LGPS APC v SSAVC v Private arrangement

jacquisb

I am REALLY struggling to understand the difference between the above

I want to start contributing more to my pension as I am 53 but I’m struggling to choose the best place to put these contributions.

i am currently paying the minimum into my employers LGPS scheme.  They also offer a SSAVC.  I could pay into either of these (or split between the two).  I was led to believe that it is ALWAYS best to pay into an employers scheme but somethings I’m reading are saying it’s better to get an entirely separate SIPP?

The confusion this is causing is making me so stressed lol and I’m conscious that time is ticking away and I’m still not paying anything as I don’t know what to do 

All thoughts views are welcome

Reg_Smeeton

Im currently doing both, using APCs to maximise my guaranteed monthly income, and SS AVCs to build a separate cash pot so that I don’t have to draw a lump sum/sacrifice regular income from my main section benefits.

daveyjp

Financially SSAVCs offer more benefits than a SIPP.  NI savings as well as tax relief and they can be withdrawn 100% tax free.

The only potential benefit of having a separate SIPP is it can be taken whenever you wish.  AVCs have to be taken at the same time as your LGPS.

This is quite a good overview:

https://staff.derbyshire.gov.uk/site-elements/documents/pay-benefits/avc-wise-faqs.pdf

jacquisb

Thank you both. I was thinking of splitting my contributions and think that’s possibly the best option for me. Thank you for the link also. Very useful

Silvertabby

What exactly do you mean by 'splitting your contributions?  There are only two contribution options in respect of your LGPS main scheme benefits - the standard benefits that you are paying now, and the 50:50 scheme.  The 50:50 option was set up to encourage those feeling a (temporary) financial pinch to remain in the pension scheme instead of opting out.  Contributions are 50% of normal contributions, but you only accrue pension benefits at 50% of the normal rate.

You can't be in the 50:50 scheme and pay (full rate) APCs.  In theory, you CAN be in the 50:50 scheme and pay AVCs - but why would you?  You'd be foregoing half of your future LGPS accruals, and the best AVC will never match that.

ussdave

Unless you want a separate pot that you can draw on without drawing your LGPS pension (e.g. if you wanted to retire before normal pension age and didn't want any early retirement factors on your LGPS pension kicking in) then it's a no-brainer to use salary sacrifice AVCs over a personal SIPP.

Even if you are concerned about early retirement factors for the LGPS pension it's worth double-checking the actual likely impact as you may find it's not as severe as you expect, especially with the larger amount of tax free cash you'll have built up vs the SIPP (which can be used to supplement your income).

jacquisb

Silvertabby said:

What exactly do you mean by 'splitting your contributions?  There are only two contribution options in respect of your LGPS main scheme benefits - the standard benefits that you are paying now, and the 50:50 scheme.  The 50:50 option was set up to encourage those feeling a (temporary) financial pinch to remain in the pension scheme instead of opting out.  Contributions are 50% of normal contributions, but you only accrue pension benefits at 50% of the normal rate.

You can't be in the 50:50 scheme and pay (full rate) APCs.  In theory, you CAN be in the 50:50 scheme and pay AVCs - but why would you?  You'd be foregoing half of your future LGPS accruals, and the best AVC will never match that.

Sorry I wasn’t clear. I mean I want to pay an additional amount to what I’m paying now (which is into the main scheme). So I’m thinking I will split the additional amount and put half into the APC and half into AVC. Hope I’ve explained that better!

Silvertabby

jacquisb said:

Silvertabby said:

What exactly do you mean by 'splitting your contributions?  There are only two contribution options in respect of your LGPS main scheme benefits - the standard benefits that you are paying now, and the 50:50 scheme.  The 50:50 option was set up to encourage those feeling a (temporary) financial pinch to remain in the pension scheme instead of opting out.  Contributions are 50% of normal contributions, but you only accrue pension benefits at 50% of the normal rate.

You can't be in the 50:50 scheme and pay (full rate) APCs.  In theory, you CAN be in the 50:50 scheme and pay AVCs - but why would you?  You'd be foregoing half of your future LGPS accruals, and the best AVC will never match that.

Sorry I wasn’t clear. I mean I want to pay an additional amount to what I’m paying now (which is into the main scheme). So I’m thinking I will split the additional amount and put half into the APC and half into AVC. Hope I’ve explained that better!

Phew, that makes better sense!

If it helps, AVCs are more flexible than APCs.  It depends on what your final plans are.

APCs
Sound expensive, because you are paying all the contributions yourself.  Good value if you don't intend to retire/draw your benefits before SPA, perhaps not so good if you intend going much earlier, as the APCs you have bought will be reduced for early payment. 

AVCs
Usually taken in order to maximise the tax free cash option.  Tax relief in, tax free (within HMRC limits) out.  Or all or some of the fund can be used to buy additional index linked LGPS benefits.