LGPS with AVCs - maximum lump sum

Knowhere

Just when I think I'm understanding things, I'm getting confused again!

So... I believe that when taken at the same time as my main LGPS benefits, I can take up to 100% of my AVC as tax-free cash as long as the total lump sums from the LGPS+AVC are not more than 25% of the total value of my LGPS benefits, also including the AVC plan.

The calculations I have for this then is-

Total Benefits = (LGPS annual pension x 20) + LGPS lump sum + AVC

Max Tax Free Cash = Total Benefits x 25%

Max AVC = Max Tax Free Cash - LGPS lump sum

So therefore if I had an LGPS of say £12,000, a lump sum of £20,000, and an AVC of £50,000

Total Benefits = (£12,000 x 20) + £20,000 + £50,000 = £310,000

Max Tax Free Cash = £310,000 x 25% = £77,500

Max AVC = £77,500 - £20,000 = £57,500

So based on that, the AVC wouldn't be far off the maximum before exceeding the tax free threshold?

Does that look right ?

Thanks

ps any further comments on my other thread would be welcome,

https://forums.moneysavingexpert.com/discussion/6379304/lgps-and-retirement-date

particularly after my last update re the lump sum and CPI increase!

AlanP_2

Looks right to me.

Secret2ndAccount

          

Silvertabby

Is that hypothetical £20K lump sum all from your pre 2008 service?

If it is then, you are on the right track. 

Knowhere

Thanks for the replies, much appreciated.

Silvertabby said:

Is that hypothetical £20K lump sum all from your pre 2008 service?

If it is then, you are on the right track. 

Hi Silvertabby, yes indeed, the £20K would be all pre 2008 service.

Good to know I'm understanding correctly now then - I'd previously not been deducting the pre 2008 lump sum from the total max tax free cash, so it looked like you could have a larger AVC than you actually can.

Sorry to ask again, but is it better to take it (i.e. the pension, but particularly considering the lump sums) just after the annual CPI increase is applied?

Silvertabby

Knowhere said:

Thanks for the replies, much appreciated.

Silvertabby said:

Is that hypothetical £20K lump sum all from your pre 2008 service?

If it is then, you are on the right track. 

Hi Silvertabby, yes indeed, the £20K would be all pre 2008 service.

Good to know I'm understanding correctly now then - I'd previously not been deducting the pre 2008 lump sum from the total max tax free cash, so it looked like you could have a larger AVC than you actually can.

Sorry to ask again, but is it better to take it (i.e. the pension, but particularly considering the lump sums) just after the annual CPI increase is applied?

Are you intending to retire and take your pension straight away, or are you a deferred pensioner?

If currently working, then hanging on until after 1 April next year will mean that only your CARE element of pension will be revaluated by the annual cost of living increase (10%?).  Your pre 2008 lump sum won't be affected, other than by the old rules final salary link.

If you are a deferred pensioner, and will have been deferred for a full year by next April, then taking your benefits after 10 April will result in all of your pension - and the lump sum - being credited with the cost of living increase. 

Knowhere

I've finally got it! Thank you again Silvertabby, and I've also found another thread too (LGPS Deferred Pension — MoneySavingExpert Forum ) where you explained it in even more detail.  Makes sense now.

I'm not a deferred pensioner - If I'm hopefully able to retire at 55 that will be early 2025 so would be taking the pension straight away.  Still doing the maths as to what we can do - in the ideal world I'd be deferring until I was 60 and have the R85 protection, but as it'd be unlikely we'd have any other income other than the wife's pension don't think that's feasible (and would appear to be a long time before you 'break even' by waiting for the increased pension.  Another thread for another day maybe?)

Thank you again

Silvertabby

In that case, don't fret about keeping your AVC under the tax free limit - the excess can be used to buy LGPS benefits at very favourable rates.

Knowhere

Silvertabby said:

In that case, don't fret about keeping your AVC under the tax free limit - the excess can be used to buy LGPS benefits at very favourable rates.

Would these benefits suffer from the same reductions for taking the pension early at 55?
Or only worth considering when planning a later retirement?

Silvertabby

Knowhere said:

Silvertabby said:

In that case, don't fret about keeping your AVC under the tax free limit - the excess can be used to buy LGPS benefits at very favourable rates.

Would these benefits suffer from the same reductions for taking the pension early at 55?
Or only worth considering when planning a later retirement?

It's an annuity, but on way better terms than open market annuities.  The factors are age related, so , say, £10K of AVC funds will buy more pension at 65 than 55.

You can choose with or without spousal benefits, with not much of a reduction to your own pension if you choose 'with', and it's fully index linked.

k6chris

Silvertabby said:

In that case, don't fret about keeping your AVC under the tax free limit - the excess can be used to buy LGPS benefits at very favourable rates.

I looked at my options (a small LGPS pension with a relatively large AVC pot) and concluded that using it all to buy an annuity was a no brainer.  Was I wrong??