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

Silvertabby

Rules have been tweeked since my time, but the way I read it OP can now only transfer out AVC funds to a SIPP/drawdown pension if they transfer ALL of their AVC funds prior to retirement.  This would then mean that the tax free cash option would be limited to 25%.

When I used to compare the annuities offered by the Pru and the LGPS, the LGPS factors were way higher.  I appreciate that the LGPS factors have since been reduced, but how do they now compare with an annuity offered by the Pru?  I'm guessing that the LGPS may still be higher, bearing in mind that the LGPS annuity will be index linked.

I know isn't really what you want to do but, in the overall scheme of things, is £75K that much of a percentage of your overall funds?  Would taking out a LGPS annuity be such a problem?

2biscuit

I agree not a massive deal but was hoping for more flexibility and the ability to possibly pass this money on. Was just difficult to get a definite answer. Now that I have one just sharing it with the forum. I'm sure if the factor hadn't gone down I wouldn't have even considered it 

wookee82002

I appreciate this is an old thread, but my wife is about to be exactly in the same position and we would probably look to stop the AVC contributions now then pay directly into a SIPP (albeit with the 8% loss from the NI salary sacrifice).

She Has asked the question of the Pru/pension people, but we are still waiting on an answer. Does anyone know if there has been any change in this situation?

Aylesbury_Duck

I'm interested, too. Like a previous poster, I'll probably have an excess of between £50k and £70k and while I am highly likely to use it to purchase more LGPS, drawing down from it or moving it to a SIPP for drawdown would be an alternative I might use if it were available.

SarahB16

I too am in the LGPS and have not received any notification of a change of the rules. I am forecasting as best as I can so I can take my LGPS AVC 100% tax free and if I exceed the limit I'm not entirely sure if I will take it and pay the marginal tax rate at age 65 of 20% tax (state pension age for me is 67) or convert to additional pension (not yet sure when I'm 67 if I'll be a 20% or a 40% tax payer).

My plan is to not overshoot my LGPS AVC tax free limit by diverting my LGPS AVC contributions to my SIPP very soon (in approximately a year) and can then pivot between the two (LGPS AVC and SIPP) with my contributions as I fine tune my contributions and forecasts at least every year and more than that as I approach retirement.

I will have two years from taking my LGPS AVC pot (at 65) to drawing my state pension (at 67) where I will definitely not be a higher rate tax payer during those two years so may possibly take the excess (if there is any) and take the 20% tax hit at that time but not an amount which would mean I'm taxed at 40%.

At the moment there are far too many unknowns but for anybody who will exceed the 100% tax free limit you could take some of the excess and pay 20% tax on that excess (staying below the 40% threshold) and take the rest as additional LGPS pension.

wookee82002

This is kind of the plan we have.

Can I just clarify that any excess in the AVCs can be taken out so long as she pays tax on it at her marginal rate? It wouldn't be much at all.

SarahB16

https://forums.moneysavingexpert.com/discussion/comment/81919334#Comment_81919334

That is my understanding however @Silvertabby will be able to confirm that is the case.

Silvertabby

Yes, AVC excess may be taken as cash, subject to tax at the marginal rate. Never known this happen in my 20 years, though - first choice was always the purchase of additional fully index linked LGPS benefits.

wookee82002

https://forums.moneysavingexpert.com/discussion/comment/81919432#Comment_81919432

We'll have a look into that, thanks. Although the excess is only likely to be about £30k, so it very much depends on the conversion rate.

daveyjp

I've seen figures of around £14k buying an additional LGPS index linked income of £1k a year, but don't know the calculation or how it varies with age, years of service etc. At that rate £30k would buy about £2k a year.