Lgps additional pension bought with AVC

2biscuit

I'm trying to work out whether it is worth buying additional Lgps pension with my Avc or does it make more sense to convert to SIPP. 

I have two Lgps pensions and am considering early retirement (57). One pot will generate a 19k pension at 57 and the other will generate a 5k pension but has an associated 120k Avc. I can claim max ~30k of the AVC as tax free cash on the smaller pension, so this will relate to the other 90k

I haven't got a conversion rate yet but was quoted £4.33 per £100 at 56, so am assuming a figure north of that. 

I can't see there are much in the way of tax reasons not to take the tax free cash straight away. I could either then use to supplement the pension or save. 

Has anyone got any pearls of wisdom for me? And am I missing anything obvious? 

Ebeneezer9

I am in a similar position to OP and have the option of taking my AVC as TFLS if taken at the same time as my LGPS pension.  I would be interested to know if I can use the funds to buy extra LGPS pension and if there is a conversion rate I can use as a rough guide. Help Silvertabby !

JoeCrystal

Considering it is 3.53% for Single life, RPI, 5 year guarantee at age 55 according to HL, you are getting 22% more with LGPS. 

arthurdick

I bought extra LGPS pension with what I had left over from taking the max AVC lump sum that was allowed.  I am very happy with the choice I made (thanks to very good knowledge and explanations, not advice  from Silvertabby)  Okay, it was on a much lower amount than being talked about here but still very happy with it, especially when you take into account the rises each April. If I had the same  choice again, I would go for it without a doubt.  That is what worked for me though, you may have different circumstances and reasons not to.

Silvertabby

Most people with LGPS AVCs are in it for the tax free cash - ie, tax relief in, tax free (up to HMRC limits) out.  However, in your case, sounds like your AVC is linked to your lesser LGPS record and so is over the limit for cash only.

But using some or all of your AVC pot to buy additional fully index linked LGPS benefits is a good option, especially if your priority is a maximum pension for life, rather than immediate cash.  

OP - how much pre 2008 service do you have?  Are you aware that your R85 protections (if any) are still linked to a minimum retirement age of 60?  If you have a decent amount of pre 2008 accruals then hanging on to 60 could make a fair difference to your early retirement actuarial reductions.  Could give you a better conversion rate on your AVC purchase as well (note I say 'could' because these factors are set by GAD and are subject to change.....)

Another option, if you are set on retiring at 57, could be to leave your LGPS benefits deferred until you are 60, but transfer your AVC to a SIPP and use that to fund the 3 year gap.  Not a decision to be taken lightly, as you would lose all the benefits of having your AVC linked to the LGPS (maximum tax free cash, buying additional LGPS benefits).

There is no right or wrong answer - it all depends on what works for you. ie, max possible cash or max possible index linked pension.

hyubh

Ebeneezer9 said:

I am in a similar position to OP and have the option of taking my AVC as TFLS if taken at the same time as my LGPS pension.  I would be interested to know if I can use the funds to buy extra LGPS pension and if there is a conversion rate I can use as a rough guide. Help Silvertabby !

You can find the current factors here:

https://lgpsregs.org/schemeregs/actguidance.php

Scroll your way down to 'AVCs - purchase of additional pension' and open up the latest factor spreadsheet (https://lgpslibrary.org/assets/actgui/ew/Factors_20231002_2023-04.xlsm as I type this). Looks like it's tab x-806 on that (AVC to AP, non-ill health retirement, post-2016 pension).

2biscuit

Silvertabby said:

Most people with LGPS AVCs are in it for the tax free cash - ie, tax relief in, tax free (up to HMRC limits) out.  However, in your case, sounds like your AVC is linked to your lesser LGPS record and so is over the limit for cash only.

But using some or all of your AVC pot to buy additional fully index linked LGPS benefits is a good option, especially if your priority is a maximum pension for life, rather than immediate cash.  

OP - how much pre 2008 service do you have?  Are you aware that your R85 protections (if any) are still linked to a minimum retirement age of 60?  If you have a decent amount of pre 2008 accruals then hanging on to 60 could make a fair difference to your early retirement actuarial reductions.  Could give you a better conversion rate on your AVC purchase as well (note I say 'could' because these factors are set by GAD and are subject to change.....)

Another option, if you are set on retiring at 57, could be to leave your LGPS benefits deferred until you are 60, but transfer your AVC to a SIPP and use that to fund the 3 year gap.  Not a decision to be taken lightly, as you would lose all the benefits of having your AVC linked to the LGPS (maximum tax free cash, buying additional LGPS benefits).

There is no right or wrong answer - it all depends on what works for you. ie, max possible cash or max possible index linked pension.

I have 17 years of pre 2008 service in my larger pension and none in the current smaller pension. When I run the numbers in the benefits calculator on the lgps website it doesn't seem to make any significant difference if I leave until I am 60. The latest pension is from 6 years service since 2018 and yes I have been pumping a lot of cash into the Avc. I was under the impression that the R85 if relevant would only apply to my earlier pension and not the Avc. How much of a difference is R85 likely to make? 

I am tempted to just claim the larger pension and then use the associated lump sum to subsidise the pension and claim the smaller pension and Avc further down the track ie post 60 but think the gains are likely to be nominal. 

2biscuit

As in there is no perceivable significant jump in values between 59.5 and 60

Silvertabby

If you have two separate records, the R85 only applies to the older one, and never to AVCs.

Yes, the difference between age 59.5 and 60 will be minimal - but you mentioned going at 57?

2biscuit

Silvertabby said:

If you have two separate records, the R85 only applies to the older one, and never to AVCs.

Yes, the difference between age 59.5 and 60 will be minimal - but you mentioned going at 57?

Yep two separate records, pension would be £21.7k at 60, £20.7 at 59 and 19.9k at 58. I was expecting a noticeable uplift for R85 but couldn't detect one

Chloe_G

I noticed that the online calculator doesn't show any extra uplift for me between 59 and 60 which concerns me as I have got R85.