SIPPS ,the LGPS and other questions

AlanP_2

I would use some of the cash to maximise AVC contributions whilst you can and thus avoid income tax on that amount.

Funneling some through the SIPP could make sense as you will get a minimum return of 6.25% after paying tax on 75% of what is withdrawn. If Mrs X has the spare Annual Allowance using a SIPP in her name would boost this as she would be eligible for 40% tax relief on at least some of the contribution.

Are you planning to retire at same time, or can 1 persons AVC pot be used by the 2nd to recycle it back through AVC / SIPP?

What about Rule of 85? I guess some of your pre-2008 benefits will not be actuarially reduced, and what about the pre-2008 scheme statutory luimp sums?

Albermarle

DB Pensions ~ £40Kpa (LGPS commutation factor is about 16, so value ~ £700K)

Like many people with public sector DB pensions you are vastly underestimating their value.

To buy an annuity in the open market that would pay guaranteed £78Kpa ( index linked ) at age 65 would cost very approx  £3 million ,

Also to show the importance of index/inflation linking , if the above pensions were not index linked they would be worth about half of that figure ( very roughly) .

If you were to take your pension early for example . So £12.5K at age 55 . Nobody knows what future inflation might be but 2.5% is often used as an estimate . In 30 years time that £12.5K would only be effectively worth about £3K in what you could buy with it.

Retire2021

AlanP_2 said:

I would use some of the cash to maximise AVC contributions whilst you can and thus avoid income tax on that amount.

Funneling some through the SIPP could make sense as you will get a minimum return of 6.25% after paying tax on 75% of what is withdrawn. If Mrs X has the spare Annual Allowance using a SIPP in her name would boost this as she would be eligible for 40% tax relief on at least some of the contribution.

Are you planning to retire at same time, or can 1 persons AVC pot be used by the 2nd to recycle it back through AVC / SIPP?

What about Rule of 85? I guess some of your pre-2008 benefits will not be actuarially reduced, and what about the pre-2008 scheme statutory luimp sums?

Many thanks for your reply.
I have upped my AVC contributions recently, but I think I am right in assuming upping my SIPP would amount to the same thing ? Mrs X has no spare Annual Allowance, but I do - however, I only get 20% tax relief on my contributions. We are planning on retiring at the same time - there is no way I am going to trudge to work while the lovely Mrs X. sits in bed, eating breakfast and watching TV . Once we have decided to retire, I will trying and squish as much into the SIPP as possible.

I don't think either of us have any Rule of 85 to worry about. Mrs X has 20 years of service and is 60. I have 25 years and I am 55, so we both are going to hit 80-81 when we retire, not 85. I had forgotten to include the lump sums, they total about £50K between us I think.

Retire2021

Albermarle said:

DB Pensions ~ £40Kpa (LGPS commutation factor is about 16, so value ~ £700K)

Like many people with public sector DB pensions you are vastly underestimating their value.

To buy an annuity in the open market that would pay guaranteed £78Kpa ( index linked ) at age 65 would cost very approx  £3 million ,

Also to show the importance of index/inflation linking , if the above pensions were not index linked they would be worth about half of that figure ( very roughly) .

If you were to take your pension early for example . So £12.5K at age 55 . Nobody knows what future inflation might be but 2.5% is often used as an estimate . In 30 years time that £12.5K would only be effectively worth about £3K in what you could buy with it.

Thanks for your thoughtful reply. 
We do understand the enormous value that the LGPS pensions represent, but I am still not convinced about your valuation - however, it doesn't really matter what it would cost to buy the equivalent on the open market, since we are not planning on doing that
As an aside, the index linking - does it matter if I took my £12.5K pension now, or waited 2 years and took it then (~£14K). Both scenarios would include index linking I think, so from that point of view it doesn't matter ? - they would rise at the same rate regardless of whether they were being accessed or not for those two years ? This is the bit that is confusing me a little.

Mr X.

Albermarle

As an aside, the index linking - does it matter if I took my £12.5K pension now, or waited 2 years and took it then (~£14K). Both scenarios would include index linking I think, so from that point of view it doesn't matter ? - they would rise at the same rate regardless of whether they were being accessed or not for those two years ? This is the bit that is confusing me a little.

Yes normally you are right but all DB schemes have their own specific rules , so you will have to read the detailed rule book , unless some LGPS expert comes along and knows the answer for certain. 

Retire2021

Hi, another question, but probably one for LGPS experts.

If I am currently earning an extra £8000 pa since I am acting in a higher position, but that will soon come to an end, and my salary will revert back - will I be able to use the higher salary as my final salary calculation even though at the date I retire my salary will be lower ;
e.g.
Currently £42,000 + £8,000 = £50,000
1st March  £42,000 + £0 = £42,000
Retirement date 1st September 2021, so salary will be £42,000 then but the previous year it was £50,000.
My reading of LGPS rules say I can use the previous year for the calculation even though I was "acting up", but I can find no definitive confirmation of this.
Anyone have any better info ?
Thanks

Retire2021

Sorry - it is called an emolument, not "acting up"

Retire2021

I found this in" A Guide to the LGPS" booklet

Final pay This is usually the pay in respect of (ie due for) your final year of Scheme membership on which you paid contributions, or one of the previous two years if this is higher, and includes your normal pay, contractual shift allowance, bonus, contractual overtime (but not non-contractual overtime), Maternity Pay, Paternity Pay, Adoption Pay, Shared Parental Pay and any other taxable benefit specified in your contract as being pensionable.

Is a previous year defined as any 12 months in the previous 24 or is it either 0-12 months or 12-24 months prior to retirement date ?

Dazed_and_C0nfused

It's not necessarily definitive but we're you're pension contributions based on the higher salary or normal salary?

If the higher salary then it would seem to be pensionable.

mark55man

Do not try and guess, I would ask your HR team, but then double check with a separate thread on this board.  I know there are several posters who comment on LGPS from a position of some knowledge.  It would be madness not to lock in such a rise, although you would also then have to check if that prevented you working back in an employer with an LGPS   and whether that was important to you