Teachers AVC - early retirement - other options

collins74

Hello

My wife and I pay into AVCs - I pay into the LGPS one to increase my TFLS and my wife is in the Teachers Pension Scheme one - both are with Prudential.

 We decided to start these at the same time following a seminar from the Prudential over the LGPS options.  However we were a bit naive and didn’t realise there is a difference between the schemes in that the teachers AVC cannot be taken as a TFLS like the LGPS one.  

My wife wants to retire early and we came round to the idea of taking annual lump sum payments from her AVC keeping her within her tax allowance to avoid tax and not draw main scheme benefits.  Once the AVC has been depleted she can take her main scheme benefits and thus reduce the actuarial reductions.  Originally we wanted to use both AVCs to build up our cash savings which are now really low but we don’t feel this is the best use of her AVC.

Recently we have started to question whether the teachers AVC is the best strategy as the scheme also offers enhanced accrual rates if you pay more in each year. At this point we have become confused over what is best and we have steered away from the APC/accrual rate route as our understanding was that they are inflexible when compared to AVCs and would be subject to actuarial reductions.

I rang the Teachers Pension Scheme in the week for some general advice but they were non committal which I completely understand.

Some basic facts about my wife’s position:

Age: 44
Service: 15 years
AVC value: £19000
Paying in AVC: £300 per month
Salary: £54000
Hoping to retire: 57 or 58

Can anyone offer us any pointers/experiences/thoughts over the options for building up extra pension in the teachers scheme given these circumstances.  After reading the info on the teachers scheme website we don’t feel any wiser.

Hope I have given enough info.

Thank you

Dazza1902

I may stand corrected, I think the only advantage of the TPS avc over a Sipp is the tax situation for higher rate tax payers IE no faffing about with the tax office.
 No sure at the chosen date of taking it that the Pru support ufpls .. taking £16660 per year tax free rather than a one off 25% tfls. However at that point could just transfer to a Sipp that does. Guess it depends on if you need a lump sum or income.
BUT wait for knowledgeable folk to comment.

Dazed_and_C0nfused

Dazza1902 said:

I may stand corrected, I think the only advantage of the TPS avc over a Sipp is the tax situation for higher rate tax payers IE no faffing about with the tax office.
 No sure at the chosen date of taking it that the Pru support ufpls .. taking £16660 per year tax free rather than a one off 25% tfls. However at that point could just transfer to a Sipp that does. Guess it depends on if you need a lump sum or income.
BUT wait for knowledgeable folk to comment.

You are correct re the tax relief however unless the op has omitted to mention some other taxable income (other than a little bit of interest or dividends) or she is Scottish resident for tax purposes his wife won't be a higher rate payer.

The normal TPS contributions on £54k will be ~£5,500 so she will be well under the higher rate threshold even before the AVC is factored in.

OldBeanz

As you have worked out the two AVC's are completely different when you come to draw them.
Your AVC should be able to give you a substantial lump sum.
Previous threads on DB pensions suggest taking them early is not the best option (although to the pension scheme are cost neutral) unless there is some underlying health concerns.
You can buy extra pension or increase the rate you pay so that you can draw the pension early - again they are costed to be of similar benefit.
The AVC gives you more flexibility, the APC a more definite outcome.
Don't think there is a right or wrong answer i.e. do one or other or 50/50 but look on the TPS web site and understand the APC options.
https://www.teacherspensions.co.uk/members/working-life/paying-in/increasing-your-pension.aspx

MX5huggy

We’re in a similar situation, albeit with LGPS and NHS (and I don’t know about Teachers AVC’s). As my employer offers Salary Sacrifice AVC’s I make nearly the largest contributions possible (National Minimum Wage being the limiting factor) as savings towards “our” pension. 

Dazza1902

Think they'll has answered their own question in a way. Adding  to the TPS via enhanced accrual will not help facilitate early retirement in the flexible way they want.