LGPS - TO APC OR NOT TO APC?

borland01

Husband (48) hasn't planned for retirement (scared of numbers and has buried his head in the sand), but is finally letting me have a look at it for him.

He's been a member of the LGPS through the council for the last 2.5 years and assuming he works until NPA, if  reading the projections correctly, it looks as though he'd get an annuity of around £21k.

He has the option to buy an additional £8k via APCs for around £975 a month over the next 10 years.

Alternatively, if he put that £975 a month into AVCs, assuming a (perhaps optimistic 5%* return), he'd have a pot of over £150k after 10 years with another 8 or 9 years of potential growth until NPA.
*or £130k at 2%

What I am trying to work out is the value of that additional £8k annuity starting in 2043 (say with 20 years after NPA) so that I can compare it to the cost he'd be contributing.

Appreciate the 5% is probably optimistic but I assumed before looking at it that the APCs would always be the best deal, but doesn't look like that at the moment.

What am I missing?

collins74

It’s good you are looking at this.  There are many others contributors better qualified than me to give more accurate information but this is what I know.  

As a general rule i believe APCs are great if you go the distance to your normal retirement age however they don’t include survivor benefits and if taken before normal retirement age, they get reduced.  Also I believe they can’t be done via salary sacrifice,

AVCs are tax (and national insurance free if salary sacrifice) free on the way in and the whole pot may be taken within certain limits as tax free cash.  You have to take your LGPS pension at the same time to take it all as tax free cash.

I want to retire at 60 but can’t afford to max out my TFLS doing the 1to12 commutation that would see my income reduce, so I use AVCs to build up my tax free cash.  I presume no growth on these when planning for retirement and put in as much as I can to get to the maximum TFLS.

Other posters will provide greater clarity and depth than me but thought I would share my thoughts having been in the LGPS for over 20 years.

Good luck

borland01

Thanks Collins 74. I didn't realise the APCs couldn't be done via salary sacrifice. Will look into that. Would be another tick on the negatives list. 

collins74

Yes that’s what I understand with APCs but may be best to let someone else more in the know confirm this. Thanks 

AlanP_2

Not all LGPS schemes let you do AVCs as SS, need to check relevant specific details that apply to his employer.