LGPS That time has come what to do with AVC

Tiggy777

Hi all

I have posted here before in the run up to my retirement and now that time has come when I need to decide what to do with my AVC which I have been able to contribute into since August 2016.  I started paying into the LGPS since May 1980 with no breaks. 

I have been given 3 options in relation to my AVC which are

Option 1 Take your Prudential AVC as cash
Option 2 Make arrangements with a company of your choice
Option 3 Purchase an annuity with Prudential

I am slightly confused as I also read of the LGPS website that applied it was possible to buy a top up LGPS pension. Unless that comes under option 2 above.  See LGPS member site I am presuming I cant buy extra membership as I started paying into my AVC after 2001

I am presuming going down the extra LGPS route whichever way would be more beneficial than buying an annuity with a third party? 

I did leave local government employment back in April 2021 (aged 59)  but have drawn any pension benefits yet but plan to in May 2022 (aged 60)

Would appreciate any view or advice...

Thank you for your time

Kind regards

Tiggy

Silvertabby

It used to be that if you left and deferred payment of your benefits until later, then you couldn't use all/any of your AVC fund to buy additional benefits when you eventually came to draw your pension.

However, that changed in 2014 and, based on what you have said, you should have the option of buying additional LGPS pension (not additional service).

Calculating the additional pension available, and then dropping the figures into the letter template wasn't a 5 minute job even before Covid.  As over 90% of pensioners go for the maximum tax free cash option, your administrator may have thought it would be unnecessary to include this option.  I would ring them to ask for some figures.

Tiggy777

Silvertabby said:

It used to be that if you left and deferred payment of your benefits until later, then you couldn't use all/any of your AVC fund to buy additional benefits when you eventually came to draw your pension.

However, that changed in 2014 and, based on what you have said, you should have the option of buying additional LGPS pension (not additional service).

Calculating the additional pension available, and then dropping the figures into the letter template wasn't a 5 minute job even before Covid.  As over 90% of pensioners go for the maximum tax free cash option, your administrator may have thought it would be unnecessary to include this option.  I would ring them to ask for some figures.

Hi Silvertabby. 

Thank you very much for your reply. 

I will give them a call

Nice to catch up again   

Regards Tiggy

Secret2ndAccount

It depends on the numbers - the relative size of your Final Salary part and your AVC. It also depends on your personal circumstances of course. However, here is the likely situation:
For the Final Salary part, it is much better value to take zero lump sum, and receive the maximum annual pension. Do the following calculation:
Find the maximum annual pension from the final salary part, with zero lump sum. Multiply that by 20.
Add the value of your AVC pot.   This gives the total value of your LGPS pension.
Divide this total by 4. This is the maximum amount you can take tax free.
If your AVC is less than this limit, take the AVC as cash. You paid it in tax free; you get it out tax free; nice deal!
Now you have to figure out what to do with all that cash. Max out your ISA (and your other half's?). Do that again in April. If there's more, open a general investment account and invest the rest in there. Spend some of it - live a little

To summarise and generalise, you use the AVC as the tax-free lump sum, and you keep the maximum guaranteed for life, inflation proof income

k6chris

I have a small LGPS pension (not yet taken) and looking at the figures, it made far more sense to use the AVC to buy extra pension. Ultimately it depends whether you have a need for the TFLS?  If not, take the additional pension.

Toddy2

I'd be interested to know which way you go, as I'll be in your position in years to come.  I'd be considering Option 2 transferring my AVC in to a drawn down so as to defer my LGPS and have less of a reduction for taking this early.  Although would be good to know what extra service the AVC buys and whether this would counter the reduction for taking the LGPS early.