Prudential AVCs LGPS - Rhondda - Cynon - Taff Local Authority

stephenadarglas

Thanks Silvertabby that advice is quite timely for my wife and indeed us.  Again, many thanks.

Wentthedaywell?

Silvertabby said:

OP - your wife may like to consider making her final AVC payment early.  I used to recommend one month, but 2 or even three may be the way to go at the moment.  The reason for this is that the AVC fund can't be disinvested until the Pru know for certain that they have received the final payment, and the LGPS pension can't be brought into payment without at least confirmation of the final amount.

Silvertabby, is the potential issue one of timing? That without enough notice they may not be able to pay out the AVC (if taken as a lump sum) at the date of retirement? Would this create a problem or can they just pay it a bit later?

I ask as I want to make contributions as long as possible to get the tax benefit and am not sure when best to stop (this is more of an issue re keeping the total below 25% of the capitalised value though).

Silvertabby

Wentthedaywell? said:

Silvertabby said:

OP - your wife may like to consider making her final AVC payment early.  I used to recommend one month, but 2 or even three may be the way to go at the moment.  The reason for this is that the AVC fund can't be disinvested until the Pru know for certain that they have received the final payment, and the LGPS pension can't be brought into payment without at least confirmation of the final amount.

Silvertabby, is the potential issue one of timing? That without enough notice they may not be able to pay out the AVC (if taken as a lump sum) at the date of retirement? Would this create a problem or can they just pay it a bit later?

I ask as I want to make contributions as long as possible to get the tax benefit and am not sure when best to stop (this is more of an issue re keeping the total below 25% of the capitalised value though).

It's not just the AVC that can't be paid until it has been disinvested/ paid to the LGPS, it's the whole lot.

This is because of the way the AVC interacts with LGPS benefits.  Most people use their AVC fund in order to maximise their tax free cash, so knowing the exact value of both the AVC fund and the LGPS benefits is a crucial part of the 25% calculation.

And if the option of using all or part of the AVC to buy additional LGPS benefits is used, then that also can't be done without the correct fund figures.
Paying the total tax free lump sum and starting the monthly pension payments using an estimated AVC figure with a view to doing a manual re-calculation once the AVC has been received is really not an option, due to the time it takes.  I've done it on very rare occasions when there was no other way, but it would never be a routine procedure.

The LGPS I worked for would initiate payment on receipt of an e-mail from the Pru confirming the disinvested figure (then set up an internal electronic memo to ensure that the money was actually received) but it's likely that other LGPSs won't move until they know they have received the bank transfer.

It depends on how quickly after retirement you want/need your tax free lump sum and first monthly pension payment.  As I said before, I used to recommend stopping paying AVCs a full month before retirement, in order to stand any chance of prompt payment.  Then came Covid.....

It really depends on your priority: Paying the maximum amount into your AVC, or earliest possible payment of pension benefits.

stephenadarglas

@Silvertabby - is there some kind of formula that's used to work out how much extra lgps pension you will get per £1000 of AVC? She's in the Rhondda-Cynon-Taff LGPS pension fund and is retiring at 60 - six years early.  

Wentthedaywell?

Thanks for your explanation Silvertabby, I understand now. My (new) pension will be tiny, for a couple of years post flexible retirement working, so I don't need it in a hurry.

My issue is I need to keep the AVC below 25%, but Pensions won't tell me what the 100% amount is until I tell HR that I'm intending to retire and they will give a quote. I don't want to reveal my intentions yet. I've done a rough calculation as I understand it, but not sure if I'm doing it correctly. I want to make any adjustments earlier, rather than panicking later or having to work extra months (not paying into the AVC) to make it all balance.

(Sorry stephenadarglas, I didn't mean to hijack your thread! )

Silvertabby

stephenadarglas said:

@Silvertabby - is there some kind of formula that's used to work out how much extra lgps pension you will get per £1000 of AVC? She's in the Rhondda-Cynon-Taff LGPS pension fund and is retiring at 60 - six years early.  

The factors for buying extra pension with AVCs (not the same as buying an APC pre retirement) aren't accessible on line, due to the complexity of the calculations.

However, I can say that I used to see the different figures quoted for LGPS purchases and annuities offered by the Pru - and that the LGPS offers were much higher.

Silvertabby

Wentthedaywell? said:

Thanks for your explanation Silvertabby, I understand now. My (new) pension will be tiny, for a couple of years post flexible retirement working, so I don't need it in a hurry.

My issue is I need to keep the AVC below 25%, but Pensions won't tell me what the 100% amount is until I tell HR that I'm intending to retire and they will give a quote. I don't want to reveal my intentions yet. I've done a rough calculation as I understand it, but not sure if I'm doing it correctly. I want to make any adjustments earlier, rather than panicking later or having to work extra months (not paying into the AVC) to make it all balance.

(Sorry stephenadarglas, I didn't mean to hijack your thread! )

Pensions can't do that without figures (both from your employer and the Pru) to work with.
In the meantime, 

20 x annual pension + 1 x any automatic lump sum (only if you have pre 2008 service) + 1 x AVC fund x 25% = maximum tax free lump sum.

If the answer is more than your AVC fund, and you still want the maximum tax free cash, then that would be realised by commuting some of your LGPS pension.  Note that the commutation rate of 1:12 would then come into play, which would affect the figures by reducing your overall benefits.

If you really want to maximise your AVC, then don't fret about going over - the excess can be used to buy additional LGPS benefits at much more favourable rates than (probably) anything available on the open market.

Wentthedaywell?

Thanks again Silvertabby. It's not knowing my annual pension that's the problem. I get an update about August for the previous year, so it's out of date (and I may want to retire June) and doesn't allow for the actuarial reduction. But good to know any spare can be added to a pension. Would there be charges for this? It'd be a tiny amount.

stephenadarglas

Wentthedaywell? said:

Thanks for your explanation Silvertabby, I understand now. My (new) pension will be tiny, for a couple of years post flexible retirement working, so I don't need it in a hurry.

My issue is I need to keep the AVC below 25%, but Pensions won't tell me what the 100% amount is until I tell HR that I'm intending to retire and they will give a quote. I don't want to reveal my intentions yet. I've done a rough calculation as I understand it, but not sure if I'm doing it correctly. I want to make any adjustments earlier, rather than panicking later or having to work extra months (not paying into the AVC) to make it all balance.

(Sorry stephenadarglas, I didn't mean to hijack your thread! )

@Wentthedaywell? no worries.  Silvertabby has given us some critical advice to ponder.

AlanP_2

Wentthedaywell? said:

Thanks again Silvertabby. It's not knowing my annual pension that's the problem. I get an update about August for the previous year, so it's out of date (and I may want to retire June) and doesn't allow for the actuarial reduction. But good to know any spare can be added to a pension. Would there be charges for this? It'd be a tiny amount.

You know your accrual rate and the actuarial reduction figures are on the LGPS website so you can work it out yourself to the nearest £100 or so.

My LGPS has an online portal that has a calculator so you can see what the effects are for chosen dates.

The unknown factor is the value of the AVC pot.