LGPS member wanting to contribute more. AVC, APC or separate SIPP?

ChasingtheWelshdream

My husband and I are both LGPS members but work part-time. Our current valuations are approx £2k and £5k per annum respectively. I am 43, husband 52.

We have had a significant windfall and would like to start contributing more to our future. We are talking to a Financial Advisor who has asked us to gather information on our pension status. I have been given some information today which has me curious.

Neither of us see ourselves working for the employer beyond 5 years. I will shortly be moving to a casual zero hours contract which will restrict which contributions I can make.

Where I am confused, is whether I should consider contributing extra to the scheme, or to start a new private pension? We have been told that we couldn’t better anything in the LGPS but  I’m not sure when it comes to additional contributions.

I will be unable to contribute AVCs on my zero hours role as it will be below NI thresholds. I could make a lump sum Additional Pension Contribution. I have been quoted £5k purchased for approx £62k which is more than I would like to shell out right now.

Or, I could start a separate SIPP and make contributions as-and-when (I am also self-employed).

My husband is also unsure whether to go down the AVC route or restart contributions to an old DC pension he’s found (-approx £40k in it).

Is there any advantage of AVCs vs SIPPs? 

I wonder if anyone has any thoughts that would help us in our conversations with our financial advisor?

Baldytyke88

ChasingtheWelshdream said:

Neither of us see ourselves working for the employer beyond 5 years. I will shortly be moving to a casual zero hours contract which will restrict which contributions I can make.

I put extra money into a SIPP because it is more flexible, but your contributions will still be limited to your total earnings limit.

ussdave

I'd seriously consider going the LGPS AVC route and building up enough to be able to maximise the tax free lump sum (TFLS).  This would be much more tax efficient than a separate SIPP and more flexible than the APC route (e.g. you can just choose to put in whatever percentage you can afford).

Separate SIPP would be worth considering if you wanted to use it to 'bridge' years - e.g. be able to retire a little earlier and draw down on the SIPP for a period of time before you then took the LGPS pension at normal pension age (NPA).

RipleyG

On all payments you'll get 20% tax relief. But AVC payments to LGPS are salary sacrifice so are also exempt from National Insurance - that's an extra 8% for any payments into your pension from earnings above £12,570. It means 

The difference is that £100 into a SIPP costs you £80, but paying £100 into LGPS costs you £72 (again, as long as the payment to the pension doesn't take your salary under the £12570 threshold. 

ChasingtheWelshdream

Thank you.

I think the sticking point is that the pension provide managing the AVCs has said I would not be able to contribute on a zero hours contract because I would be under the NI limit. They couldn't explain further, but Ripley's explanation makes sense. 

I will still be a tax payer as I am also self-employed, but it appears I may not be able to take advantage of the AVCs. What I would like to do, is make a lump sum payment and then ad-hoc payments in those months I have more work. It looks like I cannot do that though. 

The additional pension is appealing, but we are looking to bridge a gap between early retirement and drawing the LGPS so I am not sure if that is the best way, although the guaranteed pension is a big benefit.

I wonder if there is any way I can make a lump sum this tax year before I change my contract?

OldBeanz

Yes you can make a lump sum payment this FY but any tax relief is limited to the tax you pay unlike a SIPP.

ChasingtheWelshdream

Thank you. 

Just to clarify, do you mean for AVCs or additional pension?

My payroll are not sure. They have confirmed I can buy additional pension as a lump sum and claim tax relief through my self-assessment but are unsure on an AVC. And if so, whether that would be limited by my wages earned with them, or if I can take into account my overall earnings for the year (self-employment).

If I could pay a yearly lump sum AVC -not out of my pay packet - that would be ideal for me. But I can’t get a straight answer from my employer as to whether it is allowed.

RipleyG

Although the main part of the LGPS scheme is the same for all councils, AVC arrangements aren't - different councils use different providers for the AVC element. If you are comfortable sharing which Council, someone else on the forum may have knowledge which can help... 

ChasingtheWelshdream

Thank you. It is Powys, if anyone does know.

AlanP_2

I would rely more on what the LGPS admin team say than the AVC provider.

How do they / would they know you were on a zero hours contract?

Can you not opt for a percentage contribution per month as opposed to a £ value? 

If your local LGPS team don't know the rules, which is possible if they think self employed income might be relevant to the LGPS scheme, then contact the national team who write the scheme rules.

Lemon_dr1zzle

You cant pay into an AVC with a lump sum.