LGPS AVC 25% TFLS calculation

seans_elysees

Aylesbury_Duck said:

Silvertabby said:

Aylesbury_Duck said:

Jumping onto this thread, I have a question.

As I understand it, the maximum TFLS I can take from my AVC is 25% of the combined value of the notional LGPS value (20x today's value) plus the AVC value.   Is that correct?  I know there's an absolute upper limit, but I'm not near that.

In my case, as at now, my LGPS entitlement is £13,208 and my AVC is worth £166,614.  By my calculations, that would make the maximum TFLS  ((£13,208 x 20) + £166,614)) / 4 = £107,694

However, when I use the calculator tool, it generates a sum of £88,053.   Can someone explain the substantial difference, please?  There's no LGPS lump sum involved.

I agree with your figures.  Most likely answer is a gremlin in the calculator.  Are you close enough to retirement to request an actual quote, including options for your residual AVC ?

Thank you, at least I know I've interpreted the guidance correctly.

I'm several years away from possible retirement, and more than 10 years away from touching the LGPS.  The plan as things stand is to begin drawing the LGPS a little earlier than 67 and use the residual AVC to top up the otherwise reduced annual pension.  

When you say using the residual AVC, do you mean buying extra annuity with that?  

I’ve tried to think whether that would be beneficial to go down that path of reductions to LGPS through early retirement, supplemented by buying extra via AVC. 

Can’t quite get my head around whether that would make sense, so instead I’ve just been concentrating on ISA+SIPP for early retirement - and then LGPS+AVC for SPA. 

Aylesbury_Duck

seans_elysees said:

Aylesbury_Duck said:

Silvertabby said:

Aylesbury_Duck said:

Jumping onto this thread, I have a question.

As I understand it, the maximum TFLS I can take from my AVC is 25% of the combined value of the notional LGPS value (20x today's value) plus the AVC value.   Is that correct?  I know there's an absolute upper limit, but I'm not near that.

In my case, as at now, my LGPS entitlement is £13,208 and my AVC is worth £166,614.  By my calculations, that would make the maximum TFLS  ((£13,208 x 20) + £166,614)) / 4 = £107,694

However, when I use the calculator tool, it generates a sum of £88,053.   Can someone explain the substantial difference, please?  There's no LGPS lump sum involved.

I agree with your figures.  Most likely answer is a gremlin in the calculator.  Are you close enough to retirement to request an actual quote, including options for your residual AVC ?

Thank you, at least I know I've interpreted the guidance correctly.

I'm several years away from possible retirement, and more than 10 years away from touching the LGPS.  The plan as things stand is to begin drawing the LGPS a little earlier than 67 and use the residual AVC to top up the otherwise reduced annual pension.  

When you say using the residual AVC, do you mean buying extra annuity with that?  

I’ve tried to think whether that would be beneficial to go down that path of reductions to LGPS through early retirement, supplemented by buying extra via AVC. 

Can’t quite get my head around whether that would make sense, so instead I’ve just been concentrating on ISA+SIPP for early retirement - and then LGPS+AVC for SPA. 

Current thinking is to buy additional LGPS entitlement.  I understand there to be a (very approximate) 5% reduction in the annual LGPS value for every year it's taken early.  My current thinking is to take the biggest lump sum possible and then use the excess AVC to buy more LGPS to "compensate" the reduced sum for early access.

With your plan, I suppose you need to consider the potential tax implications and if you're in the fortunate position where you might be a higher rate taxpayer at some point in retirement or for all of it, smoothing out your income to try and reduce the amount of annual income that would be taxed at 40%.  That might require more agility than what looks like a fairly rigid (albeit sensible) plan.

SarahB16

seans_elysees said:

Aylesbury_Duck said:

Silvertabby said:

Aylesbury_Duck said:

Jumping onto this thread, I have a question.

As I understand it, the maximum TFLS I can take from my AVC is 25% of the combined value of the notional LGPS value (20x today's value) plus the AVC value.   Is that correct?  I know there's an absolute upper limit, but I'm not near that.

In my case, as at now, my LGPS entitlement is £13,208 and my AVC is worth £166,614.  By my calculations, that would make the maximum TFLS  ((£13,208 x 20) + £166,614)) / 4 = £107,694

However, when I use the calculator tool, it generates a sum of £88,053.   Can someone explain the substantial difference, please?  There's no LGPS lump sum involved.

I agree with your figures.  Most likely answer is a gremlin in the calculator.  Are you close enough to retirement to request an actual quote, including options for your residual AVC ?

Thank you, at least I know I've interpreted the guidance correctly.

I'm several years away from possible retirement, and more than 10 years away from touching the LGPS.  The plan as things stand is to begin drawing the LGPS a little earlier than 67 and use the residual AVC to top up the otherwise reduced annual pension.  

When you say using the residual AVC, do you mean buying extra annuity with that?  

I’ve tried to think whether that would be beneficial to go down that path of reductions to LGPS through early retirement, supplemented by buying extra via AVC. 

Can’t quite get my head around whether that would make sense, so instead I’ve just been concentrating on ISA+SIPP for early retirement - and then LGPS+AVC for SPA. 

If it helps as I too am in the LGPS I plan to take another DB pension (very small) + SIPP + ISA from age c.61/62 (this ensures I am using my personal allowance) then from age 65 take my LGPS + AVC.  This would mean a two year actuarial reduction on my post 2014 LGPS tranche but no actuarial reduction on my pre-2014 tranche.  (Majority of my LGPS pension is post-2014 hence normal retirement age of 67.) 

Age 67 onwards: LGPS + small DB pension + State Pension + (whatever is left from my AVC + ISA) 

I anticipate that all of my AVC will be taken as cash (within tax free limits and no requirement to convert any to a pension).  

Based on my current forecasting I stay as a basic rate tax payer. Tax rates do need to be factored in, i.e. whether you will be paying 20% or 40% tax in retirement.  

You'd need to work out when the break even point is for you (i.e. comparing the two different ages of beginning to draw your LGPS pension.  The earlier you take your LGPS pension the greater number of years but a lower amount versus the higher pension but starting later) and whether you expect to live beyond that break even point/age, if you do, then you would be better taking your LGPS pension later on.  

For example, say you run the scenario above and it says the breakeven point is 82 years of age.  If you expect to live beyond that age then you would be better to take your LGPS pension later.   

The above is based on current pension rules and I'm fully aware a lot may change.  

seans_elysees

SarahB16 said:

seans_elysees said:

Aylesbury_Duck said:

Silvertabby said:

Aylesbury_Duck said:

Jumping onto this thread, I have a question.

As I understand it, the maximum TFLS I can take from my AVC is 25% of the combined value of the notional LGPS value (20x today's value) plus the AVC value.   Is that correct?  I know there's an absolute upper limit, but I'm not near that.

In my case, as at now, my LGPS entitlement is £13,208 and my AVC is worth £166,614.  By my calculations, that would make the maximum TFLS  ((£13,208 x 20) + £166,614)) / 4 = £107,694

However, when I use the calculator tool, it generates a sum of £88,053.   Can someone explain the substantial difference, please?  There's no LGPS lump sum involved.

I agree with your figures.  Most likely answer is a gremlin in the calculator.  Are you close enough to retirement to request an actual quote, including options for your residual AVC ?

Thank you, at least I know I've interpreted the guidance correctly.

I'm several years away from possible retirement, and more than 10 years away from touching the LGPS.  The plan as things stand is to begin drawing the LGPS a little earlier than 67 and use the residual AVC to top up the otherwise reduced annual pension.  

When you say using the residual AVC, do you mean buying extra annuity with that?  

I’ve tried to think whether that would be beneficial to go down that path of reductions to LGPS through early retirement, supplemented by buying extra via AVC. 

Can’t quite get my head around whether that would make sense, so instead I’ve just been concentrating on ISA+SIPP for early retirement - and then LGPS+AVC for SPA. 

If it helps as I too am in the LGPS I plan to take another DB pension (very small) + SIPP + ISA from age c.61/62 (this ensures I am using my personal allowance) then from age 65 take my LGPS + AVC.  This would mean a two year actuarial reduction on my post 2014 LGPS tranche but no actuarial reduction on my pre-2014 tranche.  (Majority of my LGPS pension is post-2014 hence normal retirement age of 67.) 

Age 67 onwards: LGPS + small DB pension + State Pension + (whatever is left from my AVC + ISA) 

I anticipate that all of my AVC will be taken as cash (within tax free limits and no requirement to convert any to a pension).  

Based on my current forecasting I stay as a basic rate tax payer. Tax rates do need to be factored in, i.e. whether you will be paying 20% or 40% tax in retirement.  

You'd need to work out when the break even point is for you (i.e. comparing the two different ages of beginning to draw your LGPS pension.  The earlier you take your LGPS pension the greater number of years but a lower amount versus the higher pension but starting later) and whether you expect to live beyond that break even point/age, if you do, then you would be better taking your LGPS pension later on.  

For example, say you run the scenario above and it says the breakeven point is 82 years of age.  If you expect to live beyond that age then you would be better to take your LGPS pension later.   

The above is based on current pension rules and I'm fully aware a lot may change.  

Thanks for that.

Lots of variables in there as to be expected and especially working out a break even based on expected life expectancy makes it especially tricky to have confidence. 

I’ve got a good while to go yet anyway so will just keep contributing for now and will get a better indication of the reality of the options when I get a lot closer to retirement. 

SarahB16

seans_elysees said:

SarahB16 said:

seans_elysees said:

Aylesbury_Duck said:

Silvertabby said:

Aylesbury_Duck said:

Jumping onto this thread, I have a question.

As I understand it, the maximum TFLS I can take from my AVC is 25% of the combined value of the notional LGPS value (20x today's value) plus the AVC value.   Is that correct?  I know there's an absolute upper limit, but I'm not near that.

In my case, as at now, my LGPS entitlement is £13,208 and my AVC is worth £166,614.  By my calculations, that would make the maximum TFLS  ((£13,208 x 20) + £166,614)) / 4 = £107,694

However, when I use the calculator tool, it generates a sum of £88,053.   Can someone explain the substantial difference, please?  There's no LGPS lump sum involved.

I agree with your figures.  Most likely answer is a gremlin in the calculator.  Are you close enough to retirement to request an actual quote, including options for your residual AVC ?

Thank you, at least I know I've interpreted the guidance correctly.

I'm several years away from possible retirement, and more than 10 years away from touching the LGPS.  The plan as things stand is to begin drawing the LGPS a little earlier than 67 and use the residual AVC to top up the otherwise reduced annual pension.  

When you say using the residual AVC, do you mean buying extra annuity with that?  

I’ve tried to think whether that would be beneficial to go down that path of reductions to LGPS through early retirement, supplemented by buying extra via AVC. 

Can’t quite get my head around whether that would make sense, so instead I’ve just been concentrating on ISA+SIPP for early retirement - and then LGPS+AVC for SPA. 

If it helps as I too am in the LGPS I plan to take another DB pension (very small) + SIPP + ISA from age c.61/62 (this ensures I am using my personal allowance) then from age 65 take my LGPS + AVC.  This would mean a two year actuarial reduction on my post 2014 LGPS tranche but no actuarial reduction on my pre-2014 tranche.  (Majority of my LGPS pension is post-2014 hence normal retirement age of 67.) 

Age 67 onwards: LGPS + small DB pension + State Pension + (whatever is left from my AVC + ISA) 

I anticipate that all of my AVC will be taken as cash (within tax free limits and no requirement to convert any to a pension).  

Based on my current forecasting I stay as a basic rate tax payer. Tax rates do need to be factored in, i.e. whether you will be paying 20% or 40% tax in retirement.  

You'd need to work out when the break even point is for you (i.e. comparing the two different ages of beginning to draw your LGPS pension.  The earlier you take your LGPS pension the greater number of years but a lower amount versus the higher pension but starting later) and whether you expect to live beyond that break even point/age, if you do, then you would be better taking your LGPS pension later on.  

For example, say you run the scenario above and it says the breakeven point is 82 years of age.  If you expect to live beyond that age then you would be better to take your LGPS pension later.   

The above is based on current pension rules and I'm fully aware a lot may change.  

Thanks for that.

Lots of variables in there as to be expected and especially working out a break even based on expected life expectancy makes it especially tricky to have confidence. 

I’ve got a good while to go yet anyway so will just keep contributing for now and will get a better indication of the reality of the options when I get a lot closer to retirement. 

You're very welcome.

My only observations on your plan are:

It seems you wish to retire at 55 using your DC pot (from 57) until you're 68 so do make sure you have sufficient funds in that DC pot. I'm not clear on how big your DC pot is but this needs to fund you from 57 to 68 and perhaps use ISAs from 55 to 57 as you can't draw your DC pot until you're 57 based on your age.  

You don't need to work out a break-even point you'd simply model taking your LGPS at age 68 versus taking it at say 63 and the financial modelling may say the break-even age is 80 (let's just say) and you think you might live to the age of say 85 then this simply confirms you are doing the right thing taking your LGPS pension at 68 and not earlier.    

AlanP_2

Just a point to be aware of:

Not all LGPS areas allow a deferred member to use any excess AVC to purchase additional LGPS benefits even though retirees from active membership can.

Mine didn't, which as it happens made no difference to me, but wasn't something I  was aware of from reading national LGPS scheme website. 

Silvertabby

AlanP_2 said:

Just a point to be aware of:

Not all LGPS areas allow a deferred member to use any excess AVC to purchase additional LGPS benefits even though retirees from active membership can.

Mine didn't, which as it happens made no difference to me, but wasn't something I  was aware of from reading national LGPS scheme website. 

It depends on when you left/deferred.  Only those who left on or after 1 April 2014 can use their AVCs to buy additional pension benefits from deferment