Difference between AVC and SCAVCs (shared cost AVCs/Salary Sacrifice) - LGPS linked?

joseph80

I am trying to understand the difference between AVCs and SCAVCs (otherwise known as shared cost AVCs or Salary Sacrifice? Is the only difference that SCAVCs have the added advantage of the NI savings or is there anything else?

If relevant, either option would be 'linked' to my LGPS pension in that it would be a separate pot, but one cannot be taken independently of the other. 

dunstonh

Never heard of SCAVC before.  Its not a generic type.    The two types were FSAVC and AVC.

So, I suspect this is some internal name or marketing name for the company that is offering it.

joseph80

dunstonh said:

Never heard of SCAVC before.  Its not a generic type.    The two types were FSAVC and AVC.

So, I suspect this is some internal name or marketing name for the company that is offering it.

Apologies - just edited the post. I didn't realise it was a marketing name. 

NoMore

Shared Cost AVC appears to be a marketing term used by AVCwise (aka My Money Matters) and refers to their Salary Sacrifice AVC scheme. This scheme seems mainly aimed at LGPS.

Who are we | Your Platform for Prosperity | My Money Matters

So yes to the OP, the only difference is contributions are via Salary Sacrifice.

hyubh

joseph80 said:

I am trying to understand the difference between AVCs and SCAVCs (otherwise known as shared cost AVCs or Salary Sacrifice? Is the only difference that SCAVCs have the added advantage of the NI savings or is there anything else?

If relevant, either option would be 'linked' to my LGPS pension in that it would be a separate pot, but one cannot be taken independently of the other. 

A 'shared cost' AVC in the LGPS regulations is nothing more (and nothing less) than an AVC where part of the contribution comes from the employer. Nothing else makes an LGPS SCAVC any different from a regular LGPS AVC.

Some years ago, the people behind AVCWise spotted that the concept of shared cost AVCs in the scheme regulations made possible offering an AVC product paid through via salary sacrifice, notwithstanding the fact that regular LGPS contributions are never paid via salary sacrifice. This is because when a pension scheme uses salary sacrifice, technically the sacrificed salary is for greater employer contributions (so in my occupational DC scheme, where I salary sacrifice heavily, strictly speaking I don't make any employee contributions). While I'm pretty sure that wasn't the original intention of what SCAVCs were notionally 'for', it's formally valid and has given rise to a successful business.

MX5huggy

SCAVC Is the same as Salary sacrifice AVC, you want to take this option because of the NI saving available. 

You can only use it to reduce your Salary to minimum wage or more so the AVC is probably available for those that are paid minimum wage or a small bit more. 

Kernowshep

I don't think all employers in the LGPS offer the (shared cost) salary sacrifice version, those that don't still have the option of making AVC payments.

You can take the AVC pot separately but you would "only" get 25% of it tax free not 100% if taken at the same time as the DB part (the 100% is subject to being below the 25% threshold of the pension "value" which is probably 20x annual pension plus any lump sum plus AVC amount).

With the AVC Wise/My Money Matters version you usually get the employers NI added, in addition to saving the employee tax and NI.

daveyjp

Under LGPS the employers NI savings aren't added to the employees AVC.  Those savings are used to pay AVCwise for administering the scheme.

joseph80

So for me as an employee (paying 40% tax) I guess it’s the difference between 40% tax/NI relief and 42% tax/NI relief? 

So a £500 monthly contribution for example would cost me £290 (SCAVC) or £300 (AVC). 

I’m wondering whether it is worth the effort of my employer setting up a SCAVC scheme as opposed to employees just having access to the standard AVC pot? Although I can see there could still be savings (albeit fairly small) for the employer. 

joseph80

Kernowshep said:

You can take the AVC pot separately but you would "only" get 25% of it tax free not 100% if taken at the same time as the DB part (the 100% is subject to being below the 25% threshold of the pension "value" which is probably 20x annual pension plus any lump sum plus AVC amount).

I thought you couldn’t take the AVC pot separately. I thought you had to take it at the same time as the DB part and vice versa? Have I misunderstood something? 

hyubh

joseph80 said:

Kernowshep said:

You can take the AVC pot separately but you would "only" get 25% of it tax free not 100% if taken at the same time as the DB part (the 100% is subject to being below the 25% threshold of the pension "value" which is probably 20x annual pension plus any lump sum plus AVC amount).

I thought you couldn’t take the AVC pot separately. I thought you had to take it at the same time as the DB part and vice versa? Have I misunderstood something? 

You can leave the AVC pot invested when you take your main scheme benefits, and if so, each would then have its own PCLS maximum as Kernowshep says. Another way is transferring out the AVC pot, since statutory rights to a transfer out apply to main scheme and AVC benefits separately, with only the former classed as safeguarded benefits for the required advice rule. (While it is possible for a particular AVC to be classed as safeguarded benefits, that will be because of the specific AVC product from the insurer, not because of the PCLS link.)