LGPS - AVC or APC?

hazel_davey

I'm 53 and would like to retire a few years early. My current salary is £43k. I've been paying into LGPS since 2003, with a break just short of 5 years when I moved into the private sector. Jic it makes any difference, I've linked my old LGPS pot to my new to benefit from pay increases. I'm not sure of the longevity of my current role, so I'm thinking I need to pay in sooner rather than later.

I'm considering paying into AVCs or APCs. As I understand it APC's are buying extra LGPS pension and are subject to the same restrictions so probably wouldn't work for retiring early, whereas AVCs are built up in a separate pot and are more flexible? Have I got that right?

What would work best for me, please?

TIA

daveyjp

Well worth a read:

https://www.lgpsmember.org/your-pension/paying-in/paying-more/

APC is buying extra LGPS pension either through regular contributions or via a lump sum, paid when you retire. You are therefore tied into LGPS.

AVCs are a separate savings account similar to a DC pension. You chose the investments you want to invest in through the AVC provider.

The one big advantage with AVCs is some employers offer them through salary sacrifice, so you save tax and NI. A £100 contribution only costs the member about £70. The money can then be withdrawn 100% tax free (subject to a generous limit) on retirement.

One downside is AVCs have to be taken at the same time as the LGPS (so if you want to 'retire' by using the AVCs lump sum and leave the LGPS in deferral you can't), but you have flexibility what to do with the lump sum. You could use it to invest as you would a DC pension and drawdown, purchase an annuity etc, or you could choose to make an APC contribution and increase your DB pension. This could cover some of the reduction for early retirement.

If your AVC isn't salary sacrifice you need to consider whether the LGPS AVC and its downside of it being tied to LGPS retirement date outweigh simply investing in a standalone pension which can be taken from 55 (or possibly 57 as it is changing). You could then use that fund to live on and defer LGPS to lessen the impact of early retirement deduction.

hazel_davey

https://forums.moneysavingexpert.com/discussion/comment/81937034#Comment_81937034

Thank you!

If I understand correctly, given I could theoretically draw my LGPS pensions from 55 if I am made redundant / retire on ill health grounds, paying in AVC's would also help mitigate the redution?

Silvertabby

https://forums.moneysavingexpert.com/discussion/comment/81937803#Comment_81937803

If you are made redundant or retire on ill health grounds (under Tier 2 to 3) then there wouldn't be any reductions for early payment.

APCs are good value if you intend to take normal retirement at your NRA (mainly SPA), not so much if you want to draw your benefits from 55 (rising to 57) due to the early payment reductions.

Most people take out LGPS AVCs for the tax benefits (tax relief in, tax free - up to HMRC limits - out). If your AVCs are enough to cover your lump sum requirement, then you won't need to commute (give up part of your pension) at the p.poor rate of 1 :12. Or, if extra pension is your aim, you could use some or all of your AVCs to buy additional index linked LGPS pension. Unlike APCs, this extra pension isn't reduced for early payment - instead, the process is more like buying an annuity, in that the AVC conversion factors are age related.