AVCs - Worth it?

sbrinn

I have a question regarding AVCs and the Local Government Pension.

I retired from the police a few years ago and I have now a part time job which comes under the local government pension scheme.

My wife and I had kids quite late, so we are still in receipt of child benefit for our two children which is paid to her. She earns below the £50k threshold.

My income now as a result of index linking and pay rises has crept above £50k. I haven't worked it out fully, but it is in the region of £52,500

My question is whether it would be worth looking at utilising AVCs in my present employment to drop my income after pension payments to ensure that our child benefit isn't cut. I am not totally sure as to how they work having always been in a defined salary scheme previously.

I am assuming that if I elect to pay the difference between my income and the £50k limit for child benefit to be paid then I will be subject to tax relief on the AVC payments and will also benefit from not seeing our child benefit reduced.

I am only 55 so have a fair few years to go before I access state pension and I am quite happy in my current position so I doubt I will be looking to retire anytime soon.

Again an assumption, I believe that the LGPS is based upon a calculation of service time vs salary and the AVC is completely stand alone and will basically be something I can draw from on an annual basis once I retire?

Dazed_and_C0nfused

sbrinn said:

I have a question regarding AVCs and the Local Government Pension.

I retired from the police a few years ago and I have now a part time job which comes under the local government pension scheme.

My wife and I had kids quite late, so we are still in receipt of child benefit for our two children which is paid to her. She earns below the £50k threshold.

My income now as a result of index linking and pay rises has crept above £50k. I haven't worked it out fully, but it is in the region of £52,500

My question is whether it would be worth looking at utilising AVCs in my present employment to drop my income after pension payments to ensure that our child benefit isn't cut. I am not totally sure as to how they work having always been in a defined salary scheme previously.

I am assuming that if I elect to pay the difference between my income and the £50k limit for child benefit to be paid then I will be subject to tax relief on the AVC payments and will also benefit from not seeing our child benefit reduced.

I am only 55 so have a fair few years to go before I access state pension and I am quite happy in my current position so I doubt I will be looking to retire anytime soon.

Again an assumption, I believe that the LGPS is based upon a calculation of service time vs salary and the AVC is completely stand alone and will basically be something I can draw from on an annual basis once I retire?

Is it your salary which is taking it to £52,500 or your taxable pay (P60 pay figure)?

As a member of LGPS there will be noticeable difference between salary (generally not of interest to HMRC) and taxable pay.

Silvertabby

LGPS AVCs are popular because of the generous tax breaks when taken with your main scheme benefits.  ie, tax relief in, tax free (within HMRC limits) out.  Or you can use some or all of your AVC fund to buy additional fully index linked LGPS benefits.

sbrinn

Hi - it is the taxable pay I'm afraid - just worked it out and it slightly worse than I thought..

I get approx £36,500 pension and £17,774 taxable pay (minus pension contributions)

I therefore make it that I have a taxable income of £54,074 (roughly) to consider reducing unless I want to pay around £800 back in child benefit charges.

Dazed_and_C0nfused

sbrinn said:

Hi - it is the taxable pay I'm afraid - just worked it out and it slightly worse than I thought..

I get approx £36,500 pension and £17,774 taxable pay (minus pension contributions)

I therefore make it that I have a taxable income of £54,074 (roughly) to consider reducing unless I want to pay around £800 back in child benefit charges.

For HICBC purposes you will need to factor in all taxable income, even that taxed at 0% like interest and dividends, but additional pension contributions are likely to be very tax efficient in the scenario you are describing.

You will save some 40% as well as the £800 HICBC.  No brainer really.

sbrinn

Silvertabby said:

LGPS AVCs are popular because of the generous tax breaks when taken with your main scheme benefits.  ie, tax relief in, tax free (within HMRC limits) out.  Or you can use some or all of your AVC fund to buy additional fully index linked LGPS benefits.

Thanks,

Is there an idiots guide to all this somewhere?
My previous experience was always based on final salary scheme - ie 1/60th per year in first 20 years then 2/60th for last 10 years, then your allowance (in my case 40/60ths) times your best year out of your final 3.

AVC and similar stuff is all new to me and I don't really understand how they work. It may be worth me seeing a financial advisor.....

daveyjp

AVC is merely a pension saving scheme so on retirement you have a lump sum.

They generally make sense under LGPS, especially if operated under salary sacrifice (if it doesn't ask your employer why not) as you also pay lower NI.  £10 of AVC contribution only costs the employee about £7.

Anoher bonus is the lump sum can be withdrawn tax free (subject to a limit you are unlikely to reach as years of service will be low).

cloud_dog

Just a comment... I think some LG AVC schemes may operate under a Salary Sacrifice arrangement, so you may want to check that out.