LGPS AVC’s

BIGJJJJ

My partner is looking to retire from the LGPS in under 2 years age 60. She is planning to now start paying into AVC’s up until retirement. As it’s under the 2 years is there any implications of doing this and taking them out on retirement?  She is a higher rate tax payer (Scotland). I have also heard that you can buy AVC’s from previous years? Any advice would be helpful? Thank you 

AlanP_2

AVCs are not related to years so you can't "buy" previous years as you put it. You may be confusing this with the rules on Annual Allowance carry forward.

There are 2 limits on pension contributions:

1) Qualifying Income (for most of us that means salary) - YOUR PERSONAL contribution (including tax relief where applicable) cannot exceed QI in the the tax year.

2) Annual Allowance - Limited to £60k per year at the moment (went up from £40k around 18 months ago). This is the value of all pension "contributions". If you want (and can by meeting criteria 1) contribute >£60k then "carry forward" is applicable (subject to a few conditions) so you can contribute more up to the limit of unused AA from the previous 3 years.

AA is easy for those who have a Money Purchase / DC pension like the majority of private sector employees as calculating a number for your contributions, tax relief (if applicable) and employer contributions is straightforwards.

{I say "if applicable" for tax relief as it depends on how payments are made. Some schemes pay DC contributions out of "taxed" money hence relief is applicable. The LGPS makes payments before calculating monthly income tax so the relief is "built in" as it were}.

The AA calculation for DB schemes is more complicated as the amount contributed is irrelevant, it is the value of the increase in what the benefits are worth over the tax year that matter (called the Pension Input Amount). Your wife's annual LGPS statement will probably have a value for this on there somewhere. BUT it will be a value for the previous tax year not the current one which needs some educated calculations / guesswork to work out.


So, is your wife looking to contribute a a large amount to her AVC where AA would potentially be exceeded or has she had a promotion etc. as that would boost the PIA for the tax year?


If her situation is fairly straightforwards then my thoughts would be put as much as you can in there (even to the extent of living off savings for a while), get the tax breaks and take a larger tax free lump sum (then enjoy a great retirement) 

BIGJJJJ

Thank you for your very helpful response. This helps clarify a few points for us. My partner intends to contribute a reasonable amount this tax year and increase it next year (due to a change in circumstances) until she retires in 2027.