Topping up LGPS pension contributions due to sick leave and AVC’s query

SarahB16

I would be grateful for some advice please as to whether I need to ‘top up’ my LGPS 1/49th CARE DB pension scheme. 

I work full time but was off sick for c. 8 months and for the last two months (May and June 2022) when I was off sick I received half pay.  On checking my payslips compared to my payslips when I received full pay I can see my pension contributions were half the usual amount.  I presume it would be sensible for me to contact my HR department with a view to making up the shortfall for these two months otherwise on retirement I presume my pension will be reduced slightly due to this?

 

AVC query

On a separate topic I currently do not pay AVC’s as I am planning on moving house in c.4 years when a new housing development completes and am saving my money to put towards the cost of the new house (even though my current home is mortgage free I don’t yet know how much more expensive the house I wish to buy might be).    

My taxable pay after my pension contribution is £4,283 a month so £51,394 a year.  I did not previously wish to make AVC’s due to saving towards the more expensive house I wish to purchase but it seems silly for me to not at least put everything which is taxed at 40% into an AVC fund.  This would be £51,394 less £50,270 a year so c.£94 per month.  I presume this £94 from me would actually be a c.£156 per month contribution due to the tax deducted also going into my AVC fund?  Work do not appear to make any contributions when it is AVC's but I could ask or is it standard in the LGPS scheme that they don't?     

Regarding AVC’s will I be given a choice of funds as to where I wish the AVC's to be invested?  I wondered what I needed to request from HR so they could provide me with the choice of different funds?  I’m 49 years old so my investment strategy is likely to be more risk averse compared to a 25 year old.    

Also am I correct in thinking that the whole of the AVC fund can be fully drawn down at the age of 55?  Ideally I’m hoping I wouldn’t need to do that but just want to understand when, if I needed to, I would be able to access this AVC pot of money?

As you can see I really don't know much about pensions but would be very grateful for some advice on my questions please. 

Thank you   

Dazed_and_C0nfused

What tax relief method would be used to make the AVC contributions?

Net pay (like normal LGPS contributions) or relief at source?

SarahB16

Dazed_and_C0nfused said:

What tax relief method would be used to make the AVC contributions?

Net pay (like normal LGPS contributions) or relief at source?

I'm not entirely sure but my payslip reads as follows if this helps:  

Gross Pay                   £4,706.75
Pension                          £397.86
AVC's                                  0.00  
Taxable pay                £4,282.89  

Dazed_and_C0nfused

Well you would need to be sure to understand what you want to do.

There is no pension tax relief with net pay contributions, they simply reduce your taxable income as in the payslip example you have given.  So you avoid paying tax on some of your salary instead of getting pension tax relief.

If they were net pay contributions you would only need to contribute £94/month to avoid higher rate tax (using the figures from your original post).

AlanP_2

Personally, given your age, I wouldn't bother about the 2 months of half pay pension contributions, and it sounds like you will be back full time.

Work out how much pension you will miss out on, it won't be a lot in the scheme of things.

AVCs, you can take at 55 the same as you can you can your main LGPS pension.

Unless you take the AVC at the same time as main benefits you can't take it as the tax free lump sum so I wouldn't split mine.

Unless your employer offers salary sacrifice then your £94 calculation is corrects as it includes the 40% tax. 

SarahB16

Yes, I see what you mean, all I would do is avoid paying the 40% tax and would not get any further contributions into my fund.  However, it still seems worthwhile me contributing £94/month to avoid higher rate tax.  

Dazed_and_C0nfused

Yes, assuming your figures are correct about being liable to higher rate tax on £1,124 then you would either get between £53 and £54 net of tax and NI or £94 in your defined contribution pension.

SarahB16

AlanP_2 said:

Personally, given your age, I wouldn't bother about the 2 months of half pay pension contributions, and it sounds like you will be back full time.

Work out how much pension you will miss out on, it won't be a lot in the scheme of things.

AVCs, you can take at 55 the same as you can you can your main LGPS pension.

Unless you take the AVC at the same time as main benefits you can't take it as the tax free lump sum so I wouldn't split mine.

Unless your employer offers salary sacrifice then your £94 calculation is corrects as it includes the 40% tax. 

Yes, I'm already back working full time again.  

Regarding what you say (that I have highlighted in bold) just so I'm understanding this correctly.  I can only take the AVC as a lump sum at the same time as I start drawing my LGPS scheme?  My current thinking is I won't be retiring until I'm at least 62 so that means I can't access this AVC as a lump sum until I'm 62?  This is the reason why I don't wish to make sizeable AVC's as the money is tied up in the AVC fund especially whilst I've got a possible house purchase in the next few years. 

Thank you that was helpful to know.    

Silvertabby

Although your pension contributions are a %age of your actual earnings, your pensions accrual will be based on your 'assumed pensionable pay' for the period your pay was reduced.  In its simplest form, that's the average of your 3 months of full pensionable pay before it was reduced due to sick leave.  So, no need to worry about topping up your contributions (other than checking your annual benefit statement to ensure that your HR passed the right figures to your LGPS.....)

Alan is right.  If you want to take your AVC as tax relief in/lump sum tax free out, then it must be taken at the same time as your main scheme benefits. 

OldBeanz

Your AVC is most valuable when you take it at the same time as your main benefits as within very high limits it will all be tax free. You can draw the funds any time after 57 but subject to pension withdrawal rules and tax.

SarahB16

OldBeanz said:

Your AVC is most valuable when you take it at the same time as your main benefits as within very high limits it will all be tax free. You can draw the funds any time after 57 but subject to pension withdrawal rules and tax.

Thank you that's very helpful to know. 

I believe AVC's are defined contributions - do you know where I can see what the options are for the investments in terms of which funds I wish to invest in?  Do you know what I need to ask HR so that I can see this choice of funds?