LGPS AVC - Taking 100% cash

Maria2512

Hi,

Do I have to notify Prudential that I intend to take my AVC as a TFLS when I take my LGPS? If so, how long before?

A bit of background - I started my AVC’s with a small amount and gradually increased them over the years. I invested in the ‘high risk’ cat ( Pru S3 equity fund) and have never changed my investments. I want to retire in just over 2 years when I am 60. Should I decrease the risk factor? Do I look at lifestyling? I’m happy to carry on as I am if that is an option. 

Thanks

saucer

Regarding how you’re invested the obvious risk you take is that there is a stock market correction/ crash just before you want the money. If it was me I’d be moving a good chunk into safer funds, which is what the Pru Cash fund is for. You have time and your existing fund may continue to grow, but it is also more exposed to risk if there is a downturn. You might argue you’ve had a good run and need stability now if you couldn’t afford to lose a chunk of the AVC

daveyjp

With retirement in just 2 years its not long to actually lifestyle.  If you are happy with the level of return to this date and the value of the fund you may want to 'lock in' the gains made to date and move to a cash fund very quickly.  If you don't think there will be a huge downturn carry on.

Silvertabby

You tell your LGPS, who will then take the initial payment of your AVC funds before doing their final calculations and then paying the money on to you as your retirement lump sum.

If time is of the essence, then stop your AVC payments at least a month before your retirement date.  This will give the Pru the time they need to finalise your records with your (confirmed) final payment, then to disinvest the whole lot.

Maria2512

Thanks for the input. 

I got a letter from Pru saying they are making changes to the fund I am investing in. They are changing it to’potentially generate better returns in the future whilst maintaining the current risk rating’
They explained their new objectives for the new fund, which I don’t understand. 

I’m confused. Not sure what to do. Do I just sit tight or look at changing my investments. All so confusing. 

Maybe it’s time to see a financial advisor who specialises in LGPS pensions and AVCs I guess. 

Thanks

Bobziz

Not sure you need to see an IFA. 

As you want to withdraw your entire AVC pot tax free in two years the only sensible choice seems to move quickly into the pru cash fund as suggested above. Anything else risks the value of the fund significantly reducing such that you effectively lose the benefit of being able to take it all out tax free. The loss could be even greater if markets were to really drop.

Maria2512

Bobziz said:

Not sure you need to see an IFA. 

As you want to withdraw your entire AVC pot tax free in two years the only sensible choice seems to move quickly into the pru cash fund as suggested above. Anything else risks the value of the fund significantly reducing such that you effectively lose the benefit of being able to take it all out tax free. The loss could be even greater if markets were to really drop.

Thanks. Is there a big advantage/difference in transferring into the Pru Cash fund? I’m tempted to leave it as it is but I’m nervous. I’m quite partial to a punt but will be devastated if a market crash wipes me out

Bobziz

Yes, a big difference. With the cash fund you're pretty much guaranteed to get a return equal to the bank of England base rate less fees and charges. For the Pru cash fund I believe this currently equates, or soon will equate to about 4.4%. This return will reduce as and when base rate is reduced.

In your current fund there are no such guarantees. If you're really lucky you might return something like 7% a year for the next two years. If you're really unlucky you might return -40%. Do you feel lucky ? 

The issue with your AVC is that you can only take it all tax free if you take it at the same time as your main pension. If markets fall significantly just before you retire then you could leave your AVC pot invested to give it time to recover, but you won't then be able to withdraw it all tax free.

Maria2512

Thanks Bobziz, really appreciate it. I will sleep on it and wake up stressed in the morning!

saucer

You shouldn’t be too stressed. You have had grossing up of anything you have put in (ie avoided income tax) and th3 markets have been good. If you put some or all into the cash fund you are banking your gains and you can get it all tax free when you retire. It is a great perk.

Webby68

I finished work at the end of Feb this year after 34 years in Local Government and plan to take my deferred LGPS pension in the next 18-24 months. I moved my AVC into the cash fund 6 months before I finished on the basis I was happy with amount in it and wanted to guarantee no loss before I take it. Helps me sleep easy knowing the AVC capital value is now protected and it's still increasing above CPI (at the moment).