Some people have no idea how lucky they are LGPS

OldBeanz

Stegor said:

Albermarle said:

Stegor said:

Morning everyone. My wife works for the local council and has a small LGPS pension. She earns £590 a month so is well below the tax threshold and pays 5.5% into her pension. She is hoping to retire in the next 3 to 5 years, would she be better looking at buying extra years, paying for the in-house AVC, increasing her S&S Isa or opening a SIPP. We are so confused about all of the different options, thank you.

Most likely that all the pension options will be better than investing in a S&S ISA.

Regarding which option it will depend to some extent on what she wants  post retirement.
For example the LGPS pension will be paid regularly each month for the rest of her life. would it be desirable if these monthly lifetime payments were bigger? Or would it be preferable to be able to access more funds when she retires/or in the following few years?

Thanks for the quick reply Abermarle. We would be looking to utilise the funds between retirement and state pension to try and keep our tax burden down. She is 52 at the moment so depending when we retire it would be used to top up our savings and my pensions/earnings until we reach 67.

Being paid under the personal allowance she will not be paying tax so will not benefit from tax relief from the LGPS, APC or AVC.
If she invests in a SIPP then she can get the 20%tax relief which is the equivalent of 25% i.e. pay in £80 and it turns into £100.
When drawing £16.6k (personal allowance +33%) will be tax free assuming no other income.

[Deleted User]

Thank you for your replies

Stegor

OldBeanz said:

Stegor said:

Albermarle said:

Stegor said:

Morning everyone. My wife works for the local council and has a small LGPS pension. She earns £590 a month so is well below the tax threshold and pays 5.5% into her pension. She is hoping to retire in the next 3 to 5 years, would she be better looking at buying extra years, paying for the in-house AVC, increasing her S&S Isa or opening a SIPP. We are so confused about all of the different options, thank you.

Most likely that all the pension options will be better than investing in a S&S ISA.

Regarding which option it will depend to some extent on what she wants  post retirement.
For example the LGPS pension will be paid regularly each month for the rest of her life. would it be desirable if these monthly lifetime payments were bigger? Or would it be preferable to be able to access more funds when she retires/or in the following few years?

Thanks for the quick reply Abermarle. We would be looking to utilise the funds between retirement and state pension to try and keep our tax burden down. She is 52 at the moment so depending when we retire it would be used to top up our savings and my pensions/earnings until we reach 67.

Being paid under the personal allowance she will not be paying tax so will not benefit from tax relief from the LGPS, APC or AVC.
If she invests in a SIPP then she can get the 20%tax relief which is the equivalent of 25% i.e. pay in £80 and it turns into £100.
When drawing £16.6k (personal allowance +33%) will be tax free assuming no other income.

Thanks for the reply OldBeanz, that helps a lot

Silvertabby

ImDoingItForMe said:

I'm sorry to jump on the thread but I wanted an answer to a question.
Someone I know has an lgps pension. They said they pay in by the 50/50 section of the scheme.
They've read this to mean that their employer pays 50% more than they should do.But they pay a lower percentage???
 I've read this as the employee is paying only half of the contributions they should  be because they themselves are also paying half of the contributions they should be.
They're adamant they are right and I am wrong. 

This is a CARE/FS  scheme, so the level of contributions - employer or employee - don't matter (other than being set at  a level that makes the scheme 'affordable').

Does your friend know that the LGPS 50:50 scheme is only a short term option, designed to discourage people with temporary cash flow problems  from opting out altogether?  At some point they will automatically be put.back into the full scheme.  

ADD.  Just to stop the argument, the employer continues to pay the full whack - because those on the 50:50 option still get 100% death/ill health benefits.

[Deleted User]

Silvertabby said:

ImDoingItForMe said:

I'm sorry to jump on the thread but I wanted an answer to a question.
Someone I know has an lgps pension. They said they pay in by the 50/50 section of the scheme.
They've read this to mean that their employer pays 50% more than they should do.But they pay a lower percentage???
 I've read this as the employee is paying only half of the contributions they should  be because they themselves are also paying half of the contributions they should be.
They're adamant they are right and I am wrong. 

This is a CARE/FS  scheme, so the level of contributions - employer or employee - don't matter (other than being set at  a level that makes the scheme 'affordable').

Does your friend know that the LGPS 50:50 scheme is only a short term option, designed to discourage people with temporary cash flow problems  from opting out altogether?  At some point they will automatically be put.back into the full scheme.  

ADD.  Just to stop the argument, the employer continues to pay the full whack - because those on the 50:50 option still get 100% death/ill health benefits.

He doesn't understand any of it. So I told him to talk to his pensions department. He's not bothered. The question and answers were more for me 

SarahB16

Silvertabby said:

SarahB16 said:

Silvertabby said:

Although most people who pay LGPS AVCs do so with the intention of maximising their tax free cash, it is also possible to use some or all of your AVC savings to buy additional  LGPS pension benefits at very favourable rates.

You don't have to declare your intentions when you first take out an AVC policy - it's something you decide when you eventually retire.  You never know, your requirements may change by then.

@Silvertabby    Thank you so much for your wonderful advice.  I do like to read the various threads on here and I remember a little while back reading that AVCs seemed to be less popular these days.  Are my circumstances different (due to being in the LGPS) in that the LGPS lets you take the AVC as a 100% tax free lump sum and my DB pension is left untouched to be used just for an annual pension? 

The pension contributions I make via salary sacrifice to the LGPS takes me from being a higher rate tax payer to being a basic rate tax payer.  This year I was unwell and had to take quite a bit of sick leave from work which will mean my salary this year will all be taxed at 20%.  From 6th April next year after my salary sacrifice pension deductions I think will be into the 40% tax band hence why I am thinking of making AVCs and think it would be sensible to reduce my gross earnings to ensure I am not taxed at 40%. 

This isn't a question but more confirmation that what I am planning on doing makes sense and is the right thing to do as I am not by any means an expert when it comes to AVCs.

I did enquire as to who the AVC pension provider is and it is Aegon.  I presume dependent on my risk appetite I can select the funds I wish my money to be invested in?  Does anybody know if Aegon publish which funds can be selected to be invested in from the AVCs and can I literally pick whichever ones I wish?   

Thank you in advance for any help with my query. 

You are very welcome, but please note that we give information, not advice!

Paying AVCs are indeed a way of saving tax, as the usual intention is tax relief in, tax free out - but note that the tax free out is subject to HMRC limits.  Briefly, that limit is 25% of the notional value of your LGPS benefits plus your AVC pot.

That is,

20 X your LGPS pension (after any reductions for early payment)

Plus

1 X any automatic lump sum (from pre 2008 service)

Plus

1 X AVC fund

Total X 25% = maximum tax free cash (although that may have to be tweeked if the max sum exceeds your AVC and you want to commute some of your pension)

Note:  That's the old calculation.  Some LGPS's are now using a slightly different way of doing things, but the result won't be vastly different.

As you have a bit to go, don't stress about overshooting your AVC limit, as any excess can be used to buy additional index linked LGPS pension.

Can't help with investment funds, I'm afraid, as that isn't my forte - but I see that others have popped up with some information for you.

Thank you again @Silvertabby for all that very helpful information.

A couple of questions if I may. 

Firstly, when you refer to buying additional index linked LGPS pension am I correct in thinking this means it increases with CPI? 

My plan has changed and instead my focus is to use my AVC pot towards a tax free lump sum and anything left over will be used for purchasing additional LGPS pension if I do happen to overshoot my limit.  However, as you mentioned earlier this keeps my options open anyway rather than committing to purchasing additional LGPS pension.   

When I looked at the LGPS calculator it says the maximum amount of additional LGPS pension I can purchase is £7,352 per annum.

So my second question if a person had sufficient funds in their AVC pot (after the tax free lump sum was deducted) so that the remaining AVC pot wasn’t the constraining factor are they allowed to purchase additional LGPS pension that pays £7,352 per annum if they were to retire at 62 or is the maximum LGPS annual pension you can purchase reduced if you are below the state pension age? 

For example, my state pension age is 67 and it says the maximum amount of additional LGPS pension per annum I can purchase is £7,352 but if I were to retire at 62 and say I had a very large AVC pot would the rules permit a pension of £7,352 to be purchased at the age of 62? Of course this would be more expensive as it is paying out five years earlier but I wondered if this was allowed or perhaps they might say at the age of 62 the maximum pension a person can purchase is £6,500?   

Thank you  

Lemon_dr1zzle

You can purchase £7352 regardless of age. 

If you have purchased the maximum you can then purchase a top up each year when the maximum increases 

SarahB16

Lemon_dr1zzle said:

You can purchase £7352 regardless of age. 

If you have purchased the maximum you can then purchase a top up each year when the maximum increases 

Thank you very much and in the highly unlikely event that I not only overshoot my tax free lump sum limit and the maximum amount of additional LGPS pension that I can purchase I presume as I withdraw the rest from my AVC pot it is taxed at the relevant rate for my income in that year?  

Silvertabby

SarahB16 said:

Lemon_dr1zzle said:

You can purchase £7352 regardless of age. 

If you have purchased the maximum you can then purchase a top up each year when the maximum increases 

Thank you very much and in the highly unlikely event that I not only overshoot my tax free lump sum limit and the maximum amount of additional LGPS pension that I can purchase I presume as I withdraw the rest from my AVC pot it is taxed at the relevant rate for my income in that year?  

Yes, increased by CPI.

The chances of overshooting your AVC pot to that extent are - extremely - remote.  Actually, this maximum £7352 refers to extra benefits bought via APCs, not AVCs.  In my 20 years I've never known anyone be limited in the amount of pension they can buy with their AVC pot, and I can't recall any limits being mentioned during AVC training seminars. 

But, yes, if limits have been imposed since my retirement than certainly any surplus could be left with your AVC provider and either taken as a lump sum or drawdown (both taxable).

SarahB16

Silvertabby said:

SarahB16 said:

Lemon_dr1zzle said:

You can purchase £7352 regardless of age. 

If you have purchased the maximum you can then purchase a top up each year when the maximum increases 

Thank you very much and in the highly unlikely event that I not only overshoot my tax free lump sum limit and the maximum amount of additional LGPS pension that I can purchase I presume as I withdraw the rest from my AVC pot it is taxed at the relevant rate for my income in that year?  

Yes, increased by CPI.

The chances of overshooting your AVC pot to that extent are - extremely - remote.  Actually, this maximum £7352 refers to extra benefits bought via APCs, not AVCs.  In my 20 years I've never known anyone be limited in the amount of pension they can buy with their AVC pot, and I can't recall any limits being mentioned during AVC training seminars. 

But, yes, if limits have been imposed since my retirement than certainly any surplus could be left with your AVC provider and either taken as a lump sum or drawdown (both taxable).

Thank you so very much as always.  My confusion arose as I thought I was limited to £7,352 of pension bought from the AVCs.