Prudential LGPS AVC
Comments
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Back in 2012 they decided to penalise any short-term AVC accruals e.g. a large wodge of cash in the last few years of a pension just to "grab" the 25% uplift.
"In 2012 Prudential introduced an ‘administration’ fee for their in-house AVC scheme with no upper limit. The fee is 15% in year one, 10% in year two, 8% in year three, 6% in year four, and 5% in year five."
https://citywire.co.uk/new-model-adviser/news/pru-accused-of-fleecing-clients-with-15-fee-on-avc-scheme/a776139
Removed for new accounts from 2017 - one report i found:
Changes to Prudential AVC Exit Charges
Prudential have announced that their policy on exit charges has changed with effect from 19 March 2017.
Members whose first contribution is received on, or after 19 March 2017 will no longer be subject to an exit charge regardless of age. Members whose first contribution is received prior to the 19th March 2017 will have their exit charge capped at 1% for the first 3 years and 0% thereafter regardless of age.
https://www.eapf.org.uk/news/public/2017/04/changes-to-prudential-avc-exit-charges0 -
Thanks, wasn't aware of that.0
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Very valuable information in this thread. I am almost 57 and have about £11200 pension in lgps. I would like to retire soon, and will have to accept a reduced pension, say circa £7000. I also have got £51000 in pru AVCs and would like to have this in tax free cash to pay off mortgage. How is the 25 per cent calculated? Is it based on £11200x20=224000 + avc £51000= 275000x 25 %=£68750 max tax free avc?
Or is it calculated based on the reduced benefit of £7000x20=£140000 + avc £51000=£191000x25%= 47750?0 -
Very valuable information in this thread. I am almost 57 and have about £11200 pension in lgps. I would like to retire soon, and will have to accept a reduced pension, say circa £7000. I also have got £51000 in pru AVCs and would like to have this in tax free cash to pay off mortgage. How is the 25 per cent calculated? Is it based on £11200x20=224000 + avc £51000= 275000x 25 %=£68750 max tax free avc?
Or is it calculated based on the reduced benefit of £7000x20=£140000 + avc £51000=£191000x25%= 47750?
It's calculated on the actual, reduced, pension. Using your example, you will have £3,250 'surplus' AVC, which you can use to buy additional LGPS pension. Alternatively, you could transfer this £3,250 to a personal pension - but probably not worth the hassle for such a small amount.
You don't mention any automatic LGPS lump sum in your calculations. Did you join after 2008? If before, then your pre 2008 service pension will include its own lump sum, which should be included in your calculations. ie:
20 x actual reduced pension
1 x actual reduced lump sum from pre 2008 service
1x AVC0 -
Thank for that important clarification, Silvertabby! I do not have pre-2008 service, so more lump sum is not an issue.
By the time I retire in this financial year, I would have accrued more pension benefits in the first half of the financial year, say £15 k from employer’s and my contribution, and from some avcs which I will reduce significantly (Currently paying £1400 a month in avcs). Will the avc payment, taken as a tax free lump sum in this financial year, be added to the £40 k max pension allowance, and treated as a pension benefit, or not?
If it is treated as a pension benefit, this may mean that it may be taxed?0 -
Thank for that important clarification, Silvertabby! I do not have pre-2008 service, so more lump sum is not an issue.
By the time I retire in this financial year, I would have accrued more pension benefits in the first half of the financial year, say £15 k from employer’s and my contribution, and from some avcs which I will reduce significantly (Currently paying £1400 a month in avcs). Will the avc payment, taken as a tax free lump sum in this financial year, be added to the £40 k max pension allowance, and treated as a pension benefit, or not?
If it is treated as a pension benefit, this may mean that it may be taxed?
Your AVC is a pension benefit, but the amount taken as your tax free lump sum won't be taxed.0 -
Silvertabby wrote: »It's calculated on the actual, reduced, pension. Using your example, you will have £3,250 'surplus' AVC, which you can use to buy additional LGPS pension. Alternatively, you could transfer this £3,250 to a personal pension - but probably not worth the hassle for such a small amount.
You don't mention any automatic LGPS lump sum in your calculations. Did you join after 2008? If before, then your pre 2008 service pension will include its own lump sum, which should be included in your calculations. ie:
20 x actual reduced pension
1 x actual reduced lump sum from pre 2008 service
1x AVC
This might be a silly question but where does the term of 20* come from in forming this calculation?
I'm stumbling through a few threads trying to get my head round options of how best to manage my pensions. Any advice appreciated!
I've been in LGPS for almost 3 years. (37 years old)
About to be promoted into 41% tax bracket so now considering options like AVC.
3 separate private sector pensions invested - totalling £40k currently.
I notice a lot of people talking about taking the AVC pot at the same time as the LGPS pot. This instinctively feels unappealing to me as the downside is that you either have to wait to retirement age (68) to access it, or alternatively take a reduced LGPS pension. I wouldn't rule it out completely but just trying to get my head round the pros and cons. I suppose there's a calculation to be done there to work out the additional 75% tax savings vs whatever the loss of LGPS would be - if I wanted to retire at 62 for example.
The alternative would be to take my private pensions + AVC's to fund early retirement - 25% tax free + 75% taxable / or annuity - and leave my main LGPS pot untouched until 68??
Is there any downside to that other than having to be aware of MPAA rules if I were for any reason wanting to continue to contributing to any pension scheme?
Thanks in advance.0 -
The 20* is an HMRC set factor that is used to calculate the value of q Defined Benefit pension such as the LGPS to nominally convert it to a "pot value so that the 25% tax free element can be calculated.
As you mpove into HR tax levels remember you only save the tax you've paid. For example at a salary of £55k then £5k would be taxed at 40% so you would only save 40% tax on a £5k annual contribution, anything over that would be at BR of 20%. I think you might be in Scotland so figures may vary slightly for you.
As to advantages and disadvantages I think you've summed those up pretty well.
Another option is to run a PP/SIPP alongised the LGPS AVC and use that to fund the pre-LGPS retirement years thus preserving the tax free benefit of the AVC.
Also worth looking at the actuarial reduction factors for taking the pension early and seeing what the inmpact would be versus losing the tax free benefit of the AVC and your overall situation as you say.
My wife and I are members and we both have AVCs and are likely to take the pension early and accept the reductions as that would still give us what we need.
We will be retiring in the next 18-36 months so have a clearer picture of what we will get from various sources and a clearer picture of what we will need than you probabaly have at your age when i guess mortgage / kids etc. may still part of the equation.
A LISA may be worth looking at as well, 25% gov't bonus and can be accessed tax free at 60 so might help to bridge that gap.
I'd be tempted to mix and match in your situation so that you retain options, particularly as we don't know what pension access rules will be by the time you want to take yours.0 -
The 20* is an HMRC set factor that is used to calculate the value of q Defined Benefit pension such as the LGPS to nominally convert it to a "pot value so that the 25% tax free element can be calculated.
As you mpove into HR tax levels remember you only save the tax you've paid. For example at a salary of £55k then £5k would be taxed at 40% so you would only save 40% tax on a £5k annual contribution, anything over that would be at BR of 20%. I think you might be in Scotland so figures may vary slightly for you.
As to advantages and disadvantages I think you've summed those up pretty well.
Another option is to run a PP/SIPP alongised the LGPS AVC and use that to fund the pre-LGPS retirement years thus preserving the tax free benefit of the AVC.
Also worth looking at the actuarial reduction factors for taking the pension early and seeing what the inmpact would be versus losing the tax free benefit of the AVC and your overall situation as you say.
My wife and I are members and we both have AVCs and are likely to take the pension early and accept the reductions as that would still give us what we need.
We will be retiring in the next 18-36 months so have a clearer picture of what we will get from various sources and a clearer picture of what we will need than you probabaly have at your age when i guess mortgage / kids etc. may still part of the equation.
A LISA may be worth looking at as well, 25% gov't bonus and can be accessed tax free at 60 so might help to bridge that gap.
I'd be tempted to mix and match in your situation so that you retain options, particularly as we don't know what pension access rules will be by the time you want to take yours.
Thanks Alan.
I think mix and match is probably the conclusion I was arriving at so that's good to hear I'm probably on the right track.
I'm thinking that I can use AVC's to manage down the 41% tax rate (which kicks in at £43,431 here in Scotland btw) and maximises an AVC pot for minimum input. Anything I want to contribute beyond that I can do via PP/SIPP/LISA and my previous private pensions will also continue to float along.
I've only just realised that LISA was a thing after doing a bit of planning. I missed out on 'Help-to-Buy' so for that reason alone I'm drawn to LISA. Ha! ... although on a serious note, at 37 y/o I'm just under the upper age limit for qualifying for LISA and it seems like a good option to have as part of that mix. 0 -
A question for those in this thread that have an AVC, did you consider reducing any mortgage before contributing? We have an interest-only mortgage (£55k remaining), with unlimited lump sum payments allowed. We overpay mortgage each month, so could increase these overpayments further. My husband is 50, higher rate tax payer, in LGPS, considering paying £400 pm into AVC which is the amount he currently puts into savings. (We now have sufficient rainy day/year savings.)
New to this, so bear with. 0
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