S&S ISA vs SC AVS in LGPS

Lloyd90

Ok here goes,

Currently age 33 employed in Local Government.

I work in a niche area of the LG and work unsocial hours so get an enhancement on my pay (With enhancement etc, next year it's going to be just under £70k PA).

I am paying 8.5% into the LGPS and if I work until I am 68 (which I aim not to) I would apparently get a pension in today's money worth just over £54k PA. 
If I retire at 55 (although I don't think I'll be allowed to in future) I would get a pension just over £20k PA, 

My aim obviously is to retire as early as possible. I was recently paying around £500 per month into a Stocks and Share ISA invested in a 100% equity fund (higher risk as I am young and so far away from retirement). 

My goal was initially to pay into this at that rate hopefully until age 50, at which point I could (hopefully) retire and potentially 'draw down' off that ISA until I take my LG pension at a later date to try and limit the amount it is reduced for taking it early. 

Currently I believe the earliest you can retire on the LGPS is 55, but have heard this is changing to 'within 10 years of the state pension age' so in future will be 58 (but likely also increase again by the time I am that age). 


Here is the question: Whilst looking into AVC with the LGPS I have found that my provider is not yet, but may be soon, offering a shared cost AVC system. 

Am I better off paying into the SCAVC's instead of an ISA?

I understand that I would save 40% and 2% NI so to pay £500 pcm into this avc would only cost me approx. £290 pcm take home loss. Obviously that is a big bonus, downside however being I can't take this money until approx 8 years later than initially planned if they move retirement to 58 minimum. 

My understanding is that I can take my AVC pot as a tax free lump sum (as long as not more than 25% of the total pension pot).
When taking this lump sum, do I have to take my pension at the same time? Or can you cash out the lump sum but delay the pension to reduce the reduction? 

I am also considering paying into this shared cost AVC at £290 loss of take home pay, and sticking the other £210 in the ISA as a sort of 'best of both worlds' option. 

Would appreciate any helpful advice or guidance.

dunstonh

My aim obviously is to retire as early as possible. I was recently paying around £500 per month into a Stocks and Share ISA invested in a 100% equity fund (higher risk as I am young and so far away from retirement). 

The pension wrapper beats ISA wrapper for the majority of people unless you are looking at retirement earlier than age 58.

My goal was initially to pay into this at that rate hopefully until age 50, at which point I could (hopefully) retire and potentially 'draw down' off that ISA until I take my LG pension at a later date to try and limit the amount it is reduced for taking it early. 

It may be better to not take the LGPS early and use the pension wrapper to fund that gap.

Am I better off paying into the SCAVC's instead of an ISA?

As mentioned, pension beats ISA providing its for 58+

draiggoch

Might be a good idea to have a SIPP as well as the shared cost avc. Still going to save 40% tax on the sipp. The SIPP could be used to cover a few years retirement before taking the LGPS with avc. 

If you also add some to the ISA then this covers the age before 57/58 for an earlier retirement.

Lloyd90

draiggoch said:

Might be a good idea to have a SIPP as well as the shared cost avc. Still going to save 40% tax on the sipp. The SIPP could be used to cover a few years retirement before taking the LGPS with avc. 

If you also add some to the ISA then this covers the age before 57/58 for an earlier retirement.

What’s the earliest age you can take a SIPP? 

QrizB

Lloyd90 said:

draiggoch said:

Might be a good idea to have a SIPP as well as the shared cost avc. Still going to save 40% tax on the sipp. The SIPP could be used to cover a few years retirement before taking the LGPS with avc. 

If you also add some to the ISA then this covers the age before 57/58 for an earlier retirement.

What’s the earliest age you can take a SIPP? 

Plan on it being much like the earliest age you an take your LGPS pension - currently 55, soon to be 57, probably 58 by the time you get there.

OldBeanz

Taking the AVC with the main benefits will allow you to take a very large sum tax free. My wife has just drawn a lump sum of £30k on a pension of £4k - she overshot and bought more pension. While you can separate the pensions into 2 it is really the golden cherry on top if you can draw both at the same time.

cloud_dog

I believe most (no guarantees) LG schemes offer contributions to be undertaken under a Salary Sacrifice arrangement, saving you on NICs as well as tax (although only 2% savings for a HRT payer).

 

BillyHorner

The main benefit that most would see from AVCs (in the local government sector) is that you can usually take the full amount as a tax free lump sum upon retirement (within the 25% rules to which you refer). To be clear though, you can only do that if you take your main LGPS benefits at the same point in time. You can't draw it down as a tax free lump sum, live off it for a while and then draw your LGPS benefits at a later date.