Am I on the right lines - new SIPP

phynix_uk

The LGPS AVC (Prudential) option is by far and away the better option than AJ Bell or even an alternative provider. draiggoch is spot on. You will be able to utilise the AVC to fund the tax-free cash element of the AVC essentially meaning you can access up to 100% of the AVC tax-free rather than the 25% a separate DC pot can offer.

If in retirement, you're receiving income above your personal income tax allowance (£12,570)from the LGPS and then want to draw additional funds from a separate DC pot  (AJ Bell) you will have to pay tax at your marginal rate (20%/40%/45%). This would instantly make the option worse than the AVC.

What advantage does the AJ Bell offer you? It'll also be more expansive than the AVC. The only real advantage would be fund options offered by another provider (AJ Bell) but if you're looking at money market funds, this is also negligeable. There are simply very few scenarios where the AVC isn't a better option, it's the main advantage and reason to use it in fact.

af1963

Separate SIPP allows them to get some pension savings and income in her partner's name. Sounds like her partner will have no other income from age 60-67. So anything taken from his SIPP ( up to £17K ish including 25% tax free) could be available at zero tax during these years.  Might be a factor.  But if AVC available tax free too , there are fewer (tax related, at least) reasons to divide the income in this way. 

itsmecathy

Thanks both. Af1963 is right in that this is to build pension income for my partner who will not be a tax payer, so tax relief in and tax free out for him (as would only be withdrawing approx 11k pa.)

I understand that any AVC that I build would also be tax free in and out (only at basic rate). This was my original plan and we would just fund partners half of our required joint income from this. However it was suggested that wise to build pension for him to use personal allowance. I guess there is no tax difference in reality for us as a couple but it just seems fairer to do it that way.

And I'm perhaps not understanding why an AVC would be cheaper. Charges seem to be about 0.63 for Pru Vs 0.42 for AJBell (plus £1.50 per purchase). Am I missing something?

I am eventually likely to do a mix AVC and partners SIPP so if anyone can assist in what Prudential fund is most similar to HSBC global balanced then that would be great.

Partner has opened an AJBell SIPP today but not paid anything in yet. Small steps! Thanks again.

phynix_uk

I think you're still missing the main point. The AVC is linked to the LGPS, meaning you will be able to draw ALL of it out tax free. This is only available with the AVC option, it is very different to the separate pot idea and far more attractive.
Your charges for the AVC are possibly cheaper but that's by the by, the AJ Bell option will never get closer to tax on the way out. It can't get better than no tax.

itsmecathy

Thanks phynix. I still don't get it, but thanks anyway 

AlanP_2

itsmecathy said:

Thanks phynix. I still don't get it, but thanks anyway 

As far as I can see in your circumstances there is no difference between an LGPS AVC for you (taken tax free) and a SIPP for your other half (withdrawn at a level lower than personal allowance so tax free).

In fact the SIPP option offers more flexibility as their withdrawals don't have to start at the same time as commencing your main LGPS benefits (AVC is only tax free if all done at same time).

itsmecathy

Thanks AlanP that was what I was thinking. Will put some in my AVC too for a larger lump sum but in my circumstances I think the SIPP is a ok option.