  I do find this all a little.confusing.

daveyjp

LGPS offers APCs and AVCs.

Only you can decide if APCs are preferable over AVCs,

barnstar2077

daveyjp said:

LGPS offers APCs and AVCs.

Only you can decide if APCs are preferable over AVCs,

Could you explain the difference?  I am not in this type of scheme, but I haven't heard of APCs before and would be interested in the answer.

dunstonh

Are APC's worth it? 

Yes.   Any additional provision you make is better than making no extra provision.

However, it may or may not be as good as other alternative options.  That will largely depend on what your objectives are. 

For someone in my position, paying a small amount of tax, and with NI contributions up to date, what would you recommend to increase my pension? 

Insufficient information to answer that.  APCs, AVCs, SIPPs/PPP/SHPs, S&S ISAs could all be potentially most suitable.  All are better than doing nothing.

daveyjp

With APCs you are making extra contributions over and above your £73 a month which go into your existing LGPS pension account.  This will increase your annual LGPS payment for life.

With AVCs you are contributing to a separate stand alone pension which can provide a lump sum when you retire.  You can then spend this or invest to provide income.

Some LGPS schemes operate salary sacrifice for AVCs which can be worthwhile if you are paying NICs.

As Dunston says you need to know what your objectives are before deciding which option to go for.

stephenadarglas

I must add the LGPS AVCs offer a very limited choice of funds in my opinion and are UK biased.

chocoholic1_2

Thanks, that helps but I'm still confused. 
A) Did I read the Apc calculator correctly? If I pay £1200 in I get £90 back (per year)?  Because that doesn't sound great.
I think Avc would give me more options at retirement. I currently intend to retire at 67, but redundancies are common in my line of work so who knows. 
C) I haven't got a clue what the other ones are, I'm baffled enough with just those two!

My objective is to simply increase my pension, preferably with the option of taking it at 60 if I find I need to. Next month we will have finished paying the mortgage, so I'm looking into what the best option is for the 'spare' money. 

daveyjp

Its £90 a year increasing in line with inflation each and every year.

If you only live 2 years after retiring not such a good deal, as APCs don't increase spouse pension, but if you are in retirement with an LGPS pension for 35 years it could be a very good deal.

Both increase your pension, you need to decide if you want a monthly payout for life or a lump sum to invest yourself, leave a lump sum for others etc,

LGPS AVC investments are limited so for anyone who wants a wider choice of funds they may not be suitable.

NedS

chocoholic1_2 said:

Thanks, that helps but I'm still confused. 
A) Did I read the Apc calculator correctly? If I pay £1200 in I get £90 back (per year)?  Because that doesn't sound great.

I have no idea if you've used the APC calculator correctly, but it sounds reasonable to me.

What would sound great to you? It's a 7.5% return on your investment, index-linked and guaranteed for life. If you instead chose to invest that £1200 elsewhere, what kind of return would you currently expect? Is it guaranteed? Is it index-linked? How much would an annuity cost you to provide a similar level of index-linked income?

chocoholic1_2

Thank you both. This has really helped clear things up and make me realise what my priorities are. With the Apc, I feel like I would have to live a long time to break even. Whereas if I put the money in a savings account, I might only earn £10 a year, but I'd still have my £1200 to pass on. Which makes me think the Avc is a better option for me - gives me more options. And I should look into maxing out my ISA (I'm 43, which I think is too old for the lifetime ones).  Thank you, this has been really helpful.