Pension Guidance Needed

Befuddled2021

Hi,

I’m looking for a bit of guidance with regards to pensions.

I work for the Council and am a member of the LGPS. I recently changed authority from a part-time to a full-time post.

At present I have a deferred pension from my last authority of:

Pre 2008 – 10 years 114 days.

2008 – 2014 – 03 years 0 days.

2014 to date – 3 ½ years.

From the above figures on the last benefit statement it appears at 67 I will get around £10,142 per annum on the benefits accrued to date

I also have about £33k in stocks and shares which until recently paid a dividend of around £1800 per year on which I pay CGT.

I intend to hopefully retire at 60 and am 53 now, so there will be another 7 years full-time LGPS to add to the total. I realise I will take a 22% - 29% hit dependent upon the part of the pension concerned, but the extra 7 years of pension payments are worth it.

As such I want to increase my pension contributions so am looking at the in-house AVC from the Prudential. My question is, is this the right option and how should I fund it?

Should I pay a lump sum each year from the dividends of the investment and then claim tax relief back? Should I pay direct from my wages and take the tax benefit at source? Should I do both? Should I pay the majority of my wages into the AVC and live off the investment till that has finished and the lower my monthly payments?

Is the in-house AVC the right option, or should I look elsewhere. I have heard of LISA’s, but don’t know much about them.

I’m not too concerned about the lump-sum as my mortgage is paid and I may downsize closer/at retirement which could result in another £100k approx. to play with.

I can’t get an answer from the AVC as they won’t answer questions till, I join the scheme, and the LGPS won’t provide a written answer unless I am within 2 years of retirement which I am not.

Thanks in advance.

Albermarle

Reading this recent thread could help 
https://forums.moneysavingexpert.com/discussion/6234741/lgps-avc#latest

Marcon

Befuddled2021 said:

I also have about £33k in stocks and shares which until recently paid a dividend of around £1800 per year on which I pay CGT.

Should I pay a lump sum each year from the dividends of the investment and then claim tax relief back? 

You don't pay CGT on dividends - you potentially pay income tax, but there is a tax free 'dividend allowance' each year of £2,000, so you shouldn't be paying any tax on these. See https://www.gov.uk/tax-on-dividends

You can only contribute to a pension in respect of 'earned income' and dividends aren't classed as 'earned income' for this purpose.

xylophone

Had you considered the option of purchasing additional pension ( probably easiest through monthly contributions)?

https://www.lgpsmember.org/arm/already-member-extra.php

Have you obtained a state pension forecast?
https://www.gov.uk/check-state-pension

AlanP_2

Are you combining your memberships or kleeping them separate? Equivalent full time salaries are probabaly the best guide to look at for that decision.

How much do you need in retirement? Pre State Pension and after?

If you have an idea on what you need it may be easier to look at how to achieve it.

For example, you could use a SIPP instead of the LGPS AVC and build a pot that can be taken at 60 for a couple of years leaving your LGPS benefits deferred and thus a lower actuarial reduction (and may get it down to zero reduction on pre-2008 benefits due to Rule of 85).

Befuddled2021

Thanks for the replies. I am considering the in-house AVC.
I haven’t combined memberships as far as I was aware it was based on final salary. Although I was only part-time in my last post, pro rata the pay was higher for that post, so I have deferred those benefits. I was led to believe the calculation was based on that figure and not the actual part-time take home pay. Once my salary here is greater than the salary of my last post I will combine.

Sorry, actually paying tax on the dividend distribution on the investment. Pay tax every year on it. I use Taxcalc as the calculator and I pay around £380 a year on the distribution.

Would it be sensible to start an in-house AVC and a SIPP? Could I pay a lump sum into a SIPP and off-set that against tax?

 Thanks.

Dazed_and_C0nfused

Sorry, actually paying tax on the dividend distribution on the investment. Pay tax every year on it. I use Taxcalc as the calculator and I pay around £380 a year on the distribution.

£380 tax on £1,800 doesn't sound correct.

£380 on £1,900 could be correct if it was interest not a dividend.

zemarcopolo

Befuddled2021 said:

"I intend to hopefully retire at 60 and am 53 now, 

I have heard of LISA’s, but don’t know much about them."

The maximum age to open an LISA is 40.

Befuddled2021

The £380 figure is a rough figure. Varies each year dependent upon the distribution. I always pay tax on it and it definitely isn’t interest. I get two distributions each year and it’s a Fidelity Fund.

Thanks.

xylophone

See
https://www.gov.uk/tax-on-dividends

I get two distributions each year and it’s a Fidelity Fund.

You are sure it is "dividend" rather than "interest"?

Example

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/f/fidelity-moneybuilder-income-class-w-income

enthusiasticsaver

I was LGPS and retired at 58 and looked at the Prudential AVC scheme but in the end went with buying added years and a SIPP as I thought it would give me more flexibility as you cannot take the AVCs without crystallizing the main pension. 

 I was under the impression that everyone has a dividend allowance of £2k per annum so surely you should not be paying tax on £1800? As Marcon says you don't pay CGT on dividends only on sale of assets if the profit is high enough.