Using claimed LGPS pension to pay in to new SIPP

TerryBiscuits

Hi all, I'm nearly 60 and about to start receiving an LGPS pension from a previous job I was made redundant from. I work somewhere else now and I'm paying into a separate LGPS pension there. As my income will increase once the payments start coming though, can I use more of my salary to start a SIPP? I know there are rules about using pension benefits to start new pensions, but surely it's OK if I'm using my salary?

Thanks in advance for your help. This forum really has been a godsend for helping me navigate through the pension minefield

OldBeanz

Yes you can but why a SIPP and why not an AVC which you can draw tax free (within large limits).

dunstonh

 can I use more of my salary to start a SIPP?

Yes (or other type of pension, such as AVC, APC, SHP, PPP etc - there are no rules specific to SIPPs)

TerryBiscuits

OldBeanz said:

Yes you can but why a SIPP and why not an AVC which you can draw tax free (within large limits).

An excellent point. I am planning to max out my AVCs too, but because I only started this job a couple of years ago, there's only so much I can add in order to take as my 25% TFLS. I guess I could buy more LGPS, but I haven't looked into that.

TerryBiscuits

dunstonh said:

 can I use more of my salary to start a SIPP?

Yes (or other type of pension, such as AVC, APC, SHP, PPP etc - there are no rules specific to SIPPs)

So could I use some of my LGPS pension money too? I will be paying tax on it, so there's no avoidance going on. 

Linton

TerryBiscuits said:

dunstonh said:

 can I use more of my salary to start a SIPP?

Yes (or other type of pension, such as AVC, APC, SHP, PPP etc - there are no rules specific to SIPPs)

So could I use some of my LGPS pension money too? I will be paying tax on it, so there's no avoidance going on. 

Yes legally you can use any pensions in payment to fund another pension contribution. But your total pension contributions will still be limited to your annual earned income. Pensions are not earned income.

OldBeanz

TerryBiscuits said:

OldBeanz said:

Yes you can but why a SIPP and why not an AVC which you can draw tax free (within large limits).

An excellent point. I am planning to max out my AVCs too, but because I only started this job a couple of years ago, there's only so much I can add in order to take as my 25% TFLS. I guess I could buy more LGPS, but I haven't looked into that.

The beauty of the AVC's is that anything over the 25% overall lump sum can be used to buy more pension at a good rate.

TerryBiscuits

OldBeanz said:

TerryBiscuits said:

OldBeanz said:

Yes you can but why a SIPP and why not an AVC which you can draw tax free (within large limits).

An excellent point. I am planning to max out my AVCs too, but because I only started this job a couple of years ago, there's only so much I can add in order to take as my 25% TFLS. I guess I could buy more LGPS, but I haven't looked into that.

The beauty of the AVC's is that anything over the 25% overall lump sum can be used to buy more pension at a good rate.

Thanks for the heads up. Another rabbit hole to dive down!

OldBeanz

TerryBiscuits said:

OldBeanz said:

TerryBiscuits said:

OldBeanz said:

Yes you can but why a SIPP and why not an AVC which you can draw tax free (within large limits).

An excellent point. I am planning to max out my AVCs too, but because I only started this job a couple of years ago, there's only so much I can add in order to take as my 25% TFLS. I guess I could buy more LGPS, but I haven't looked into that.

The beauty of the AVC's is that anything over the 25% overall lump sum can be used to buy more pension at a good rate.

Thanks for the heads up. Another rabbit hole to dive down!

LGPS AVC's known as the cherry on top of the golden cake. If you come to any other conclusion then discuss it on here first

Silvertabby

As a rule of thumb, LGPS APCs are good value if you don't intend to draw your pension until SPA (or near enough).  Perhaps not such a good deal if you take them early, as the amount of  APC you have bought will be reduced for early payment in much the same way as main scheme benefits.

AVCs are more flexible, in that you may be able to take the whole lot as tax free cash (within HMRC limits) or use some or all of your AVCs to buy additional LGPS index linked benefits.  Early retirement factors still apply, just in a different way  -  the amount you have saved in your AVCs wouldn't be reduced for early payment, but the factors used in determining the amount of additional pension you buy will be age related.  

TerryBiscuits

Silvertabby said:

As a rule of thumb, LGPS APCs are good value if you don't intend to draw your pension until SPA (or near enough).  Perhaps not such a good deal if you take them early, as the amount of  APC you have bought will be reduced for early payment in much the same way as main scheme benefits.

AVCs are more flexible, in that you may be able to take the whole lot as tax free cash (within HMRC limits) or use some or all of your AVCs to buy additional LGPS index linked benefits.  Early retirement factors still apply, just in a different way  -  the amount you have saved in your AVCs wouldn't be reduced for early payment, but the factors used in determining the amount of additional pension you buy will be age related.  

My current plan is to try and live off my pension from the previous employer, plus a small amount of my current salary. If I retire in five years when I'm 65, I think the most I could pay in to get the tax free AVC sum is around £60k. That should leave me enough to put around £12k pa alongside that into APCs or a SIPP. 

If I went down the APC route, I would get around £3.5k extra pension at 65. I haven't looked into a SIPP yet, but assuming 40% tax relief and 5% interest pa, I'd end up with a pot of around £97.5k in five years. Using the 4% drawdown rule, that would give me £3.9k pa. The SIPP could also be inherited, whereas the extra APC pension dies with me.

Have I got that right? Or am I barking completely up the wrong tree?