Pay into LGPS AVCs v LGPS

DAVBER2020

Hi All, I've seen a number of really good threads on the difference of paying into AVCs v APCs.  I still haven't found my answer to my specific question so thought I would ask on here and hopefully someone knows. I'm currently age 51 and would like to retire at 58 - 60 and top up my LGPS Pension for my retirement.  My questions are as follows:

Q1. I currently pay in a fixed 30% of my pay every month and after another two years will hopefully have an AVC pot of approx £100k.  Should I continue to pay into this and then buy a top up LGPS pension?  If I do is there a limit on how much top up pension I can buy?  If I continue to pay into the AVCs, I worked out I should have circa £150K.  Is there a way of calculating what this would buy roughly as an LGPS yearly pension?

Q2. Or should I spread the risk and pay into an APC pension where the current maximum is £8344?  I understand this would just be for me and wouldn't cover my wife should anything happen to me, but equally if I were to be ill and need to retire on ill health grounds, I would be paid the pension as if I were to pay for the full period e.g. say if I got ill after 1 year but pension was to be paid into for 6 years, I would still get the same extra pension, a big benefit of using the APCs.

I welcome your views on each question, my basic pension excluding building up extra is going to be approx £9k to £12k depending on the exact date I go for.  I understand the tax free element I can take from AVCs, my question here is about maximising the actual amount of extra pension I can get so working out should I consider both options or continue just paying into AVCs and with investment growth there shouldn't be a limit to the amount of extra pension I buy with the value unlike with LGPS in 2024 is currently £8344.

many thanks

Lemon_dr1zzle

Have you worked out how much it will cost you to purchase the £8344 of APC pension? 

Silvertabby

Lemon_dr1zzle said:

Have you worked out how much it will cost you to purchase the £8344 of APC pension? 

....and how much that £8344 would be reduced  by for early payment?

As I've said before, APCs seem expensive (you pay all the costs) but are good value if you don't take your benefits before (in your case) SPA.  Not so much if you intend to take them from 58/60, due to the early retirement deductions.

There is no limit to how much additional pension you can buy using some or all of your AVCs.  But note that the factors are age related, so £X AVCs at SPA will buy you more LGPS benefits than the same amount of AVCs at 58/60.

ADD.  Are you considering APCs because there is a possibility of ill health retirement?  Yes, if that were the case, then you would receive the full contracted amount.  But, for this very reason, APC contracts require a medical certficate confirming that your GP is not aware of any reason why you won't be able to complete the X year contract.  

DAVBER2020

Thanks for your feedback Lemon and Silver Tabby.  I'm currently in reasonably good health however having turned 50 and seeing some family members and family friends being diagnosed with terminal cancer and sadly die it focuses the mind so hence I want to consider all options and plan accordingly. I should have enough in SIPP and other AVCs to either consider keeping my LGPS pension and just taking at the NPA with no reductions or take it all at 60 and have the reductions.  I therefore have to consider this element as this is a factor as you say with the APCs.  In terms of risk, I'm a risk taker and cashed in my previous Final Salary scheme from a past employer to invest myself and I'm currently doing well.  I want to balance the risk now as I get closer to retirement so weighing up taking the pension at 58 - 60, and LGPS AVCs as additional top up pension or keeping pension invested and taking it at NPA with no deductions and then paying into APCs as then no deductions.  I'm targeting an overall pension of circa £35k per annum when I retire.  Thanks for confirming there is no limit on the amount of top up LGPS pension you can buy with inhouse AVCs, this is most likely the route I will take and add this to my regular pension and take all at maximum of 60.  

daveyjp

Also review your AVCs and ensure they are salary sacrifice if this is offered.  Some older ones aren't so there is no NI saving on your contributions.

DAVBER2020

daveyjp said:

Also review your AVCs and ensure they are salary sacrifice if this is offered.  Some older ones aren't so there is no NI saving on your contributions.

Unfortunately my local authority doesn't offer salary sacrifice, this is something I asked of too!

MX5huggy

Maybe ask again and remind them that they save the employers NI which has just taken a big jump. Maybe ask the cabinet member for finance in your council why they don’t want to make this saving for their council tax payers. 

The AVC’s win for me because of the cost of the APC and the fact the AVC is available to my wife. 

Sarahspangles

DAVBER2020 said:

daveyjp said:

Also review your AVCs and ensure they are salary sacrifice if this is offered.  Some older ones aren't so there is no NI saving on your contributions.

Unfortunately my local authority doesn't offer salary sacrifice, this is something I asked of too!

The effect of salary sacrifice on CARE schemes needs to be considered, as your pensionable pay is reduced. If your employer offers salary sacrifice for e.g. Cycle to Work there are usually sections in the bumf that explain this.

MX5huggy

Sarahspangles said:

DAVBER2020 said:

daveyjp said:

Also review your AVCs and ensure they are salary sacrifice if this is offered.  Some older ones aren't so there is no NI saving on your contributions.

Unfortunately my local authority doesn't offer salary sacrifice, this is something I asked of too!

The effect of salary sacrifice on CARE schemes needs to be considered, as your pensionable pay is reduced. If your employer offers salary sacrifice for e.g. Cycle to Work there are usually sections in the bumf that explain this.

Salary Sacrifice for AVC’s with LGPS does not effect your main (CARE) pension they keep using your notional full salary to calculate your contributions and pension earned. 

Sarahspangles

MX5huggy said:

Sarahspangles said:

DAVBER2020 said:

daveyjp said:

Also review your AVCs and ensure they are salary sacrifice if this is offered.  Some older ones aren't so there is no NI saving on your contributions.

Unfortunately my local authority doesn't offer salary sacrifice, this is something I asked of too!

The effect of salary sacrifice on CARE schemes needs to be considered, as your pensionable pay is reduced. If your employer offers salary sacrifice for e.g. Cycle to Work there are usually sections in the bumf that explain this.

Salary Sacrifice for AVC’s with LGPS does not effect your main (CARE) pension they keep using your notional full salary to calculate your contributions and pension earned. 

Ah that makes sense

DAVBER2020

Thanks for all the really good feedback, I'm a newbee and understand a reasonable amount on pensions but was pleased to get a good steer from others here whom have the experience.  I therefore feel in my situation I will aim for maximising the in house AVCs, use some of it to purchase  top-up AVC pension and rest perhaps as towards the 25% tax free lump sum.  My thinking have a defined some as pension to cover the main bills and day to day expenditure and then possibly drawdown for other items. Thanks All.