Pensions for Dummies

Youthgonewild · 22 April 2018 at 8:05PM

Hi all,

I was wondering if someone could give me some advice. I dont really understand how my pension works.

To summarise, I have been in the LGPS pension scheme for 7 years now. I work p/t (0.7 fte) and I contribute about 5.8% at source to the scheme. It’s a defined benefits scheme. I have three years at final salary (1/60 scheme) and 4 at CARE.

We had someone from the pension company come in to our workplace last week and explain the advantages of AVCs. I have applied for £30 a month to go into AVCs - not much I know

But I dont understand what really happens or how much I that £30 will buy me if that makes sense? I didnt really understand when the guy said you get 25% back. I feel like such a doughnut but I thought it best to top up my pension in any case seeing as I have worked part time for the past 4.5 or so years

I dont know if its relevant but I am 32

Thank you in advance

Brynsam · 22 April 2018 at 8:52PM

Have a read of this: https://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/workplace-pension-schemes/defined-contribution-avcs-and-fsavcs

If you're still baffled (and many are, so you are not alone!), give TPAS a call for free, impartial, jargon-free help to understand what you're investing in.

Happily you are pretty safe with what you've just done, but as a general safety point....not a great idea to invest in something if you don't understand it.

Youthgonewild · 22 April 2018 at 9:42PM

Thanks Brynsam. I dont really understand how much extra pension Ive bought for my £30 worth. It doesnt help that it takes so long to process and clear through payroll so I don!!!8217;t know what my wage slip will look like in future. Im hoping I get my confirmation letter sent in the post this week so I can at least set up a proper account on the pension scheme website and view/track how much is in the AVC pot. I definitely put the money in a low/medium risk fund when I applied for AVCs.

Thanks for replying, it really is a minefield

xylophone · 22 April 2018 at 9:53PM

https://www.pru.co.uk/rz/localgov/

Have you read through the information provided?

hyubh · 22 April 2018 at 9:59PM

Youthgonewild wrote: »

I dont really understand how much extra pension Ive bought for my £30 worth.

Your main pension is 'defined benefit' (DB) - what you get on retirement is defined in terms of your pensionable pay over time. Your AVC, in contrast, is 'defined contribution' (DC) - what you get on retirement is dependent on investment choice and performance, and how you decide to deal with the pension when you do draw benefits from it. If you're familiar with the concept of a stocks and shares ISA, it's similar-ish to one of those, albeit with a different tax treatment.

Brynsam · 22 April 2018 at 9:59PM

Youthgonewild wrote: »

Thanks Brynsam. I dont really understand how much extra pension Ive bought for my £30 worth. It doesnt help that it takes so long to process and clear through payroll so I don!!!8217;t know what my wage slip will look like in future. Im hoping I get my confirmation letter sent in the post this week so I can at least set up a proper account on the pension scheme website and view/track how much is in the AVC pot. I definitely put the money in a low/medium risk fund when I applied for AVCs.

Thanks for replying, it really is a minefield

You won't know how much pension you will get until you come tor draw your AVC benefits. Think of your AVC as a tax-efficient piggy bank, in which your AVC savings build up until you tip out the piggy bank (yes, it is a notional one, not a real china one...!). You can take 25% of your AVC savings as tax free cash if you wish, or you can use all your AVC 'pot' to buy extra pension.

Youthgonewild · 22 April 2018 at 10:48PM

Thanks for the supplies. The link is handy Xylophone, I set up AVCs at work so briefly skimmed the document. I know, I am a complete spoon! It kind of makes sense when I read it but then I find I have trouble retaining the information that leads to further confusion.

Thanks again all for the replies, you!!!8217;ve been very helpful. I will look at increasing AVCs once I am in a better financial situation (hopefully when youngest starts school so my childcare costs reduce).

Loving MSE forum x

cloud_dog · 23 April 2018 at 9:21AM

Hi OP

Can I ask what salary you are on, or put another way, is it less than about £12500pa?

The reason I ask is that if your salary is less than that (or around that figure ) you may not be making tax efficient additional contributions at all.

MPD · 23 April 2018 at 5:31PM

cloud_dog wrote: »

Hi OP

Can I ask what salary you are on, or put another way, is it less than about £12500pa?

The reason I ask is that if your salary is less than that (or around that figure ) you may not be making tax efficient additional contributions at all.

Contributions table 2018/19
If your actual pensionable pay is: You pay a contribution rate of:
Up to £14,100 5.5%
£14,101 to £22,000 5.8%

Not pasted particularly well but 5.8% means there is tax to be saved

cloud_dog · 23 April 2018 at 5:45PM

MPD wrote: »

Contributions table 2018/19
If your actual pensionable pay is: You pay a contribution rate of:
Up to £14,100 5.5%
£14,101 to £22,000 5.8%

Not pasted particularly well but 5.8% means there is tax to be saved

Well, that seems to mean there is plenty of taxable pay available.

Spreadsheet_Addict · 23 April 2018 at 8:14PM

As it's an LGPS AVC then it's possible the entire AVC pot will end up tax free as it's calculated on 25% of your notional "pension pot" plus AVC, which with 30+ years in the scheme to retirement wI'll be in the multiple tens of thousands even before you count in 30 years of £30 a month plus 25% tax relief.

Pensions for Dummies

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