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West Yorkshire Pension Fund - AVC
AI Overview, Contributing an extra £5,000 to the West Yorkshire Pension Fund (WYPF) as an active member can be beneficial by increasing your retirement income and potentially offering tax relief. You can use Additional Voluntary Contributions (AVCs) for flexibility or Additional Pension Contributions (APCs) to boost your pension. Contributions are generally locked away until age 55 (57 from 2028).
I asked the above question as I could be leaving my employment this year or next. I have a SIPP and £10k+ in savings. Is an AVC always going to be better than contributing to my SIPP, I have been considering other employment for a year or so, I am 64
Why is an AVC better than keeping my money invested in the FTSE?
Comments
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In the LGPS you can take the AVC tax free (up to certain levels) when you take the rest of the pension, so you save the full amount of tax you would have paid on it at the time. If they let you pay it via salary sacrifice (often via my money matters) you'll get NI savings plus employer NI added too. It's an incredibly valuable benefit of the LGPS scheme.
Edited to add, you can invest in various things within the AVC, with the short timescale to your retirement you might want to keep it in the AVC but uninvested to "bank" the savings.
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Important to understand both an AVC and a SIPP are merely mechanisms for investing.
Where that money is invested is then the choice to be made - both SIPP and AVC funds can be invested in the FTSE if that's the preference.
If the AVC is offered via salary sacrifice that is a significant benefit, but with only a year or so its not long to take advantage of it.
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I have posted my question on our works Facebook page and someone is going through the same thing. I am calling them next week.
We get very little info from our employer. Someone on our Facebook group has 2 pensions with WYPF and is asking if they should merge them.
Tax free, maybe there is the same tax as with a SIPP?
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The WYPF is a Defined Benefit ( DB ) scheme, where you get a guaranteed pension income based on your years of service and salary . It seems that you can increase this pension by adding APCs to it.
An AVC or SIPP, are Defined Contribution ( DC) pensions where you build up a pot of money. From a tax and legal standpoint they are the same. However as mentioned with some LGPS employers you can use the AVC to extract more tax free cash overall.
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Neither WYPF's own site nor the national LGPS one not helpful…? (They were for the LLM that did your initial summary…)
Generally speaking, in LGPS land you get your pensions info from the administrator of the pension fund rather than your employer.
On the 'tax free' point, it's not that you can't draw a tax free lump sum with a SIPP (you can). Also, as others have said, a SIPP and LGPS AVC are both 'DC' pensions, in contrast to your main LGPS benefits which are 'DB'. However, an LGPC AVC is linked with your main LGPS pension when it comes to determining what tax free lump sum(s) might be taken.
In the unlinked situation, you could take 25% of the DC pension as a tax free lump sum, then separately 'commute' (i.e. reduce down) your DB pension to take a notional '25%' of that as a lump sum too. However the 'commutation rate' in the LGPS is poor, and giving up some of your fully indexed income may not be a great idea anyway. With an LGPS AVC, in contrast, you can take up to '25%' of your DB entitlement and AVC value considered together, meaning you could (potentially) take the AVC in its entirety as the tax free lump sum while leaving your DB entitlement untouched. If you were interested in maxing out your lump sum options, this would be a much better way to achieve that than taking two separate 25%s.
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I am sure many find pensions confusing, terms like buy extra pension means very little to me. For most people, they don't think about pensions for the first 50 years of their life.
When I buy something I know if I buy the same product for £100 when its listed elsewhere for £200, I know I have a good deal.
I know if I am not paying NI, then that is a good deal. I think I will be contacting WYPF or our provider the Pru.
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To be fair, they should, it is your personal responsibility to understand these and by actually reading up about them proper. To be fair, the level of understanding for members of LGPS needed likely to be far easier to.do since you don't have to worry that much compared to vast majority of the people who pay directly into AE pension schemes.
I really can't see how LGPS website can do any more than what they already done with their website. It is already rather detailed in the first place.
The first point of call is WYPF which I am glad to see that you are actually going to do rather than relying on an AI chatbox to do your reading. But they will not give you advice so bear that in mind
Mind you, you could ask your AI further questions which may clarify and answer your questions, you know but always read the actual informations as hyubh already pointed out.
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Its because you need to work through the layers of organisations.
LGPS is the overarching pension provider for all local government pensions. Generic infoWYPF is the West Yorkshire Pension Fund under the LGPS.
WYPF the operates pensions for Leeds, Bradford, Wakefield, Calderdale, Kirklees and they also administer some other organisations and council area pensions.
You need to go theough your employer to find info on whether they operate a salary sacrifice option for AVCs as that is a local decision made by individual councils and employers.
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Many people dont go online, more so older people, so perhaps you dont understand the lives of other people?
Some people even seem to be unable to Google!
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Most people take out LGPS AVCs because of the tax breaks. Tax relief in, tax free out (within HMRC maximum tax free cash limits). But they also have the option of being used to buy additional LGPS benefits if wished. If used to buy additional pension, note that the factors are age related - ie, £50K of AVCs taken at age 65 will buy more LGPS pension than the same amount at age 55.
APC's are good value if you don't intend taking your LGPS benefits much before your NRA (SPA), not so much if you take them earlier, as the amount you have bought would be subject to early retirement reductions at the same rate as (post 2008) standard scheme benefits.
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