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  • FIRST POST
    • John905
    • By John905 17th Jun 19, 8:57 PM
    • 6Posts
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    John905
    LGPS and AVC Early/Flexible Retirement Feedback Sought
    • #1
    • 17th Jun 19, 8:57 PM
    LGPS and AVC Early/Flexible Retirement Feedback Sought 17th Jun 19 at 8:57 PM
    I am hoping for a bit of feedback on the ins and outs of flexible/early retirement as well as Prudential AVCís linked to the LGPS. I am about to turn 54 and have been in the Strathclyde LGPS since 1992, bar for an 18 month break ages ago. I should meet the rule of 85 in October 2022. Ideally I am hoping to retire at 60, or even go down to 3 days via flexible retirement at some stage before that. Strathclyde LGPS have told me I will receive partial protection under the rule of 85, with my pension and lump sum accrued up till the end of March 2008 protected from reduction if I take my pension early. My gut feeling is that I would be daft to take early/flexible retirement until the rule of 85 kicks in, even though I could apply for flexible retirement at 55. My current salary is just over £37,000 and I donít see this increasing in real terms. I am also thinking that with tax relief on the Prudential AVCís I should put as much as possible between now and retirement into these with a view to taking these contributions as a tax free lump sum. I had looked at SIPPís too, but the AVC trump card seems to be the ability to take a far larger sum tax free. Are there any potential pitfalls to my plan that I should be aware of? One concern I had was possible charges that Prudential were levying on people taking their AVC benefits within 5 years of opening, though their helpline assured me they no longer do this and that there would be no hidden surprises if I took flexible retirement within the next 5 years.
Page 1
    • OldBeanz
    • By OldBeanz 17th Jun 19, 9:39 PM
    • 842 Posts
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    OldBeanz
    • #2
    • 17th Jun 19, 9:39 PM
    • #2
    • 17th Jun 19, 9:39 PM
    I always call it the cherry on top of the gold pension. The wife is filling her boots and in your position while not advising you...
    • geoffers4
    • By geoffers4 17th Jun 19, 9:41 PM
    • 166 Posts
    • 1,053 Thanks
    geoffers4
    • #3
    • 17th Jun 19, 9:41 PM
    • #3
    • 17th Jun 19, 9:41 PM
    I'm also LGPS and doing the Pru AVC's for exactly the same reasons as you. I've always found the Pru very straightforward with their information. Don't forget you can access unused tax relief from the last 3 years - Pru will explain this to you and check you don't put in more than can be taken as a tax-free sum at 60.
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    • Aylesbury Duck
    • By Aylesbury Duck 18th Jun 19, 7:26 AM
    • 4,035 Posts
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    Aylesbury Duck
    • #4
    • 18th Jun 19, 7:26 AM
    • #4
    • 18th Jun 19, 7:26 AM
    I'm also LGPS and doing the Pru AVC's for exactly the same reasons as you. I've always found the Pru very straightforward with their information. Don't forget you can access unused tax relief from the last 3 years - Pru will explain this to you and check you don't put in more than can be taken as a tax-free sum at 60.
    Originally posted by geoffers4
    Iíve been researching this myself and understand that you canít take more than 25% of the total value of your LGPS plus AVC pot (I think). What happens if your AVC pot ends up being much more than that? Is it simply the case that you can take a tax-free lump sum up to that ceiling and the rest you transfer into another pension to draw down or buy an annuity? Iím in a position where Iíll be joining the LGPS at 47 and wanting to make sizeable AVCs (Iím also looking at APCs as an option) and I can easily see my AVC pot being much much bigger than 25% of the total.
    • Durban
    • By Durban 18th Jun 19, 3:01 PM
    • 160 Posts
    • 318 Thanks
    Durban
    • #5
    • 18th Jun 19, 3:01 PM
    Silvertabby?
    • #5
    • 18th Jun 19, 3:01 PM
    Iíve been researching this myself and understand that you canít take more than 25% of the total value of your LGPS plus AVC pot (I think). What happens if your AVC pot ends up being much more than that? Is it simply the case that you can take a tax-free lump sum up to that ceiling and the rest you transfer into another pension to draw down or buy an annuity? Iím in a position where Iíll be joining the LGPS at 47 and wanting to make sizeable AVCs (Iím also looking at APCs as an option) and I can easily see my AVC pot being much much bigger than 25% of the total.
    Originally posted by Aylesbury Duck
    Silvertabby?
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    • Silvertabby
    • By Silvertabby 18th Jun 19, 5:44 PM
    • 4,358 Posts
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    Silvertabby
    • #6
    • 18th Jun 19, 5:44 PM
    • #6
    • 18th Jun 19, 5:44 PM
    Hello all - been busy painting/picking paint out of my hair !

    John905 -

    The Rule of 85 protections, which will only apply to your pre 2008 service, still have the link to age 60. This means even if you meet R85 at 57, if you take normal retirement then your pre 2008 benefits will be reduced as you will be taking them 3 years early. However, flexible retirement is a different matter. If you were to be granted flexi from age 57, your employer would have to pay a lump sum into the LGPS so that your pre 2008 benefits won't be reduced. On your salary, this will be a substantial sum, and something that your employer will no doubt take into consideration when/if they approve your application for flexi retirement. Even with flexi, you will then take a substantial hit in respect of your post 2008 service as you will have no R85 protections at all.

    If your priority is maximising your tax free cash, then AVCs would fit the bill. It used to be that if you paid AVCs for less than 5 years, there would be an early retirement penalty - but that ended some time ago.

    Aylesbury Duck -

    If the total of your AVC fund and standard lump sum (from any pre 2008 service) exceeds 25% of your total fund notional value, then you have a number of options. Assuming that the rules don't change before you retire, the most popular use of any AVC 'residual funds' is to used to buy extra pension in the LGPS (not to be confused with APCs - different factors). These rates were always more generous than any annuity offered by the AVC provider. Or transfer on the open market and draw down (but at least consider the amount of pension the LGPS would offer you before going down that route).

    As it sounds like you won't have any pre 2008 service, your maximum tax free cash sum is 20 x your annual pension, plus your AVC fund, x 25%.

    HTH
    Last edited by Silvertabby; 18-06-2019 at 7:54 PM.
    • John905
    • By John905 18th Jun 19, 10:12 PM
    • 6 Posts
    • 3 Thanks
    John905
    • #7
    • 18th Jun 19, 10:12 PM
    • #7
    • 18th Jun 19, 10:12 PM
    Thanks for the replies everyone, very interesting and much appreciated. Iíd pretty much ruled out flexi retirement until I met the rule of 85 but this means it would not really have any impact apart from the normal reduction related to time. It does look like I would need to be quite persuasive in making a case for it while in the 55-60 age bracket due to the costs for my employer though. One question related to flexible retirement is the tax free lump sum linked to an AVC. It states that for the sum to be tax free you need to take it at the same time as your main LGPS benefits. Does this mean that in effect I would need to take it at the same time as starting flexible retirement?
    • Apodemus
    • By Apodemus 19th Jun 19, 6:46 AM
    • 1,369 Posts
    • 1,146 Thanks
    Apodemus
    • #8
    • 19th Jun 19, 6:46 AM
    • #8
    • 19th Jun 19, 6:46 AM
    Iíll be interested in Silvertabbyís response, but my understanding from colleagues has been that under flexible retirement you take all your pension on the retirement date (and draw a line under any existing redundancy rights). The subsequent employment is treated as a new employment on part-time hours, accruing new pension rights which are then drawn at the end of the flexible retirement period.

    Happy to see my understanding corrected if Iíve got this all horribly wrong - it is not something that would benefit me, so I have not taken the time to properly understand it!
    • Silvertabby
    • By Silvertabby 19th Jun 19, 10:40 AM
    • 4,358 Posts
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    Silvertabby
    • #9
    • 19th Jun 19, 10:40 AM
    • #9
    • 19th Jun 19, 10:40 AM
    One question related to flexible retirement is the tax free lump sum linked to an AVC. It states that for the sum to be tax free you need to take it at the same time as your main LGPS benefits. Does this mean that in effect I would need to take it at the same time as starting flexible retirement?
    Originally posted by John905
    If your aim is to maximise your tax free cash then, yes, you will need to take your AVC fund when you take your main LGPS benefits.

    In theory, if you were to take flexi retirement, and re-join the LGPS in respect of your new part time job, then you could defer payment of your AVCs/carry on paying AVCs until you retire fully. In practice, you may not then be able to take anywhere near your full AVC fund as tax free cash due to the whole fund maximum of 25%.

    In very round example figures:

    Re-join the LGPS and accrue another £2K per year in pension benefits.

    £50K in AVC fund.

    20 x £2K = £40K

    £40K + £50K = £90K

    £90K x 25% = £22,500

    Meaning that only £22,500 of the AVC fund may be taken as tax free cash, with remainder having to be taken as some form of pension.

    ADD: Or you can have the best of both worlds. Take your AVCs as cash when you flexibly retire, then start another AVC fund when you re-join the LGPS in your new part time post.
    Last edited by Silvertabby; 19-06-2019 at 11:30 AM.
    • Aylesbury Duck
    • By Aylesbury Duck 19th Jun 19, 10:43 AM
    • 4,035 Posts
    • 5,399 Thanks
    Aylesbury Duck
    Hello all - been busy painting/picking paint out of my hair !

    John905 -

    The Rule of 85 protections, which will only apply to your pre 2008 service, still have the link to age 60. This means even if you meet R85 at 57, if you take normal retirement then your pre 2008 benefits will be reduced as you will be taking them 3 years early. However, flexible retirement is a different matter. If you were to be granted flexi from age 57, your employer would have to pay a lump sum into the LGPS so that your pre 2008 benefits won't be reduced. On your salary, this will be a substantial sum, and something that your employer will no doubt take into consideration when/if they approve your application for flexi retirement. Even with flexi, you will then take a substantial hit in respect of your post 2008 service as you will have no R85 protections at all.

    If your priority is maximising your tax free cash, then AVCs would fit the bill. It used to be that if you paid AVCs for less than 5 years, there would be an early retirement penalty - but that ended some time ago.

    Aylesbury Duck -

    If the total of your AVC fund and standard lump sum (from any pre 2008 service) exceeds 25% of your total fund notional value, then you have a number of options. Assuming that the rules don't change before you retire, the most popular use of any AVC 'residual funds' is to used to buy extra pension in the LGPS (not to be confused with APCs - different factors). These rates were always more generous than any annuity offered by the AVC provider. Or transfer on the open market and draw down (but at least consider the amount of pension the LGPS would offer you before going down that route).

    As it sounds like you won't have any pre 2008 service, your maximum tax free cash sum is 20 x your annual pension, plus your AVC fund, x 25%.

    HTH
    Originally posted by Silvertabby
    Thanks very much for this.
    • Silvertabby
    • By Silvertabby 19th Jun 19, 10:48 AM
    • 4,358 Posts
    • 6,816 Thanks
    Silvertabby
    I’ll be interested in Silvertabby’s response, but my understanding from colleagues has been that under flexible retirement you take all your pension on the retirement date (and draw a line under any existing redundancy rights). The subsequent employment is treated as a new employment on part-time hours, accruing new pension rights which are then drawn at the end of the flexible retirement period.

    Happy to see my understanding corrected if I’ve got this all horribly wrong - it is not something that would benefit me, so I have not taken the time to properly understand it!
    Originally posted by Apodemus
    Spot on.

    The redundancy break (in respect of pension rights only - not actual statutory redundancy pay) has caught out more than one person. Briefly:

    Took flexi retirement - pension benefits subject to actuarial reduction for early payment.

    Returned in same job, but fewer hours.

    Year or so down the line - made redundant from part time post. Pension accrued in respect of new post was not actuarily reduced for early payment, as per redundancy regs.

    As flexi post and new part time post were essentially the same job, pension member expected that his flexi pension, which had been in payment for over a year, would be increased by the actuarial reduction. It wasn't.
    • Crabby
    • By Crabby 19th Jun 19, 12:02 PM
    • 776 Posts
    • 215 Thanks
    Crabby
    If the total of your AVC fund and standard lump sum (from any pre 2008 service) exceeds 25% of your total fund notional value, then you have a number of options. Assuming that the rules don't change before you retire, the most popular use of any AVC 'residual funds' is to used to buy extra pension in the LGPS (not to be confused with APCs - different factors). These rates were always more generous than any annuity offered by the AVC provider. Or transfer on the open market and draw down (but at least consider the amount of pension the LGPS would offer you before going down that route).

    Mrs C's AVC is roughly equivalent to her lump sum, how much would this equate to of her pre 2008 pension?
    Winner winner, Chicken dinner.
    • Silvertabby
    • By Silvertabby 19th Jun 19, 3:15 PM
    • 4,358 Posts
    • 6,816 Thanks
    Silvertabby
    Mrs C's AVC is roughly equivalent to her lump sum, how much would this equate to of her pre 2008 pension?
    Originally posted by Crabby
    The pension accrual rate pre 2008 was 1/80th, with an automatic lump sum of 3 x the annual pension. (Post 2008, the accrual rate increased to 1/60th and then 1/49th but with no automatic lump sum). If you have an estimate which gives the total pension plus the automatic lump sum, then:

    20 x total annual pension plus

    1 x automatic lump sum plus

    1 x AVC fund

    = £X x 25% = maximum tax free cash.

    The automatic lump sum has to be taken/can't be reduced, so if the lump sum plus AVC is more than 25% then the excess will have to be taken as some form of pension. If it is less, then there will be the option to give up some of the annual pension (commute) in order to realise the maximum tax free cash allowed.
    • Crabby
    • By Crabby 19th Jun 19, 4:24 PM
    • 776 Posts
    • 215 Thanks
    Crabby
    Mrs C would like more pension, because the lump sum and AVC is less than 25%, the AVC can not be used to by more LGPS pension. It can be taken as tax free cash, or used to buy an Anuity, Is that correct?
    Winner winner, Chicken dinner.
    • Silvertabby
    • By Silvertabby 19th Jun 19, 5:07 PM
    • 4,358 Posts
    • 6,816 Thanks
    Silvertabby
    Mrs C would like more pension, because the lump sum and AVC is less than 25%, the AVC can not be used to by more LGPS pension. It can be taken as tax free cash, or used to buy an Anuity, Is that correct?
    Originally posted by Crabby
    Mrs C should be able to use some or all of her AVC fund to buy added pension if she wishes - it's just that most people go for the maximum cash option with AVCs because of they are usually 'tax relief in/tax free out'.

    The following LGPS extract should help.

    Buy a top-up LGPS pension
    • If you were an active member of the scheme on or after 1 April 2014, you can buy a top-up pension LGPS pension with your AVC plan. Dependents' benefits will be automatically provided in the event of your death. The top-up pension you buy will increase in line with inflation.

      If you left the LGPS before 1 April 2014, you can only buy a top-up pension with your AVC plan if you take immediate payment of your main scheme pension benefits when you leave the scheme and you take your AVC plan at the same time i.e. you are not allowed to buy a top-up pension with your AVC plan if you defer your main scheme pension benefits when you leave the LGPS and take them at a later date. You have the option to provide for dependents' benefits in the event of your death. The top-up pension you buy will increase in line with inflation.
    • Buy extra membership in the LGPS You can buy extra membership in the LGPS but only if your election to pay AVCs was made before 13 November 2001. You should contact your pension fund if you think this applies to you.
    However, if Mrs C left the LGPS (and deferred her benefits) before 1 April 2014, then her only extra pension option would be to buy an annuity from the AVC provider/on the open market or take some form of drawdown.
    Last edited by Silvertabby; 19-06-2019 at 5:14 PM.
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