SIPP vs AVC

Aylesbury_Duck

I'm 52, am in the LGPS and have been maximising AVCs to a linked scheme for several years.  I'm well above the TFLS 25% figure (it's about 39%) at the moment.  My plan is to take the maximum TFLS at the same time as starting the LGPS at or a few years before 67.  With the AVC scheme being "overcooked", my plan is take the maximum TFLS and use the remainder to buy additional LGPS benefits.  So far so good and I'm confident of a comfortable retirement from 67 with the LGPS and state pension.

However, I plan to stop working at 57 and have deferred DC pensions and a SIPP to bridge the gap between 57 and whenever I take the LGPS and AVC TFLS.

My thinking is that I should scale down the AVCs and put more into my SIPP over the coming years to ensure I have a comfortable first phase of retirement.  I also need to help improve my wife's pension provision, because although she has a decent LGPS and AVC value, her SIPP is modest.  We do have good savings and investments behind us, no mortgage and no dependants.

I'm a HR taxpayer and my AVC contributions currently save me a lot of tax.  If I dial them right down or even stop them, and pay into my SIPP instead, how is that treated, tax-wise?  I know I'd get the basic rate tax relief from Vanguard added to my SIPP contributions and that my salary would be taxed normally.  Is it the case that when I complete my self-assessment, I declare the amount I've paid into the SIPP and the extra tax relief is "given" to me in the form of a more generous tax code for the following year?  Or is there a way to inform HMRC of regular and ongoing SIPP contributions to trigger a more immediate tax code change?

Marcon

Aylesbury_Duck said:

I'm 52, am in the LGPS and have been maximising AVCs to a linked scheme for several years.  I'm well above the TFLS 25% figure (it's about 39%) at the moment.  My plan is to take the maximum TFLS at the same time as starting the LGPS at or a few years before 67.  With the AVC scheme being "overcooked", my plan is take the maximum TFLS and use the remainder to buy additional LGPS benefits.  So far so good and I'm confident of a comfortable retirement from 67 with the LGPS and state pension.

However, I plan to stop working at 57 and have deferred DC pensions and a SIPP to bridge the gap between 57 and whenever I take the LGPS and AVC TFLS.

My thinking is that I should scale down the AVCs and put more into my SIPP over the coming years to ensure I have a comfortable first phase of retirement.  I also need to help improve my wife's pension provision, because although she has a decent LGPS and AVC value, her SIPP is modest.  We do have good savings and investments behind us, no mortgage and no dependants.

I'm a HR taxpayer and my AVC contributions currently save me a lot of tax.  If I dial them right down or even stop them, and pay into my SIPP instead, how is that treated, tax-wise?  I know I'd get the basic rate tax relief from Vanguard added to my SIPP contributions and that my salary would be taxed normally.  Is it the case that when I complete my self-assessment, I declare the amount I've paid into the SIPP and the extra tax relief is "given" to me in the form of a more generous tax code for the following year?  Or is there a way to inform HMRC of regular and ongoing SIPP contributions to trigger a more immediate tax code change?

See https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

Dazed_and_C0nfused

Aylesbury_Duck said:

I'm 52, am in the LGPS and have been maximising AVCs to a linked scheme for several years.  I'm well above the TFLS 25% figure (it's about 39%) at the moment.  My plan is to take the maximum TFLS at the same time as starting the LGPS at or a few years before 67.  With the AVC scheme being "overcooked", my plan is take the maximum TFLS and use the remainder to buy additional LGPS benefits.  So far so good and I'm confident of a comfortable retirement from 67 with the LGPS and state pension.

However, I plan to stop working at 57 and have deferred DC pensions and a SIPP to bridge the gap between 57 and whenever I take the LGPS and AVC TFLS.

My thinking is that I should scale down the AVCs and put more into my SIPP over the coming years to ensure I have a comfortable first phase of retirement.  I also need to help improve my wife's pension provision, because although she has a decent LGPS and AVC value, her SIPP is modest.  We do have good savings and investments behind us, no mortgage and no dependants.

I'm a HR taxpayer and my AVC contributions currently save me a lot of tax.  If I dial them right down or even stop them, and pay into my SIPP instead, how is that treated, tax-wise?  I know I'd get the basic rate tax relief from Vanguard added to my SIPP contributions and that my salary would be taxed normally.  Is it the case that when I complete my self-assessment, I declare the amount I've paid into the SIPP and the extra tax relief is "given" to me in the form of a more generous tax code for the following year?  Or is there a way to inform HMRC of regular and ongoing SIPP contributions to trigger a more immediate tax code change?

No, HMRC never give pension tax relief for one year via the tax code of a different tax year.

As you are completing a tax return then all you need to do is include the relief at source contributions to your SIPP in the appropriate box on the return.

Your basic rate band will be increased by the gross contribution and this will be factored into your Self Assessment tax calculation.

Any personal tax saving benefits you, it isn't added to your pension like the basic rate relief is.

You can get provisional relief via your tax code if you want but that won't change the fact that your need to show the relief at source contributions on your tax return.

MX5huggy

Why are you wedded to taking your LGPS at 67? The payment is reduced for taking it early but only reflecting the additional years it will be paid and there is no penalty as such. 

Aylesbury_Duck

MX5huggy said:

Why are you wedded to taking your LGPS at 67? The payment is reduced for taking it early but only reflecting the additional years it will be paid and there is no penalty as such. 

I'm not, but at the moment that's the working plan so that I don't underestimate the amount I'll need to bridge the gap between retirement and commencing the LGPS pension.  As you say, the "penalty" isn't a penalty.  As I get into my 60s, I will re-assess.  It's possible that using the spare AVC to buy additional LGPS pension would compensate any reduction, anyway.

SarahB16

Aylesbury_Duck said:

MX5huggy said:

Why are you wedded to taking your LGPS at 67? The payment is reduced for taking it early but only reflecting the additional years it will be paid and there is no penalty as such. 

I'm not, but at the moment that's the working plan so that I don't underestimate the amount I'll need to bridge the gap between retirement and commencing the LGPS pension.  As you say, the "penalty" isn't a penalty.  As I get into my 60s, I will re-assess.  It's possible that using the spare AVC to buy additional LGPS pension would compensate any reduction, anyway.

@Aylesbury_Duck you are the same age as me so something to bear in mind is that you pre-2014 LGPS tranche has a normal retirement age of 65.  I know you haven't got the age of 67 set in stone for taking your LGPS pension but if I were you I wouldn't even consider taking the LGPS pension later than 65.  OK, you will have an actuarial reduction on the post-2014 tranche taking it aged 65 but not on your pre-2014 tranche (and noting it all has to be taken at the same time).  

Aylesbury_Duck

SarahB16 said:

Aylesbury_Duck said:

MX5huggy said:

Why are you wedded to taking your LGPS at 67? The payment is reduced for taking it early but only reflecting the additional years it will be paid and there is no penalty as such. 

I'm not, but at the moment that's the working plan so that I don't underestimate the amount I'll need to bridge the gap between retirement and commencing the LGPS pension.  As you say, the "penalty" isn't a penalty.  As I get into my 60s, I will re-assess.  It's possible that using the spare AVC to buy additional LGPS pension would compensate any reduction, anyway.

@Aylesbury_Duck you are the same age as me so something to bear in mind is that you pre-2014 LGPS tranche has a normal retirement age of 65.  I know you haven't got the age of 67 set in stone for taking your LGPS pension but if I were you I wouldn't even consider taking the LGPS pension later than 65.  OK, you will have an actuarial reduction on the post-2014 tranche taking it aged 65 but not on your pre-2014 tranche (and noting it all has to be taken at the same time).  

Thanks, but all my LGPS entitlement has been accrued after 2014, so 67 is my normal retirement age.

AlanP_2

Check that you can use AVC funds to buy scheme benefits from DEFERRED status.

I couldn't as the local scheme rules excluded that option, not that I wanted it anyway.