AVC or Savings??

Pipkin1812

I am 56 and have paid into a local government pension for 30 plus years but have worked part time for the last 20 and my membership reflects that. I am also paying £300 a month into a linked standard life avc. I want to ensure I am secure when I retire ( hopefully at 60). Is it worth paying more into my avc, buy extra years through avc or going down the savings route?  Any suggestions/advice gratefully received. 

msallen

Someone with knowledge of the LGPS will comment on the specifics of their AVC scheme, but in general the tax advantages of putting the money into a pension make it far better rather than simply saving it.
If the AVC scheme's rules don't particularly suit there's no reason you couldn't use a separate stand-alone SIPP or personal pension instead.

Silvertabby

Only your pre 2008 service is covered by R85 protections, so if you retire at 60 your 2008 to 2014 benefits will be reduced by 22% for early payment and your 2014 to date of leaving will be reduced by the factor for 6 or 7 years (SPA).

Most people who take out LGPS in house AVCs do so with the intention of maximising their tax free cash, but this money can also be used to 'buy' additional index linked LGPS benefits at a much more generous rate than anything offered on the open market.

Would another option - that of saving money to live on for a couple of years or so, thus lessening the early payment 'hit' - be possible?

ElephantBoy57

I have just opened a SIPP with Hargreaves Landsdown, with that you will get the Government tax relief, you wont get it with just saving.

daveyjp

OP check if your LGPS AVC can be done through salary sacrifice.  You can then invest the saved NICs into the AVC.

Only certain AVCs providers offer this, one being Prudential.

dunstonh

Is it worth paying more into my avc, buy extra years through avc or going down the savings route?  

If you are going to retire at scheme age then yes.  The AVC will almost certainly be the best option financially.  If you are looking to retire earlier and fund the gap then no.  Alternatives would be better.   (or a combination depending on how much you have).

However, for retirement planning, savings are rarely the best option.  They are a high risk option as you are putting yourself at shortfall risk and inflation risk.   You would need to pay in around 3 times more than other options to get the same sorts of benefits.

Pipkin1812

Thanks for the responses. My AVC is taken from my salary before tax and NI if that’s what salary sacrifice means? What are the alternative options if not savings? 

Dazed_and_C0nfused

Pipkin1812 said:

Thanks for the responses. My AVC is taken from my salary before tax and NI if that’s what salary sacrifice means? What are the alternative options if not savings? 

Salary sacrifice is the only way to get both tax and National Insurance relief but that is from not having the salary to pay tax on in the first place. 

It is the employer who actually contributes to the pension which is why there is no pension tax relief with salary sacrifice.

If you were contributing to the pension it would just reduce the salary liable to tax, not the salary liable to National Insurance.

dunstonh

 What are the alternative options if not savings? 

Stakeholder pensions, personal pensions, SIPPs (typically it would be SIPP in most cases nowadays as the other drift into niche markets. Probably eventually disappearing) and S&S ISAs would be the typical alternatives.  

Pipkin1812

Thanks everyone. Given the potential charges on such products and given the relatively short timescale would I be better putting more in to my existing AVC?  I am not clear on the option of buying additional years through an AVC?

AlanP_2

daveyjp said:

OP check if your LGPS AVC can be done through salary sacrifice.  You can then invest the saved NICs into the AVC.

Only certain AVCs providers offer this, one being Prudential.

I think you will find that it is more whether the employers in the LGPS scheme offer it or not. Just because Prudential will accept a higher amount being paid in each month doesn't mean that your employing council / organisation has an approved SS policy and their payroll system set up to deal with the transactions.