LGPS, Understanding AVCs and income tax, Already drawing a previously deferred pension.

tricky145

Hello All

For the last 4 years been contributing in to Local Government Pension (GMPF) and from previous employment am drawing a Final Salary pension also from GMPF. Have recently got promoted and these two incomes put me into a 40% tax bracket so was looking at AVCs to reduce tax liability.

GMPF offer AVCs via Prudential ( have seen issues people are having)  and its difficult to contact them, looking on website my understanding is I can contribute a variable amount from gross earnings and this will reduce my income tax liability i.e. income over 50K that I contribute to AVCs will not be taxed at 40% rate it will not be taxed as its invested with Pru ( Question – will this affect employee or employer pension contribution and my final pension amount )

I am 60 years old, when I come to retire I will have my GMPF pension and the AVC value, 25% of total can be drawn as tax free lump sum, in calculating value of pension GMPF website estimate an annual pension figure and I read somewhere that HMRC times by 20 to calculate its value ( is this correct?) To calc value of AVCs for every £1000 I contribute from top line of Gross wage what value has been given to Prudential  ( £1200 ?).  What are my options with AVC balance that I cannot draw as lump sum, does it stay invested with Pru and pay a monthly sum?

In retirement I will have a reduced income and will not be near the 40% tax rate, anything above personal allowance will be at 20%,

Are AVCs the best option or should I be looking at anything else? Can you contribute too much in AVCs that it causes issues on retirement.

Any help appreciated. Just getting to grips with retirement planning

Thanks in advance

MX5huggy

Read the document you can access through here, https://www.pru.co.uk/rz/localgov/ depends on who your employer is for the fine details. But you can take the 25% tax free at the same time as you retire from the LGPS, the rest you can just have but pay tax on (probably a bad plan). Decide to take lumps of it over the years so you don’t pay 40% on it, once you’ve had it all it’s all gone but if you die before it’s passed on as part of your estate. Or buy an annuity so you have a fixed income from it for life (which you would pay tax on again) but it dies with you (or your dependents if you opted for that). 

Does your employer offer salary sacrifice AVC’s ? You get NI as well as income tax relief if they do. 

OldBeanz

What you contribute is what you contribute; but is not taxed so if you paid in £100 you would lose £60 (a few LA employers offer Salary Sacrifice and you can save NI on top) from your salary rising to £80 at basic rate.
If you overshoot then you can buy more pension at a better than commercial annuity rate or move the money into a SIPP (you can also cash in the balance with 25% tax free but ...) so there is no big downside to overshooting the maximum TFLS. LGPS AVCs are the cherry on top.

tricky145

Thanks, MX5 & OldBeanz, Your advice is most welcome, 

My employer does not have the salary sacrifice option  - that would be good......

I will continue reading the docs and getting a better understanding, I was getting to the point where I read one thing then confused it with something else and doubted everything.

Once again thanks for taking the trouble.

jamjar92

My employer does not have the salary sacrifice option  - that would be good......

@tricky145 Maybe suggest to your employer to set one up, a lot of Councils are doing so to make the saving of 13.8% on the salary sac bill (Class 1 NI) to help balance the budgets.

AlanP_2

jamjar92 said:

My employer does not have the salary sacrifice option  - that would be good......

@tricky145 Maybe suggest to your employer to set one up, a lot of Councils are doing so to make the saving of 13.8% on the salary sac bill (Class 1 NI) to help balance the budgets.

Considering out of 2.5K+ employees at our County Council with <50 people using AVCs then NI saving will not make diddly squat difference to them so no gretat incentive in many cases.

jamjar92

Wow that’s does surprise me, mine set up one last year with a big push on take up, not sure how many actually set one up.

AlanP_2

They have never pushed AVCs, in fact they do not get any mention at all except for what is buried in the scheme documentation.

I have long held the cynical view that the HR / Pension people were keeping the good news to themselves 

MX5huggy

The man from the Pru comes round fairly regularly (pre COVID) pushing his scheme. 2 out of 6 In my office do it, and those close to retirement seem to do the panic AVC move.