Shared Cost AVC

Seanybhoy68

I received the following email from my work HR. I've booked an online seminar at the end of January but wondered if anyone had any knowledge of this? Whatsthe advantages and disadvantages compared to the standard AVC I currently have?

As a member of the Local Government Pension Scheme (LGPS) that pays Additional Voluntary Contributions (AVCs), you have access to a valuable new employee benefit.

 

******* Council is now offering you access to a salary sacrifice Shared Cost Additional Voluntary Contribution (Shared Cost AVC) scheme.

 

A standard AVC is an Income Tax efficient way to save for retirement and provides an opportunity for you to supplement your LGPS to build up an additional retirement fund.* They are available and beneficial to you, no matter how close or far you are away from retirement.

 

A Shared Cost AVC can save you money in both Income Tax and National Insurance contributions (NICs), making it more beneficial for you when compared with paying AVCs in the standard way. A £100 contribution will only cost a basic rate taxpayer £68.12!

 

NoMore

Sounds like they are offering you salary sacrifice for the AVC. I don't know why they called it 'shared cost' instead of the standard and accepted Salary Sacrifice. It's similar to my work who call it S.M.A.R.T. pensions, and I don't even know what the acronym stands for!

Info on Sal Sac here: What is a salary sacrifice scheme? - Money Advice Service

hyubh

NoMore said:

Sounds like they are offering you salary sacrifice for the AVC. I don't know why they called it 'shared cost' instead of the standard and accepted Salary Sacrifice.

Because salary sacrifice = technically employer contributions for tax purposes, and a 'shared cost' AVC in the LGPS is an AVC involving an employer contribution. Nothing more than that.

Marcon

hyubh said:

NoMore said:

Sounds like they are offering you salary sacrifice for the AVC. I don't know why they called it 'shared cost' instead of the standard and accepted Salary Sacrifice.

Because salary sacrifice = technically employer contributions for tax purposes, and a 'shared cost' AVC in the LGPS is an AVC involving an employer contribution. Nothing more than that.

But actually with no cost sharing, since it costs the employer nothing more than some admin - which will be more than covered by the employer's NI saving.

hyubh

Marcon said:

hyubh said:

NoMore said:

Sounds like they are offering you salary sacrifice for the AVC. I don't know why they called it 'shared cost' instead of the standard and accepted Salary Sacrifice.

Because salary sacrifice = technically employer contributions for tax purposes, and a 'shared cost' AVC in the LGPS is an AVC involving an employer contribution. Nothing more than that.

But actually with no cost sharing, since it costs the employer nothing more than some admin - which will be more than covered by the employer's NI saving.

Well yes, but also beside the semantic point. 'Shared cost AVC' is just the LGPS term for 'an AVC with an employer contribution'. The concept of a shared cost AVC wasn't intended to enable an AVC paid purely from salary sacrificed 'employee' contributions, it was more like a modern alternative to the old compensatory added years (CAY) option. In practice no LGPS employer with a functioning finance department is going to pay more pensions contributions than it has to, however an enterprising provider spotted the ability to use the definition of 'shared cost AVCs' in the scheme regs to offer a salary sacrifice-based product, and successfully flogged their services to various LA employers. 

Redsox64

I’m not a financial expert but in simple terms this is how I understand it. I too am in LGPS and was paying into a standard in house AVC. I now contribute via the ‘shared cost’ AVC. You sacrifice x amount from your salary which your employer contributes directly to your AVC pension fund, the benefit for you being no tax or national insurance on that amount. 

Dunky62

Hi.

I have set up a normal AVC for my wife to bring her earnings to the personal tax allowance. 12.5k ish. However if it was salary sacrifice would it not be limited to bringing her down to minimum wage level.

jamjar92

The council I work did this just over a year ago. If you will not miss £68 ish from your net pay (take home pay) you will get £100 in your AVC pot. You will probably get it all back as a lump sum tax free, when you retire from the LGPS. I have contributed enough to mine now to pay the balance of the mortgage when I plan to retire early. Any residual will be added to the LGPS lump sum to spend for fun, thus keeping the max DB benefits thereafter.

So I would say its a no-brainer. My AVC is managed by the PRU, so I spread my AVC across several fund options in the medium to high risk bracket, which have all done well over the past few years rather than the scheme "default" which will vary between the different LGPS's. The plan is to move to less risker funds just before the planned retirement date, which probably would be the cash fund for majority.

I can vary the amount I pay in, so some months I pay more, but normally its additional £300 per month on top of the LGPS amount.

daveyjp

Judging by another long thread the biggest downside is having to deal with the Prudential.

OldBeanz

daveyjp said:

Judging by another long thread the biggest downside is having to deal with the Prudential.

The Pru tell me that if I change my investment through their web site, as it encourages me to do, then they write to my Pay Provider but do not check if the change is actioned as I could subsequently make a change directly through my employer. The Pension Ombudsman is querying the process.
Meanwhile every complaint eventually brings an apology for ignoring the complaint and a nice cheque for the inconvenience.
Farcical does not cover it.

AlphaKappa

It would have been nice if the employer NI savings made by the council is "shared" to give an additional uplift to the contribution - but apparently seems not to be the case.
My employer once offered "free shares" of which zilch was free. All had to be paid for (but from pre-tax money).