LGPS - Boosting My Pension options

LoopySnooker

Hi folks,

Currently considering some LGPS APCs using salary sacrifice and looking for some opinion on whether it’s a good (or bad) idea.

Situation: part-time, approx £16k, with marriage allowance tax code (1383). Not paying a great deal of tax or NI but was hoping to sal.sac. around £260 per month which will eliminate my Tax and NI.

The way I’m thinking is that for £3120 less salary I could save around £700 Tax/NI and get an additional £280 annual pension. However, by reducing my salary by £3120 I would lose roughly £64 pension accrual so only £216 actual pension gain for £2400 nett cost to me (per year).

Another option I have looked at is putting a £2k lump sum in to purchase approx. £180 extra pension. Would I be able to claim back any tax relief from HMRC if I did this ? If so that may be a better option.

For info I’ll also be paying around £10k into a SIPP to get an additional £2500 Tax Relief.

Thanks for reading my long-winded post and any suggestions or comments would be really appreciated.

MX5huggy

Do you have enough salary over the National minimum wage £9.50 per hour  to salary Sacrifice that much, your gross salary after the salary sacrifice must be equal or more than NMW. 

Your LGPS pension should not be effected by salary sacrifice to pension they use something like nominal salary (I may have got the name wrong) so the LGPS grows as if the sacrifice was not made.

Do they offer AVC’s via Salary Sacrifice? 

LoopySnooker

MX5huggy said:

Do you have enough salary over the National minimum wage £9.50 per hour  to salary Sacrifice that much, your gross salary after the salary sacrifice must be equal or more than NMW. 

Your LGPS pension should not be effected by salary sacrifice to pension they use something like nominal salary (I may have got the name wrong) so the LGPS grows as if the sacrifice was not made.

Do they offer AVC’s via Salary Sacrifice? 

Thanks, I should be fine regarding NMW as I'm only working about 22 hours. Interesting about the salary sacrifice not affecting the pension. I'd need to check about the AVCs, not sure TBH.

Dazed_and_C0nfused

Another option I have looked at is putting a £2k lump sum in to purchase approx. £180 extra pension. Would I be able to claim back any tax relief from HMRC if I did this ? If so that may be a better option.

With that type of lump sum contribution to a (usually) public sector scheme the contribution works like the Personal Allowance.

It will reduce your taxable income and your tax liability is recalculated on that basis.

So if you earn say £14,500 and have paid a total of £135 in tax then the tax refund would be limited to £135.

OldBeanz

What you might like to think about is giving your marriage allowance to your husband increasing the tax you pay then paying as much of this taxable money into an avc. This increases your husband's income and maximises your contributions into your avc most of, if not all, you will be able to take as a tax free lump sum when you take your main pension. Tax sheltered on the way in and out.

Dazed_and_C0nfused

OldBeanz said:

What you might like to think about is giving your marriage allowance to your husband increasing the tax you pay then paying as much of this taxable money into an avc. This increases your husband's income and maximises your contributions into your avc most of, if not all, you will be able to take as a tax free lump sum when you take your main pension. Tax sheltered on the way in and out.

The problem with that is for most people in receipt of Marriage Allowance it's because their spouse doesn't need it.

There are exceptions and the spouse could be earning £50k and still be eligible to have applied.  But it's much much less likely.

LoopySnooker

Thanks to all for the comments.

Regarding Marriage Allowance, my wife doesn't use up all of her PA which is why I get the extra currently, although I may need to switch it around in a couple of years' time.

So until I pay enough tax to be able to get some decent Tax Relief from the APC / AVC contributions, I may as well top up my SIPP with 12k and get 3k added on in Tax Relief. At least this helps me diversify and build up a reasonable DC pot that I can draw on when I'm able to.

Lemon_dr1zzle

APC pension won’t provide a pension for your wife should you pass away before her. 

LoopySnooker

Lemon_dr1zzle said:

APC pension won’t provide a pension for your wife should you pass away before her. 

That’s a very important point so thanks for mentioning it.

jamjar92

I looked at APC's, and opted to pay AVC's because of the spouse pension element. The AVC's have since move SS, so even better. If you build up the AVC pot, which you normally can take as TFLS. You can however use some or all of this to purchase additional pension if that is what you decide to at retirement.

It should also be noted, that the APC benefits nothing is paid to your estate if you pass before you take the benefits

LoopySnooker

jamjar92 said:

I looked at APC's, and opted to pay AVC's because of the spouse pension element. The AVC's have since move SS, so even better. If you build up the AVC pot, which you normally can take as TFLS. You can however use some or all of this to purchase additional pension if that is what you decide to at retirement.

It should also be noted, that the APC benefits nothing is paid to your estate if you pass before you take the benefits

Thanks for this regarding AVCs. I’ve actually been reading a good document about Shared Cost AVCs on the Dorset Pension Fund website (not my area):

https://dorsetpensionfund.org/media/ms4kcbdq/salary-sacrifice-affects-to-pension-scavc.pdf

If I’m reading it correctly and my LGPS does Shared Cost AVCs via SS it also addresses my concerns about SS resulting in my pension accrual being reduced. Therefore I’d still get 1/49 based on full salary, even if I sacrifice 3k.

If anyone could clarify my understanding it would be appreciated.