Some general pension/savings pointers please

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  • Aylesbury_Duck
    Aylesbury_Duck Posts: 13,995 Forumite
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    edited 16 May 2018 at 12:05PM
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    AlanP wrote: »
    Just checking - are you sure your wife's contributions are under Salary Sacrifice terms as that would be unusual for a LGPS aligned scheme?

    Is it a standard LGPS AVC pot which can be taken entirely tax free at the same time as the main LGPS scheme subject to 25% overall limit?

    Have you worked out what income level you need (floor level) and would like (nice to have level) in retirement? A useful exercise as you can start to get an idea of how much you need to be putting aside for retirement.
    Thanks AlanP, I'll check if her contributions are under SS. Her employer (a local authority) works with Prudential to offer an AVC scheme, the overview of which is:

    The money is deducted directly from your pay before your tax is worked out, so, if you pay tax you receive tax relief automatically. You have your own personal account and you decide how the money in your pot is to be invested.

    Doesn't that make it salary sacrifice? I don't have it to hand now but I'm sure her P60 states her taxable salary as lower than her actual salary by the amount of AVCs.

    Good suggestion on the floor and aspirational levels. We've never done that before, thinking that we'd be alright by starting pensions early (we both started them in our early 20s) and by paying more than the minimum amount. With hindsight, we should have diverted more into pensions in recent years rather than paying off the mortgage so quickly and building up a large cash reserve. Still, we're in a more fortunate position than many because of prudence, but we can afford to be a little less cautious and make our money work much harder for us than it has to date.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    Aylesbury_Duck wrote: »
    The money is deducted directly from your pay before your tax is worked out, so, if you pay tax you receive tax relief automatically. You have your own personal account and you decide how the money in your pot is to be invested.
    Doesn't that make it salary sacrifice?

    No; if it were sal sac they'd mention the savings in National Insurance too. Anyway, note "if you pay tax you receive tax relief automatically". She shouldn't contribute so much by this route that she ends up wasting tax relief by virtue of reducing her taxable pay below the Personal Allowance. That's the point at which contributing to a personal pension as well becomes a good move.
    Free the dunston one next time too.
  • Aylesbury_Duck
    Aylesbury_Duck Posts: 13,995 Forumite
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    edited 16 May 2018 at 3:55PM
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    Thanks. So as long as she maintains the £400 she pays in AVCs, or perhaps increases them to £500 or £600 she'll still be earning more than her personal allowance.

    So far I've upped my pension contributions to 15% and will look at the OH's contrition increasing to £500 or £600. I'm also looking at evestor for a S&S ISA into which we'll both put £500 a month as part of balancing the cash/investment amounts we have as well as reducing them both overall in favour of more pension contributions. Does that sound sensible?
  • AlanP_2
    AlanP_2 Posts: 3,253 Forumite
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    Aylesbury_Duck wrote: »
    Thanks AlanP, I'll check if her contributions are under SS. Her employer (a local authority) works with Prudential to offer an AVC scheme, the overview of which is:

    The money is deducted directly from your pay before your tax is worked out, so, if you pay tax you receive tax relief automatically. You have your own personal account and you decide how the money in your pot is to be invested.

    Doesn't that make it salary sacrifice? I don't have it to hand now but I'm sure her P60 states her taxable salary as lower than her actual salary by the amount of AVCs.

    Good suggestion on the floor and aspirational levels. We've never done that before, thinking that we'd be alright by starting pensions early (we both started them in our early 20s) and by paying more than the minimum amount. With hindsight, we should have diverted more into pensions in recent years rather than paying off the mortgage so quickly and building up a large cash reserve. Still, we're in a more fortunate position than many because of prudence, but we can afford to be a little less cautious and make our money work much harder for us than it has to date.

    As it is an LGPS AVC she will be able to take the pot tax free under current regulations at the same time as taking the main LGPS pension (up to 25% overall limit) so worth making the most of as you propose to.

    When working out your numbers, take a pessimistic view as well and consider where you will be as and when one of you dies and the household income drops. Does it still "work" whichever one of you goes first, hopefully well after you have retired and are both getting your State Pensions.
  • Aylesbury_Duck
    Aylesbury_Duck Posts: 13,995 Forumite
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    My wife apparently has two options available. One is to continue with the AVCs through the Prudential pension linked to the LGPS. The other is an APC scheme (Additional Pension Contributions) into which you can pay additional contributions to buy up to £6,755 of extra pension in the LGPS itself, rather than in the separate Prudential pot.

    Is the LGPS APC a better way forward in that it will provide a guaranteed pension level based on salary, or is it good to diversify and grow the separate pot alongside it and accept that it's value is not predictable? She may put a lump sum into the LGPS or spread it over monthly contributions and with the cash we have at hand, we can do either.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    Aylesbury_Duck wrote: »
    Is the LGPS APC a better way forward?

    I'd look carefully at the effect of retirement age. Would the APCs lose a lot of value if she opted to retire early and draw her LGPS early?
    Free the dunston one next time too.
  • Silvertabby
    Silvertabby Posts: 9,023 Forumite
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    kidmugsy wrote: »
    I'd look carefully at the effect of retirement age. Would the APCs lose a lot of value if she opted to retire early and draw her LGPS early?

    LGPS APCs are subject to early retirement reductions. A couple of years early isn't too bad, but buying APCs with the intention of retiring at 60 may not be the best option.
  • Aylesbury_Duck
    Aylesbury_Duck Posts: 13,995 Forumite
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    Thanks both. We've looked into it and you're right. I think the AVCs are a more flexible product, and unlike APCs, they are inheritable.
  • Aylesbury_Duck
    Aylesbury_Duck Posts: 13,995 Forumite
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    Thought it would be good to provide an update and to show my appreciation for the pointers you all gave me. We've taken the following steps:

    - upped my OH's pension contributions to get the NI savings. She's now making AVCs of £550 p.m. on top of her LGPS.
    - upped my pension contributions to the point where almost none of my salary is in the 40% bracket.
    - I've started contributing £1500 p.m. into an evestor S&S ISA to gradually swing the balance of our savings away from being dominated by cash.

    We'll assess how things are shaping up in a few months and if we're still adding to our cash savings, or not moving from cash to S&S very quickly, my wife will open another S&S ISA and begin contributing.

    Thanks for your advice - we have a much better idea of what our goals are with regard to pensions and savings, the steps we've taken should help get us there and we feel comfortable with what we're doing, knowing that we can always adjust any of the pension contributions or monthly investments to fine tune things either way.
  • atush
    atush Posts: 18,726 Forumite
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    Thanks for getting back to us.
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