Max TFLS with LGPS/AVC

SarahB16

Aylesbury_Duck said:

SarahB16 said:

Aylesbury_Duck said:

SarahB16 said:

Knowhere said:

Thank you.
I’Il have to have a good think about it but stopping my AVC and ensuring I don’t have an excess whatever the circumstances seems like it might just be easier/safer.
If so, I would ensure the amount I normally put in the AVC is saved/invested to have available if necessary when I take the benefits.

Ensuring that I don't have an excess that I would need to take as additional pension is something that I'm very mindful of too.

I'm c.10 years away (hopefully) from retirement at c.62 years but based on my current £1,000 (gross) contribution a month I use forecasting tools which show what this could grow to in 10 years with £1,000 a month contributions and varying levels of growth.  Noting in the years from 62 to 65 the growth is likely to be lower as I derisk my AVC pot.  

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php  

I'm not overly concerned about exceeding my limit a little (due to the AVC cannot exceed LGPS DB pension x 6.6666 rule) but what is also key for me is to keep in the lower rate of tax bracket due to my AVC contributions and in a couple of years or so I may need to increase my AVC contributions above the £1,000 a month because of this.   

Rather than paying say £1,500 a month into my AVC (and only attracting the additional tax relief of a lower rate tax payer) I would ideally rather put that £500 into an ISA for the added flexibility of having this as an ISA that can be drawn upon below the age of 65 (the age I expect to draw my LGPS pension and take my AVC pot). 

The reason I have posted this is there might be some people on here aged c.45-50 years and are throwing everything at their LGPS AVC pot (i.e. even where the contributions only attract lower rate of tax) and then cannot take it all as a tax free lump sum until they draw down their LGPS pension.  Noting of course you can take your pension below 65 and have the actuarial reductions (but some people do prefer to still wait to 65 or even 67).  

I think the ideal scenario is to try to forecast what is the maximum LGPS AVC pot you can take based on what you think your LGPS pension will be, the number of years of contributions and an expected rate of return (I know all this is difficult to predict) and also being mindful of the maximum tax free cash limit of £268,275.  

A really interesting post, thanks.  I'm one of those throwing lots at my LGPS-linked AVC. The value of my AVC is currently 39% of the aggregated value of my whole LGPS+AVC, so well above the 25% amount I could take entirely tax-free at the point I start drawing my LGPS.  My current thinking is to take the actuarial reduction associated with beginning my LGPS a few years early, take the maximum TFLS at the same time, and use the excess to buy more LGPS, perhaps getting back towards the LGPS value I would receive had I waited until 67.

I'm only 52 though, so there's plenty of time for my earning circumstances to change, along with my retirement plans.

Part of my thinking is that I also have a small DC pot that I wish to fully draw down (age c.62 to 65) and not pay any tax on it (using my personal tax allowance) and also have another DB pension that I will start drawing at c.63. 

Who knows what the higher rate threshold will be in c.10 years' time and whilst I doubt I will be a higher rate tax payer in retirement when my state pension commences it might possibly push me into the higher rate (too far off to accurately predict at this stage).  Of course, if that looked likely I could begin drawing down my LGPS pension earlier so that the annual pension was lower.  

I obviously don't know all your financial circumstances @Aylesbury_Duck but the beauty of this excellent forum is that it gives us different ideas and let's us consider different options too.   

 
I see a lot of people on here concerned about ending up in the HRT bracket in retirement.  Is it really something to worry about?  It's definitely one for the "nice problem to have" category and I appreciate that minimising any tax is desirable, but it seems a strange approach to artificially impoverish oneself for certain periods when one should be enjoying the fruits of one's lifetime of hard work at the back end of one's life.

Genuine and sincere question but where is it that you're seeing or reading 'artificially impoverish oneself for certain periods'?    

Age 62 to 65 would be covered by my DC pot, (a relatively small) DB pension 2 (i.e. not my LGPS pension) and my ISAs (from the contributions I'm making now rather than making greater AVC contributions).  

Age 65 to 67 - LGPS pension, DB pension 2 and my AVC pot (and possibly ISAs too). 

Age 67 onwards LGPS pension, DB pension 2, state pension and what is left in my ISAs and AVC pot. 

My thinking is why pay 40% tax in retirement when the money could have been taken out a different way (i.e. the ISA) and avoided the 40% tax.  Like I say above, I very much doubt I will be a higher rate tax payer in retirement but I do consider it rather than reaching 67 years (God willing) and thinking why didn't I do that differently and hence avoid the 40% tax.  

Aylesbury_Duck

SarahB16 said:

Aylesbury_Duck said:

SarahB16 said:

Aylesbury_Duck said:

SarahB16 said:

Knowhere said:

Thank you.
I’Il have to have a good think about it but stopping my AVC and ensuring I don’t have an excess whatever the circumstances seems like it might just be easier/safer.
If so, I would ensure the amount I normally put in the AVC is saved/invested to have available if necessary when I take the benefits.

Ensuring that I don't have an excess that I would need to take as additional pension is something that I'm very mindful of too.

I'm c.10 years away (hopefully) from retirement at c.62 years but based on my current £1,000 (gross) contribution a month I use forecasting tools which show what this could grow to in 10 years with £1,000 a month contributions and varying levels of growth.  Noting in the years from 62 to 65 the growth is likely to be lower as I derisk my AVC pot.  

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php  

I'm not overly concerned about exceeding my limit a little (due to the AVC cannot exceed LGPS DB pension x 6.6666 rule) but what is also key for me is to keep in the lower rate of tax bracket due to my AVC contributions and in a couple of years or so I may need to increase my AVC contributions above the £1,000 a month because of this.   

Rather than paying say £1,500 a month into my AVC (and only attracting the additional tax relief of a lower rate tax payer) I would ideally rather put that £500 into an ISA for the added flexibility of having this as an ISA that can be drawn upon below the age of 65 (the age I expect to draw my LGPS pension and take my AVC pot). 

The reason I have posted this is there might be some people on here aged c.45-50 years and are throwing everything at their LGPS AVC pot (i.e. even where the contributions only attract lower rate of tax) and then cannot take it all as a tax free lump sum until they draw down their LGPS pension.  Noting of course you can take your pension below 65 and have the actuarial reductions (but some people do prefer to still wait to 65 or even 67).  

I think the ideal scenario is to try to forecast what is the maximum LGPS AVC pot you can take based on what you think your LGPS pension will be, the number of years of contributions and an expected rate of return (I know all this is difficult to predict) and also being mindful of the maximum tax free cash limit of £268,275.  

A really interesting post, thanks.  I'm one of those throwing lots at my LGPS-linked AVC. The value of my AVC is currently 39% of the aggregated value of my whole LGPS+AVC, so well above the 25% amount I could take entirely tax-free at the point I start drawing my LGPS.  My current thinking is to take the actuarial reduction associated with beginning my LGPS a few years early, take the maximum TFLS at the same time, and use the excess to buy more LGPS, perhaps getting back towards the LGPS value I would receive had I waited until 67.

I'm only 52 though, so there's plenty of time for my earning circumstances to change, along with my retirement plans.

Part of my thinking is that I also have a small DC pot that I wish to fully draw down (age c.62 to 65) and not pay any tax on it (using my personal tax allowance) and also have another DB pension that I will start drawing at c.63. 

Who knows what the higher rate threshold will be in c.10 years' time and whilst I doubt I will be a higher rate tax payer in retirement when my state pension commences it might possibly push me into the higher rate (too far off to accurately predict at this stage).  Of course, if that looked likely I could begin drawing down my LGPS pension earlier so that the annual pension was lower.  

I obviously don't know all your financial circumstances @Aylesbury_Duck but the beauty of this excellent forum is that it gives us different ideas and let's us consider different options too.   

 
I see a lot of people on here concerned about ending up in the HRT bracket in retirement.  Is it really something to worry about?  It's definitely one for the "nice problem to have" category and I appreciate that minimising any tax is desirable, but it seems a strange approach to artificially impoverish oneself for certain periods when one should be enjoying the fruits of one's lifetime of hard work at the back end of one's life.

Genuine and sincere question but where is it that you're seeing or reading 'artificially impoverish oneself for certain periods'?    

Age 62 to 65 would be covered by my DC pot, (a relatively small) DB pension 2 (i.e. not my LGPS pension) and my ISAs (from the contributions I'm making now rather than making greater AVC contributions).  

Age 65 to 67 - LGPS pension, DB pension 2 and my AVC pot (and possibly ISAs too). 

Age 67 onwards LGPS pension, DB pension 2, state pension and what is left in my ISAs and AVC pot. 

My thinking is why pay 40% tax in retirement when the money could have been taken out a different way (i.e. the ISA) and avoided the 40% tax.  Like I say above, I very much doubt I will be a higher rate tax payer in retirement but I do consider it rather than reaching 67 years (God willing) and thinking why didn't I do that differently and hence avoid the 40% tax.  

I didn't mean you.  I've read other posts where people are planning all sorts of financial gymnastics to avoid (just) moving into HRT territory, and where it seems they're denying themselves access to money that could give them the quality of life they want on the basis of what seems to be a principle.  That's why I wonder if I'm missing something and it should be something to worry about.

AlanP_2

Just as an FYI which may be relevant for some of you using the LGPS AVC option.

I "retired" and used my DC pension for a couple of years and deferred my LGPS pension.

When I opted to commence the LGPS pension using any of the AVC to buy additional LGPS benefits was not an option I was given. My local LGPS only offer this option if the pension has not been deferred. 

As it happens that made no difference to me whatsoever as I wanted it all as TFLS and was within the limit.

I'm not sure if that was a local rule or whether it applies across the country but if you might be affected then I suggest you check with your local LGPS team and get clarity.

Silvertabby

AlanP_2 said:

Just as an FYI which may be relevant for some of you using the LGPS AVC option.

I "retired" and used my DC pension for a couple of years and deferred my LGPS pension.

When I opted to commence the LGPS pension using any of the AVC to buy additional LGPS benefits was not an option I was given. My local LGPS only offer this option if the pension has not been deferred. 

As it happens that made no difference to me whatsoever as I wanted it all as TFLS and was within the limit.

I'm not sure if that was a local rule or whether it applies across the country but if you might be affected then I suggest you check with your local LGPS team and get clarity.

The general rule changed wef 1 April 2014.  ie, if you left on or before 31 March 2014 and deferred your benefits, then you can't use any or all of your AVCs to buy additional LGPS pension.  But if you deferred on or after 1 April 2014, you can.

Did you defer before 1 April 2014 - or are you saying that your LGPS applied their own local rule?

AlanP_2

Silvertabby said:

AlanP_2 said:

Just as an FYI which may be relevant for some of you using the LGPS AVC option.

I "retired" and used my DC pension for a couple of years and deferred my LGPS pension.

When I opted to commence the LGPS pension using any of the AVC to buy additional LGPS benefits was not an option I was given. My local LGPS only offer this option if the pension has not been deferred. 

As it happens that made no difference to me whatsoever as I wanted it all as TFLS and was within the limit.

I'm not sure if that was a local rule or whether it applies across the country but if you might be affected then I suggest you check with your local LGPS team and get clarity.

The general rule changed wef 1 April 2014.  ie, if you left on or before 31 March 2014 and deferred your benefits, then you can't use any or all of your AVCs to buy additional LGPS pension.  But if you deferred on or after 1 April 2014, you can.

Did you defer before 1 April 2014 - or are you saying that your LGPS applied their own local rule?

Deferred in 2022 so it must have been a local rule.

Silvertabby

AlanP_2 said:

Silvertabby said:

AlanP_2 said:

Just as an FYI which may be relevant for some of you using the LGPS AVC option.

I "retired" and used my DC pension for a couple of years and deferred my LGPS pension.

When I opted to commence the LGPS pension using any of the AVC to buy additional LGPS benefits was not an option I was given. My local LGPS only offer this option if the pension has not been deferred. 

As it happens that made no difference to me whatsoever as I wanted it all as TFLS and was within the limit.

I'm not sure if that was a local rule or whether it applies across the country but if you might be affected then I suggest you check with your local LGPS team and get clarity.

The general rule changed wef 1 April 2014.  ie, if you left on or before 31 March 2014 and deferred your benefits, then you can't use any or all of your AVCs to buy additional LGPS pension.  But if you deferred on or after 1 April 2014, you can.

Did you defer before 1 April 2014 - or are you saying that your LGPS applied their own local rule?

Deferred in 2022 so it must have been a local rule.

Probably.  Because this scenario happens so (relatively) rarely, it's possible that the cost of updating the software to allow the initial calculation (adding benefits to a deferred record) wasn't worth it.  But doing the calculation manually would have been time consuming and expensive in respect of the admin costs.

Another 2014 change stipulates that AVCs must be taken at the same time as the main scheme benefits, whereas pre April 2014 leavers (deferred or immediate pension) could take their LGPS pension but leave their AVCs until a later date.  

Knowhere

Silvertabby said:

Your only alternative to buying LGPS benefits would be to transfer your excess AVCs to a personal plan, then take (taxable) draw down.  To be honest, if you don't go over the AVC tax free limit by much, then the least hassle option by far would be to buy LGPS additional pension.

Hi again, 
Thread took a bit of a diversion but I was just reflecting on your answers to my original question.
If I had a small excess but decided not to take the easy LGPS benefits route and instead transferred to a personal drawdown plan (which I presume Prudential would offer themselves), do you know if this would be likely to incur any charges or just be a case of taking taxed chunks out of it as/when?
TIA