LGPS AVC's to generate a tax free lump sum

Dave_5150

I'm planning to retire in around 3 years after 33 years of Local Authority work so I'm looking of ways to help financial improve my situation.

It has been suggested that if I were to pay £40k in AVC's over the next three years by monthly salary deduction I would be able to access this a £50k tax free lump sum as part of my retirement package. My understanding is that due to tax savings every £800 I pay in would build my AVC pot by £1,000(!).

However whilst this sounds a bit of a no brainer it also sounds almost too good to be true. Does anyone have an experience or knowledge of how this works in practice please? 

Dazed_and_C0nfused

You will be (ever so) slightly disappointed.

It will only £40k not £50k as it's a net pay tax relief scheme.

Dave_5150

Thanks, I'm not very savvy about pensions but the LGPS website says:

"If you take your AVC plan at the same time as your main Scheme benefits, you can take up to 100% of it as tax-free cash. You can do this as long as your total lump sums from the LGPS are not more than:

• 25% of the total value of your LGPS benefits, including the AVC plan
• 25% of the lifetime allowance. The standard lifetime allowance is currently £1,073,100 and 25% of this is £268,275
• 25% of your remaining lifetime allowance if you have already taken some pension benefits."

I'm not really seeing any benefit if I simply get my £40k of AVC contrbutions back as I already have that cash now.

Dazed_and_C0nfused

You can get a personal tax saving under the net pay method.

The exact amount of which will depend on your taxable income.

Could be your £40k only costs you £32k in lost take home pay. Or even just £24k.  Or in-between.  Or more.  Or less.

BettyS63

Check out if your org does salary sacrifice shared cost AVC,  if a basic taxpayer each quid will cost you 68p, and can be a tax free lump sum if taken as part of lgps pension,  'avcwise' on YouTube have a long video that comprehensivly explains it. Happy tax avoiding

daveyjp

Is it a salary sacrifice AVC set up?  Often managed by AVCWise.

https://avcwise.co.uk/

If so total contributions could be significant if saved employer NI contributions are also added to the AVC pot.

Dave_5150

Dazed_and_C0nfused said:

You can get a personal tax saving under the net pay method.

The exact amount of which will depend on your taxable income.

Could be your £40k only costs you £32k in lost take home pay. Or even just £24k.  Or in-between.  Or more.  Or less.

I'm a basic rate tax payer. Apparrantly there is something unusal about the LGPS that enables this, but as I say I'm no expert.

The way it was described to me was the £40k of lost take home pay would purchase a £50k AVC pot which could then be taken as a cash free lump sum providing it is taken at the same time as my existing pension and lump sum.

Dave_5150

daveyjp said:

Is it a salary sacrifice AVC set up?  Often managed by AVCWise.

https://avcwise.co.uk/

If so total contributions could be significant if saved employer NI contributions are also added to the AVC pot.

It's managed by Pru https://www.pru.co.uk/rz/localgov/avcs/ 

Lifematters

My partner opted to pay £1000 per month into his LGPS AVC but his net wage only reduced by £800 per month due to tax relief. I don’t think his is a salary sacrifice scheme where there may be additional savings to be had from NI contributions. 

 

Dave_5150

Lifematters said:

My partner opted to pay £1000 per month into his LGPS AVC but his net wage only reduced by £800 per month due to tax relief. I don’t think his is a salary sacrifice scheme where there may be additional savings to be had from NI contributions. 

 

Thanks, yes that sounds like how our scheme work too from what I understand. If I go ahead I would be looking to pay £40k over 36 months at £1,111.11 per month to put £50k in to my LGPS AVC pot.

OldBeanz

You are correct. The only caveat being you get no tax relief if you go under your personal allowance (default £12570). So low paid part-time staff get no tax breaks while an exec on £80k does.