LGPS buying extra pension with AVC (Offer given)

phynix_uk

If you don't need more income don't convert the AVC. You will pay more tax on income you don't need and if you die you'll essentially only pass on a percentage of that extra income to your spouse. 

If you do need additional income it is an attractive option and probably better than the open market option.

The LGPS AVC offers you the opportunity to draw more than the standard 25% out as Tax Free Cash (TFC) when drawing the main scheme. (As you highlighted). In your case you can draw £136k TFC and the remaining £41,000 will have to go towards income and the open market is then your best option for that annuity. 

The other option is to take standard benefits from the DB LGPS and break the AVC away essentially keeping it as a standalone personal pension. The AVC is however unlikely to offer drawdown so you might want to consider transferring it to a more flexible arrangement where you can draw income/TFC as and when needed. The remaining funds stay invested allowing for future growth and along with this the funds remain outside of your estate for inheritance tax with 100% death benefits to your spouse/beneficiaries. Purchasing income only protects some of this for your spouse, there's no legacy planning advantages.

MX5huggy

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

I think it’s ok to take the whole lot (well £136k). Working with the whole lot £177k it’s only £6570 after tax so it would take 26 years to get your money back (although inflation will reduce this time). 

LGPS main scheme lump sum is expensive at only giving 12 pound for every pound of pension given up.