LGPS buying extra pension with AVC (Offer given)

Tiggy777

Hi all
I am just about to draw my pension under the LGPS having worked in local government since 17 and paying into the LGPS since I was 18 ( I am just about to turn 60)
I also have an AVC of £177k and thought about buying some extra LGP as it's indexed linked.
I have been offered £8.212.80 per annum (uncapped) index linked pension and wondered how that compare with an open market annuity? (and also does that seems right in terms of calculation/offer)
Would appreciate any ideas.
Many hanks for your time.
Regards
Tiggy

Dazed_and_C0nfused

There are various things to consider when comparing to an annuity.

A couple of the more obvious ones,

Would you want it to rise at a fixed % each year or are you happy with a higher starting amount with no inflation proofing?

Do you want payments to continue to a spouse when you die?

Tiggy777

Thanks for the reply. 
In relations to the question...Yes to inflation proofing and payment to wife if l die.
Thanks
Tiggy

Dazed_and_C0nfused

There are some examples here.

https://www.hl.co.uk/retirement/annuities/best-buy-rates

The final one suggests your £177k could buy an annuity of £4,765 with joint life cover and a 3% increase.  Not sure if there are annuities with uncapped increases but if there are it would no doubt be reflected in a reduced starting amount.

These are supposedly best buy rates but it may be possible to get better by shopping around but it's a long way short of £8,212!

Tiggy777

Dazed_and_C0nfused thank you very much for the useful information and your time in replying 
Regards 
Tiggy

ussdave

I'd go for it personally.  My wife is with lgps and I hope she can get something similar when she retires.

ewaste

As you'll be able to tell an open market annuity won't even be on the same planet. It's a difficult choice if you've already got a DB income that will cover all your basic expenses. However at that ratio and uncapped CPI for life there is a lot to be said for the peace of mind of the regular risk free income come what may.

Laycity

How much is your standard DB pension paying? Would the extra income tip you into the higher tax bracket now or at SP age?

Can you access the entire 177k tax free and is that attractive? You could take the max allowed and buy extra pension with the rest? 

Tiggy777

Laycity said:

How much is your standard DB pension paying? Would the extra income tip you into the higher tax bracket now or at SP age?

Can you access the entire 177k tax free and is that attractive? You could take the max allowed and buy extra pension with the rest? 

Thanks for your message, that's a really good point.  My pension is about £27k and l also have about £15k of rental incomes pa.  So with the state pension l will be getting close. 

I could take about £136k tax free from the AVC... for me it's about getting the balance right something l struggle with.

Regards 

Tiggy

Albermarle

As said to buy an annuity with similar conditions would probably cost around £400K . However it is worth taking into account that the cost of annuities varies in line with certain conditions in the financial markets, and they are currently relatively poor value for money in historical terms . So maybe it is not a completely fair comparison.

Another way to look at it , is what sort of income £177K could generate in an invested drawdown pension/investment pot . Although it is not guaranteed , there is a rule of thumb that you can safely take around 3.5% pa of the pot . This will increase with inflation and there should be something like a 95% chance it will not run out before you are 90. In fact the likelihood is that there will be quite a lot left when you die.
3.5% of £177K gives you around £6Kpa . In your case around 75% of this could be taken tax free.

An additional point to consider is that you could keep the whole £177K as a pension pot . Leave it invested but never take any money from it ( if you don't need obviously ) This can be passed on to your heirs, and as an additional benefit it would not be included in any Inheritance tax calculations.

Just another option to consider, especially as you will have a 28K guaranteed pension anyway + state pension .

OldBeanz

Tiggy777 said:

Laycity said:

How much is your standard DB pension paying? Would the extra income tip you into the higher tax bracket now or at SP age?

Can you access the entire 177k tax free and is that attractive? You could take the max allowed and buy extra pension with the rest? 

Thanks for your message, that's a really good point.  My pension is about £27k and l also have about £15k of rental incomes pa.  So with the state pension l will be getting close. 

I could take about £136k tax free from the AVC... for me it's about getting the balance right something l struggle with.

Regards 

Tiggy

When you draw your state pension your income will be £51k sitting very near the HRT rates with inflation to add in and personal allowances not rising then you may well be by the time you draw your state pension.
You haven't stated any partner; projected large purchases, sale of rental or inheritance requirements/plans but you do appear to have a healthy income.