Local Gov Pension Scheme/Pru AVC

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davidjg
davidjg Posts: 17 Forumite
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in Pensions, annuities & retirement planning
I am 54 and recently retired from public sector employment with a pension of £19827. I have just started working with the Local Authority with a salary of £26311 and have been enrolled in the LGPS (Scotland). The LGPS offers an AVC scheme through Prudential.

Am I right in thinking that by contributing to this AVC scheme this would be a way of reducing my tax liability ie taking me under the higher tax bracket? I also have a stakeholder pension I am contributing to which has a transfer value of approx. £24000. Is it possible to transfer this stakeholder pension to a Prudential AVC?

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  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
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    Assuming you are Scottish resident for tax purposes then it seems likely you are significantly over the standard higher rate limit in Scotland and that is before factoring in some of the missing information needed to know for certain i.e. was your income from April to when you "recently retired" more than £19,827 per annum?

    If so even without considering any other taxable income you might have it might need fairly substantial contributions to keep under the higher rate threshold.

    Contributions to the AVC should help although there are different ways of paying so they can help in different ways. Some might be deducted before tax so turning a salary of £26,311 into a taxable salary of say £23k (which is what matters for tax, not the "salary").

    Or if relief is given at source like a personal pension/SIPP then this increases your basic rate tax threshold instead.
  • Apodemus
    Apodemus Posts: 3,384 Forumite
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    By my calculation, (assuming the figures above are your actual 18/19 income and your LGPS contribution is at the 6.5% rate) you will be almost exactly £1k over the Scottish higher rate limit, so £1k into the prudential AVC would just about do it, (also keeping you well within the £4K limit for pension contributions if this applies to you).

    If you find the answer to the stakeholder pension into AVC question, please post back here, as I would be interested to know how you get on with that! ;)
  • OldBeanz
    OldBeanz Posts: 1,401 Forumite
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    edited 10 November 2018 at 10:50AM
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    As you have a DB pension you are not restricted to the amount of money you can pay into your AVC which is triggered when a non-DB pension is drawn.
    You cannot transfer another pension into the AVC.
    The AVC will act as the lump sum you can take from the pension you are now starting with any extra being used to top up your pension.
    Your optimum option is to pay in your higher rate tax which you will then be able to draw tax free as a lump sum but even lower rate tax payments are a great deal.
    The maximum lump sum you can draw is 20x the value of your pension plus 25%. So if the next few years you will accumulate £1.5k pension = £30k - your maximum lump sum would then be £10k (25% of £40k).
    In your position you should be
    1. Making sure your contributions take you under the HRT.
    2. That you maximise your tax free lump sum.
  • davidjg
    davidjg Posts: 17 Forumite
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    Thanks again for information. Yes I just retired on 31 October 2018 and started new position on 1 November so my income prior to this date was more. I am a bit confused as to what the higher rate threshold in Scotland actually is.
  • Apodemus
    Apodemus Posts: 3,384 Forumite
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    davidjg wrote: »
    I am a bit confused as to what the higher rate threshold in Scotland actually is.

    I think confusion was a key aim of the SG’s tax regime! My calculation is that the starting point for HRT should be £43,430 this year (£11,850 personal allowance and £31,580 ceiling on the starter/basic/intermediate rate burach).
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
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    Scotland has two higher rate thresholds in the current tax year,

    £43,430 for non savings income such as wages, pensions, rental income etc

    £46,350 for savings and dividend income.
  • xylophone
    xylophone Posts: 44,427 Forumite
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    Can you transfer the stakeholder into your new LGPS pension rather than into the AVC?

    Your LGPS contribution and AVC contribution are taken in a "net pay" arrangement (from pay before tax) so you automatically get relief at the appropriate rate?
  • davidjg
    davidjg Posts: 17 Forumite
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    Unfortunately I am not able to transfer the stakeholder into my new LGPS.
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