AVC and pension maximum lump sum

MX5huggy

Remember that most AVC contributions for LGPS members are now via Salary Sacrifice. So with the NI Savings 40% becomes 42% and 20% becomes 28%. Plus you wouldn’t pay student loan repayments either (although that is a harder thing to work out the benefits of). 

Kernowshep

Plus some have the 13.8% employer NI savings on the sacrificed amount added as well.

estorilhammy

Thanks for all the replies, they have been very helpful and the figures given by Saucer will help me understand more accurately what my money in will be worth as money out.

EH

estorilhammy

Another related (from my point of view) but totally unrelated question.

I receive my wage and my military pension. I believe that my pension is taxed at 40% as my wage puts me into the 40% tax bracket. I am shaving anything over 40% from my wage into my AVC but it would be easier and better for me if my pension was seen as my primary income and receive 0% tax up to my personal allowance and then 20% tax on the remainder. My wage would then be taxed straight away at 20% with the 40% tax rate kicking in when I earn approximately 35K (35K + 17K pension = 52K which is approximately where 40% tax rate kicks in).

It would be much simpler for me as I could see monthly what my 40% tax rate was and alter my AVC payments as it is linked directly to my AVC payments. At the moment I would have to work out what my payments are and apply for a refund as necessary but that refund wouldn't be paid gross of tax into my AVC. 

Does this make sense. Is it correct. Is it easy to do with the tax man?

EH

Dazed_and_C0nfused

estorilhammy said:

Another related (from my point of view) but totally unrelated question.

I receive my wage and my military pension. I believe that my pension is taxed at 40% as my wage puts me into the 40% tax bracket. I am shaving anything over 40% from my wage into my AVC but it would be easier and better for me if my pension was seen as my primary income and receive 0% tax up to my personal allowance and then 20% tax on the remainder. My wage would then be taxed straight away at 20% with the 40% tax rate kicking in when I earn approximately 35K (35K + 17K pension = 52K which is approximately where 40% tax rate kicks in).

It would be much simpler for me as I could see monthly what my 40% tax rate was and alter my AVC payments as it is linked directly to my AVC payments. At the moment I would have to work out what my payments are and apply for a refund as necessary but that refund wouldn't be paid gross of tax into my AVC. 

Does this make sense. Is it correct. Is it easy to do with the tax man?

EH

To understand how this could work you need to know what contribution method is being used for your AVC payments.

The three usual possibilities are, 

Relief at source (25% is added to your net contribution)

Net pay (no tax relief is added but the contributions reduces your taxable income)

Salary sacrifice (similar to net pay but you are actually agreeing to a reduced salary in return for extra employer contributions.  No tax relief is added to employer contributions but as you don't have the salary in the first place you avoid paying tax and NI).

estorilhammy

Hello D&C,
                  It's a net pay scheme.

Thanks

EH

pterri

Silvertabby said:

Retired now, but during my time as a LGPS administrator the calculation (using your figures) was thus:

20 X £24.00 = £480.00

1 X £30,000

1 X £100,000

£480,000 + £30,000 + £100,000 = £610,000 X 25% = £152,500 maximum tax free cash.

If you wanted the maximum tax free cash, then you would have to commute some of your annual pension at the p. poor rate of 1:12.  Plus commuting reduces the overall value of your pension, so the calculation would have to be run again resulting in a lower 25% tax free figure in addition to a lower pension.

I'm aware that the LGPS now uses another calculation, but the overall result isn't much different.

NOTE:  To my knowledge, the LGPS is the only public sector pension fund that allows all of the AVC fund (within these limits) to be taken as tax free cash.  In the case of other public sector schemes, the DB parts and the AVC DC parts are calculated separately.

The Transport for London one does as well. Bit of a bargain, I’m debating whether to withdraw it tax free and feed it into an isa over a few years rather than transfer it to a SIPP.

estorilhammy

I have had a bit of a look and it was never explained very well but I only pay £1 and my employer pays the other £XXX so I think its actually a Salary Sacrifice scheme. 
Back to my original question;

The 40% I pay on my military pension would be better off being redirected into my AVC. Is there any way that I can have my pension as my primary income and therefore more of my wage hitting the higher (40%) tax rate and therefore me saving even more?

EH