Additional Pension Contributions / Additional Voluntary Contributions?

gingapete

Hi, I'm a few years off 60 and been in a LGPS for nearly 28 years.

I considered EVR last year, and decided its not worth it, annual pension would be two thirds of my normal pay, then id get taxed on that, so i need another few years before considering that again. 

But I recently heard someone mention Additional Pension Contributions and Additional Voluntary Contributions that they had been doing the last few years and this has increased their pension pot by a fair bit. I'm not sure how it works and whether its worth paying extra per month APC, AVC or both into my pension or pay extra off my mortgage?

Currently i think my employer contributes 6.5% towards my pension and i pay a few hundred a month in to it too.

What I'm saying is i don't know enough about pensions to make a decision on what to do with some extra cash i have, is it better to top up my pension for the next 3 years, how much would that enhance my pension pot/monthly payments?

I wish i had paid more attention, but it is what it is

Any help or pointers would be great

Dazed_and_C0nfused

gingapete said:

Hi, I'm a few years off 60 and been in a LGPS for nearly 28 years.

I considered EVR last year, and decided its not worth it, annual pension would be two thirds of my normal pay, then id get taxed on that, so i need another few years before considering that again. 

But I recently heard someone mention Additional Pension Contributions and Additional Voluntary Contributions that they had been doing the last few years and this has increased their pension pot by a fair bit. I'm not sure how it works and whether its worth paying extra per month APC, AVC or both into my pension or pay extra off my mortgage?

Currently i think my employer contributes 6.5% towards my pension and i pay a few hundred a month in to it too.

What I'm saying is i don't know enough about pensions to make a decision on what to do with some extra cash i have, is it better to top up my pension for the next 3 years, how much would that enhance my pension pot/monthly payments?

I wish i had paid more attention, but it is what it is

Any help or pointers would be great

The way you phrases this suggests you might think you have a pension pot with LGPS.

You don't, you have a pension which will be paid in accordance with the scheme rules (a defined benefit pension).  So there is no "pot" to add to.

At the moment that might be you earn say £30k and pay your 6.5% (£1,950 gross only £1,560 after factoring on tax relief) and in return you earn a (inflation protected) pension of £612 😀.

But LGPS has a number of options for additional contributions, one very popular one being that you pay into a separate defined contribution pension and when you come to retire you can usually take a significant, if not all, of that separate amount as a tax free lump sum.

So you get tax relief paying in but there is no tax on some or all of it when you take it out.

There are a other options so you probably need to decide what your main aim is to know which would be best for you. 

Kernowshep

Read the LGPS website & check your work intranet/staff benefits into to see if they have an approved AVC salary sacrifice scheme, if so read about that.

I expect it's you paying 6.5% - assuming you earn between £27,601 and £44,900 (so won't be paying HR tax). Your employer will pay whatever it takes to ensure the final salary & Career Average parts of your pension are covered (probably 25-30%).

LGPS AVCs when taken at the same time as the main pension can be taken tax free (up to a certain amount approx 25% of the annual value x20 + the AVC amount). I'd use that to pay off the mortgage later. You'll save more if doing it via salary sacrifice is an option because you'll save on NI payments and may have the employer NI amount added too (often by My Money Matters formerly AVC Wise).

Calculators on LGPS website would show the extra benefits gained from APCs based on what you wanted to pay in (but I'd probably go down the AVC route for the tax saving). Edited to add: your actual pension scheme should have a website portal that shows your actual details.

You'll have some R85 protection so taking pension early might not reduce as much as expected (depends on what you think you need in retirement to know if it's enough of a difference).

Also remember you won't be paying 6.5% pension contributions, commuting costs etc, or NI once at retirement age, so the reduction in take home pay once you retire might not be quite as much as you think.

pterri

Dazed_and_C0nfused said:

gingapete said:

Hi, I'm a few years off 60 and been in a LGPS for nearly 28 years.

I considered EVR last year, and decided its not worth it, annual pension would be two thirds of my normal pay, then id get taxed on that, so i need another few years before considering that again. 

But I recently heard someone mention Additional Pension Contributions and Additional Voluntary Contributions that they had been doing the last few years and this has increased their pension pot by a fair bit. I'm not sure how it works and whether its worth paying extra per month APC, AVC or both into my pension or pay extra off my mortgage?

Currently i think my employer contributes 6.5% towards my pension and i pay a few hundred a month in to it too.

What I'm saying is i don't know enough about pensions to make a decision on what to do with some extra cash i have, is it better to top up my pension for the next 3 years, how much would that enhance my pension pot/monthly payments?

I wish i had paid more attention, but it is what it is

Any help or pointers would be great

The way you phrases this suggests you might think you have a pension pot with LGPS.

You don't, you have a pension which will be paid in accordance with the scheme rules (a defined benefit pension).  So there is no "pot" to add to.

At the moment that might be you earn say £30k and pay your 6.5% (£1,950 gross only £1,560 after factoring on tax relief) and in return you earn a (inflation protected) pension of £612 😀.

But LGPS has a number of options for additional contributions, one very popular one being that you pay into a separate defined contribution pension and when you come to retire you can usually take a significant, if not all, of that separate amount as a tax free lump sum.

So you get tax relief paying in but there is no tax on some or all of it when you take it out.

There are an other options so you probably need to decide what your main aim is to know which would be best for you. 

Yep, that’s what my pension scheme has. Very nice although you can’t access that until you draw the DB pension. I’ve also got an SIPP that I intend to use to bridge 3yrs before starting the DB and acccess the AVC FUND. 

Sarahspangles

gingapete said:

Any help or pointers would be great

https://www.lgpsmember.org/your-pension/paying-in/paying-more/

gingapete

Big thank you to @Dazed_and_C0nfused, @Kernowshep, @pterri and @Sarahspangles, i will be raising a query with LGPS (Merseyside Pension Fund) to see about getting AVC set up and use my over-payments on my mortgage for this. So thank you all

pterri

gingapete said:

Big thank you to @Dazed_and_C0nfused, @Kernowshep, @pterri and @Sarahspangles, i will be raising a query with LGPS (Merseyside Pension Fund) to see about getting AVC set up and use my over-payments on my mortgage for this. So thank you all

It’s a great perk but as above, if it’s like mine then the pot from the AVCs plus growth are only available when you access the DB. It’s a great deal though, at the moment I’ll be able to get £133k tax free. Will be feeding that into an ISA. Also got a SIPP going to bridge between 57 and 60, I’m lucky as mortgage paid off.

Kernowshep

gingapete said:

 I will be raising a query with LGPS (Merseyside Pension Fund) to see about getting AVC set up

Pretty sure you'll need to get the info from your employer, for both setting it up, and to see if they do the shared cost AVC. (Not the MPF who manage the LGPS scheme on behalf of loads of employers - https://mpfmembers.org.uk/content/additional-voluntary-contributions-avcs)