Pension Planning Guidance

Hehaw2025

Good evening all,

Myself and my GF have just had a baby and at 36 I have decided to finally start looking at pensions. Just looking for some guidance on if what I am doing is correct.

I have 6 pension pots with roughly a combined value of £25k. They have no special benefits so I opened up a Vanguard SIPP and transferred the £25k into the FTSE Global All Cap index fund(Accumulation). I will continue to pay an additional £200 per month into this.

I work for a local authority and have a LGPS pension and currently earn £50k per year. My understanding is that this works out as = £50k/49 = £1,020 x 33 years of service = £33,600.

My colleague advised me that I should also consider contributing to an AVC within the Local authority but I will need to look more into this but would plan to contribute £100 per month into this as well.

In summary I would be:

Keep LGPS
£200 into SIPP
£100 into AVC

Is this a smart idea and will I and more importantly my family be in a strong position when I retire or if anything happens to me.

Cheers.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6660768/pension-planning-guidance

LGPS also benefits from an annual revaluation to give inflation protection so your £1,020 will increase each your to keep pace with the cost of living.

LGPS is a little different to a lot of other defined benefit schemes in that you may be able to take more than the normal 25% as tax free cash from the AVC, which is very tax efficient given you are getting tax relief on the way in.

That is something worth looking into but as I understand it is only possible to take more than 25% if you take them AVC when you take the DB element so it's not quite as flexible as a SIPP. But it can be a very valuable benefit of the scheme.

BridgetTheCat

LGPS also has good death in service and life insurance benefits so make sure your nominations are up to date, including the new baby.

huw01

If you want to know some more about the AVC's associated with the LGPS go over to Youtube to My Money Matters channel they have some really good recorded webinars on the LGPS and how the AVC's work side by side with your pension. For example

https://www.youtube.com/watch?v=_r-TrbERWnI

The LGPS AVC is the only one which allows you to take all of our pot as a tax free lump sum (providing you don't go above the personal maximum amount allowed) should you wish to do so, so you aren't resitriced to the 25% of the value of the AVC.

With an AVC you are building up in effect another Defined Contribution Pension pot alongside your LGPS Defined Benefit Pension. Depending on your situation and needs you may find that it makes more sense to pay more or all of your contibrutions into the AVC rather than another SIPP. The downside is that you have to take it the same time as your LGPS benefits, it can't be taken at another time.

In relation to your LGPS - yes keep it, keep paying into it. It can't really be beaten.

Albermarle

Is this a smart idea and will I and more importantly my family be in a strong position when I retire or if anything happens to me.

If you want to protect your family in case anything happens to you, then get married !

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/81932656#Comment_81932656

Or become civil partners.

You should also both make wills and put LPAs in place. If you were hit by a truck tomorrow and killed your unborn child would inherit your estate not your partner. If you survived but were left without the mental capacity to manage your own affairs your partner would be left in a financial mess.

LHW99

Make sure you have your expression of wish completed on the SIPP and keep it up to date

SarahB16

One of the great benefits with the LGPS AVC is that it can be taken 100% tax free (i.e. not restricted to 25% tax free as is the case with a SIPP) subject to HMRC limits.

Based on what you have shared so far if I were in your shoes I would be putting the full £300 i.e. all of your contributions into the LGPS AVC but you need to bear in mind you are restricted that the LGPS AVC needs to be taken at the same time as your LGPS pension.

You may prefer to retire before you reach state pension age (which is the normal retirement age for your LGPS pension) so to avoid an actuarial reduction on your LGPS pension you may prefer to have a SIPP to bridge the years before you take the LGPS pension (but I would not contribute to the SIPP just yet as the tax advantages of the LGPS AVC far outweigh the SIPP).

To illustrate my suggestion:

Your state pension age is 68.

Your LGPS normal retirement age is therefore also 68.

You wish to retire at 62 therefore you need to bridge those 6 years. I would suggest a SIPP for those 6 years but some other people may suggest you take the actuarial reduction and take the LGPS early (this is where marginal tax rates also come into play and hence this is an unknown at this stage as we don't currently know what your total income is likely to be when you are 68 and what your marginal tax rate will be).

For the time being I would suggest you put the £300 into the LGPS AVC (very likely to be taken 100% tax free and if it exceeds the limit can be converted and taken as additional pension but if you keep an eye on your forecasts when you think you are likely to exceed this limit you can direct your contributions to your SIPP).

You will very likely wish to contribute to your SIPP too but I would do that later on (say in c.10 years' time based on your current contributions) and keep your focus at the moment on the LGPS AVC due to the tax advantages.

Some LGPS AVCs are taken via salary sacrifice and some aren't. If it is via salary sacrifice whilst this perk is still in place you would also have those NIC savings too.

Marcon

Is this a smart idea and will I and more importantly my family be in a strong position when I retire or if anything happens to me.

Congratulations on the new arrival!

The problem with asking if something is a good/bad idea is the lack of full information - and given this is a public forum, not including too much detail is no bad thing.

Getting married/civil partnered as already suggested would simplify a lot of things if you are both free to do so. Those who trumpet that they don't need a piece of paper to prove etc etc have often overlooked the considerable tax advantages (especially on death) from having precisely that piece of paper…

The LGPS is a great scheme, but even so it's worth considering both you and the proud new mum taking out some life insurance. Tragedy and disaster are no respecters of circumstances, and having a substantial lump sum to ensure that there are no immediate financial pressures to add to the grief really is worthwhile. Have a look at

https://www.uswitch.com/life-insurance/ppc/?utm_medium=cpc&utm_source=google&utm_campaign=Life%20-%20Product%20-%20General%20-%20Uswitch+-+AI+Max+1&utm_content=715325919745%7CLife%20Insurance&utm_term=life%20insurance&matchtype=p&device=c&gad_source=1&gad_campaignid=21137060825&gbraid=0AAAAA9f07omOLPzHYGkkYUWCUUewrSX7-&gclid=Cj0KCQjwpv7NBhCzARIsADkIfWxgaBZ8EzP6-oGSIBY4adeRQpQihMutDBv_f-OKDS7i2kZE2KtRrKsaAvdHEALw_wcB

or

https://www.confused.com

to get more information/indicative quotes.

LHW99

The LGPS is a great scheme, but even so it's worth considering both you and the proud new mum taking out some life insurance. Tragedy and disaster are no respecters of circumstances, and having a substantial lump sum to ensure that there are no immediate financial pressures to add to the grief really is worthwhile.

I would second that, and if affordability is a question, look into Family Income Benefit Policies (if they are still called that).

They work by offering given income on death for a set number of years. They are cheaper than Term policies, because the pay out is for fewer years as the policy goes on. However as a means of ensuring that eg there is an extra yearly amount coming in for as long as a child is likely to be dependent (so one partner can't go out to work) they are useful. We took one to cover until the children were 18, 'just in case'. It also means there is not need for a bereaved person to have to manage a large Term payout to make it last - though hopefully you have insurance to cover a mortgage in any case.