LGPS AVC query

ade1970

Hi there.
I currently pay into an AVC with the LGPS.
I mentioned this to a work colleague who has shown an interest, however he has a deferred pension scheme (DC) and already claimed the 25%.
Does this make a difference to an AVC, as in potential limits in the future? Or is his AVC unaffected by having another pension? He is thinking about ploughing a lot of money into one, hoping to retire in 5 years.
He is aware of the 20x annual pension plus 1x auto lump sum plus 1xAVC x 25%, which he will exceed and would likely swap for additional LGPS benefits.
For information he started with the LGPS in 2021, so no auto lump sum, CARE only. He is 58 years old.

Silvertabby

It's 25% per pension, so not a problem.

ade1970

Thanks for replying Silvertabby, I was hoping you would pass your wisdom on! Just to be clear, his AVC input will be tax free on the way out, or more likely he will be able to purchase extra LGPS benefits. Have I got that right? No MPAA?

Silvertabby

Tax free in, tax free (up to HMRC limits) out.

However, if your friend is on a very high salary AND intends to pay the maximum possible into his AVC fund then he may need to keep an eye on his AA calculations.  His LGPS should be able to advise if he is nearing the limit.

MX5huggy

MPAA is only triggered if any (even a penny) is taken from taxable section of a DC pension (even if no actual tax is paid). 

There is the £268,275 limit on all tax free cash from pensions. Unless they are the chief executive probably not an issue. 

ade1970

Thankyou Silvertabby and Mx5hubby for your advice, much appreciated.

daveyjp

And be mindful five years isn't a very long time horizon for investing so they will need to consider how AVCs funds are invested.

ade1970

Thanks for replying daveyjp.
Would lifestyling be suitable for him?
He doesn't want to go high risk. He's in it for the tax benefits only.

MX5huggy

Life styling could work, but being 5 years out most of the Lifestyling will of already happened, I think going for a cheap close to cash equivalent fund could be preferable. Or take the view that the LGPS is low risk so having a bit of risk for the extra could be a good idea depending what the plan for the money is. 

ade1970

Thanks for the advice MX5huggy, I'll put all the friendly advice to him. He is struggling to get his head around it all!

Dave_5150

There may be a low risk cash fund available depending on the AVC provider e.g. Prudential's Cash S3