LGPS AVC overshoot - options

Aylesbury_Duck

I've been hammering away at my LGPS AVC scheme for a few years, well aware that I'm building up a big fund that will be well in excess of the amount I can draw as a TFLS when the time comes.  At present, the maximum TFLS I could draw is £80k, whereas my AVC is worth twice that.  I'm aware that I have options for the excess, and starting the LGPS early and using the excess AVC to purchase extra LGPS pension seems one good option.  How do I find out how much my excess could buy?  And how do I compare that to other options for the excess such as putting it elsewhere for drawdown or annuity purchase?

I've got plenty of time to consider this, I'm only 52, but thinking ahead and considering whether I should continue to hammer away at the AVC or perhaps cool it a little and put more into my SIPP.

dsw_123

Are your pension contributions paid via Salary Sacrifice and saving the NI contribution ?
If that is the case and If you are happy with the investments that you have chosen (which I assume you are) for your AVCS associated to your LGPS scheme then the only real advantage of making additional contributions via a SIPP would be to gain the flexibility of taking different pensions at different times. If you are a higher rate tax payer then you would need to reclaim the additional tax paid from HMRC as contributions are paid post tax and only basic rate tax is added by the SIPP provider. You will also have additional charges to pay to the SIPP provider, though they may be lower than the charges of the AVC provider. In terms of converting AVCs to DB pension you would need to look carefully at the conversion factors and weigh up the value of additional guaranteed income vs the potential for a higher income.

Aylesbury_Duck

Thanks.  No salsac.   As you say, it's looking at the conversion factors because it could be a good way of cancelling out the deductions for taking the LGPS early, giving me a decent DB pension sooner than 67.  I may top up the SIPP a bit, so that it can cover any gap between stopping work and commencing the LGPS.

SarahB16

Aylesbury_Duck said:

I've got plenty of time to consider this, I'm only 52, but thinking ahead and considering whether I should continue to hammer away at the AVC or perhaps cool it a little and put more into my SIPP.

Yes, I definitely think cool the payments into the AVC and put more into the SIPP sounds like a good idea.  

I'm not sure if you're a higher rate tax payer but you still wish to make sure you don't pay higher rate tax (i.e. ensure your pension contributions mean you only pay tax at 20%) so the SIPP payments sounds like a good suggestion and to then take this before you start drawing on your LGPS.  

You're the same age as me and I too have an AVC (which I intend (God willing) to take at 65 (two year actuarial reduction on my post 2014 tranche) and of course at the same time as my LGPS pension).  I'm contributing into it to avoid 40% tax and some AVC contributions benefiting from 'only' 20% tax and NIC and I also aim to take the maximum amount as a tax free lump sum and ideally not overshooting the limit so no APCs.  

The following suggestion may help you as this is what I have done.  I created a spreadsheet with when I would like to retire (end of May and approximately 10 years' away) and what my income would be in each tax year, i.e. two months' salary, SIPP, DB pension, then later on LGPS pension, AVC pot and then state pension.  There will also be a cash ISA to use which I'll probably use for a couple of years before I take my AVC pot.  I want to make sure when I retire I use my personal tax allowance but also wish to avoid 40% tax too (not that I realistically think I'll reach 40% tax in retirement but better to do the forecasts to be sure and to also see when I can afford to retire).  

I do think visualising this on a spreadsheet with forecast amounts really does help.  The numbers are very approximate at the moment but if you have different sources of income it helps to see when is best to take them, e.g. SIPP in the first few years of retirement (and potentially all taken tax free), etc and this will also mean lower reduction applied to your APCs when you draw them. 

As you get older and nearer to retirement the numbers become more accurate and the year of retirement may be a year earlier or a year later but seeing it set out on the spreadsheet has really helped me. 

Aylesbury_Duck

Thank you for such a comprehensive reply with many good suggestions!  

OldBeanz

It's a couple of years since the wife overshot. She retired early and was more than happy with the extra pension purchased. I cannot remember the rate but at the time some of the LGPS experts suggested the calculations were not straightforward and could not give a definitive figure - just that it was good. Purchasing extra indexed linked pension was an easy choice and we are still happy.

Random47

Can you not just take the excess AVC cash from LGPS ones and pay the going tax rate on it?

Aylesbury_Duck

Random47 said:

Can you not just take the excess AVC cash from LGPS ones and pay the going tax rate on it?

What do you mean?  Just withdraw the excess cash?  I don't think that's an option with the AVC.

Silvertabby

Aylesbury_Duck said:

Random47 said:

Can you not just take the excess AVC cash from LGPS ones and pay the going tax rate on it?

What do you mean?  Just withdraw the excess cash?  I don't think that's an option with the AVC.

You could if you took the option of transferring the excess to another (private) pension scheme, but is it really worth the faff?

Aylesbury_Duck

Silvertabby said:

Aylesbury_Duck said:

Random47 said:

Can you not just take the excess AVC cash from LGPS ones and pay the going tax rate on it?

What do you mean?  Just withdraw the excess cash?  I don't think that's an option with the AVC.

You could if you took the option of transferring the excess to another (private) pension scheme, but is it really worth the faff?

I have got DC pots worth about £310k at the moment, so using excess AVC to buy more LGPS DB pension feels like the right thing to do.