LGPS when the AVC exceeds 25% of the total pension pot

2biscuit

Hi

My position - age 56, 2 LGPS pensions and 2 seperate AVC pots. I have now sussed (thanks for the clarification everyone!) that I can claim these independently but I am now trying to work how flexible retirement will complicate the matter. As I am tempted to go via this route

My first pension (deferred member) is larger but with a very small AVC (less than 25%) and I am seeking to leave off claiming this as long as possible.

My second pension relates to my existing job and I am considering moving towards flexible retirement next financial year and working part time (3 days from 5). To be honest the salary from the part time post would be suffice and I would not really need to claim the pension but I am being strongly pushed to go down this route.  My confusion relates to the AVC associated with the second pension. At the moment the AVC is ~£100k and the max tax free lump sum is ~£45k, so there is a large amount of extra money that I need to decide what to do with.

I could buy extra LGPS pension and this looked attractive but the amount offered in the latest estimate has gone down and is not particularly appealing. I was wondering whether I could claim the maximum TFLS and then move the rest into a SIPP? Looking at the retirement form and the LGPS website have not been particularly helpful and I am unsure whether this is an option or if I am restricted to cashing out entirely, buying an annuity or extra LGPS pension. 

Has anyone got any pearls of wisdom to throw? 

sg1000

Hi 2biscuit, my understanding is that if you go down the "flexible retirement" route, you have to take the pension at the same time (and then start another LGPS pension).  The lump sum you can take is 25% of the combination of pension x 20 + lump sum + AVCs.  Given the numbers you have provided, £45k lump sum and £100k AVCs, you would need your pension to be around £22k to get most of the whole lump sum and AVCs tax free (£146250 total).

AlanP_2

I would ask your LGPS administrators for a definitive answer, but @Silvertabby may be able to offer an opinion based on her experience in that role.

Sarahspangles

2biscuit said:

Hi

My position - age 56, 2 LGPS pensions and 2 seperate AVC pots. I have now sussed (thanks for the clarification everyone!) that I can claim these independently but I am now trying to work how flexible retirement will complicate the matter. 

Have you checked whether R85 would apply to your deferred pension? 0.6 x salary plus two pensions in payment at 60 might imply you become a higher rate taxpayer?

2biscuit

Just in case anyone is in the same position. My LGPS have come back and advised that you cannot transfer any excess AVC funds out to a SIPP. The only option allowed by the regs after claiming your 25% lump sum is additional Lgps or a annuity 

CTFC

2biscuit said:

Just in case anyone is in the same position. My LGPS have come back and advised that you cannot transfer any excess AVC funds out to a SIPP. The only option allowed by the regs after claiming your 25% lump sum is additional Lgps or a annuity 

Subject to input from the LGPS experts I think its worth pushing further on this I had a similar situation with my DB pension where the administrators were insisting that the scheme said that AVCs in excess of the PCLS could only be accessed by UFPLS or be used by buying an annuity when I wanted to transfer it to a drawdown SIPP. The good folk on here advised that due to the 2015 Pensions Freedoms changes there was no reason why this could not be transferred to a SIPP. There was a lot of hassle but in the end the Trustees lawyers agreed with the MSEers and allowed the transfer. After transfer I raised a complaint with the Pensions Ombudsman and after a long wait the Adminstrators agreed to compensate me for loss if investment growth both between the date when they should reasonably transferred the money and the investment growth during the time taken to resolve the complaint.

In fairness to the administrators is was the first time that they had a situation where the AVC fund exceeded the PCLS so they had defaulted to the scheme rules which had not really considered the 2015 changes.

Silvertabby

Even before the pension freedoms, it was possible to transfer any AVC residual (ie, the amount over the 25% tax free lump sum) to a third party pension provider.  

That said, it was very rare as the majority of people took the additional LGPS pension option (but sounds like the factors aren't as generous as they used to be).

It only really happened in the case of older deferred pensions, when the old rules didn't allow for the purchase of LGPS benefits, so can understand inexperienced LGPS administrators not being totally familar with the concept.  

2biscuit

Having now done further research I have come across this document which appears to directly address the question and confirm what I have been told i.e. no you cannot transfer excess AVC into a SIPP after taking your 25% tax free cash

qanda_freedom_and_choice.pdf (pensionssharedservice.org.uk)

Silvertabby

How much excess are we talking about?  

2biscuit

Silvertabby said:

How much excess are we talking about?  

Probably £75k by the time I jump

xylophone

Has anyone got any pearls of wisdom to throw? 

https://www.lgpsmember.org/your-pension/planning/paying-extra/additional-voluntary-contributions/

Does your authority not produce a guidance sheet as here?

https://lgps.buckinghamshire.gov.uk/currently-payingin/thinking-about-retirement/your-avc-options-at-retirement/