Prudential AVC / LGPS

PoorPaul · 15 April 2019 at 7:16PM

Hi,

Could someone help with this question please?

I am in the LGPS and have the associated Prudential administered AVC.

It states...

"From Age 55 it may be possible to:
If you draw your AVC at the same time as your Local Government Pension, you will be able to take your AVC as a 100% tax-free cash lump sum (as long as your total lumps sums from the Local Government Pension Scheme do not exceed 25% of the combined value of your benefits including your AVC fund)."

Not sure I fully understand what it means but how do I go about calculating this....?

Thanks in advance

Pension_Geek · 15 April 2019 at 7:26PM

You would need to be taking the LGPS and AVC at the same time, and what it means is you can use the AVC benefits to fund your lump sum instead of giving up the more valuable defined benefits in your scheme.

An example;

AVC is £50,000.

Scheme benefits are £60,000 lump sum and £20,000 a year pension.

Use the AVC to fund £50,000 of the lump sum, and therefore commuting less of the pension you would have to otherwise for the PCLS (Pension Commencement Lump Sum).

pandora205 · 15 April 2019 at 7:30PM

It's 20 times your annual LGPS pension, then add your AVCs and automatic lump sum (if you have pre 2008 service). Take 25% of this figure that will give you the maximum you can take in cash.

I'm sure Silvertabby will be along to give you more detailed help.

PoorPaul · 15 April 2019 at 7:55PM

pandora205 wrote: »

It's 20 times your annual LGPS pension, then add your AVCs and automatic lump sum (if you have pre 2008 service). Take 25% of this figure that will give you the maximum you can take in cash.

Ok, thanks, so due to the fact that if I took my LGPS pension at 55 it would be subject to an approx 22% reduction being 5 years early (R85 at 60) and my lump sum reduced by approx 11%, then it appears my AVC wouldn’t come anywhere near the amount calculated as described and I could therefore take 100%.

Being 5 - 6 years away from this anyway, I’m considering doubling the £100pm I currently put into the AVC - still a reasonably good idea?

OldBeanz · 15 April 2019 at 8:21PM

Assuming you have done your calculations properly, and assuming you can afford to, then most would certainly look upon it favourably (rules mean not allowed to recommend).

Silvertabby · 15 April 2019 at 9:05PM

PoorPaul wrote: »

Ok, thanks, so due to the fact that if I took my LGPS pension at 55 it would be subject to an approx 22% reduction being 5 years early (R85 at 60) and my lump sum reduced by approx 11%, then it appears my AVC wouldn’t come anywhere near the amount calculated as described and I could therefore take 100%.

Being 5 - 6 years away from this anyway, I’m considering doubling the £100pm I currently put into the AVC - still a reasonably good idea?

In view of your age you only have R85 protections in respect of your pre 2008 benefits.

Benefits accrued between 1 April 2008 and 31 March 2014 will be reduced if taken before age 65
(10 years = 37.7% reduction)

And benefits accrued from 1 April 2014 to date of leaving will be reduced if taken before SPA (12 years = 44% reduction)

As long as you do meet R85 at 60, then leaving your benefits until age 60 would mean that:

Pre 2008 benefits unreduced.

1 April 2008 to 31 March 2014 = 22.2% reduction
1 April 2014 to date of leaving = 29% reduction.

Would make quite a difference - especially is you carry on working/accruing benefits for these 5 years instead of leaving them deferred.

Pandora is correct about AVCs and the maximum tax free lump sum.

PoorPaul · 15 April 2019 at 11:55PM

Silvertabby wrote: »

In view of your age you only have R85 protections in respect of your pre 2008 benefits.

Benefits accrued between 1 April 2008 and 31 March 2014 will be reduced if taken before age 65
(10 years = 37.7% reduction)

And benefits accrued from 1 April 2014 to date of leaving will be reduced if taken before SPA (12 years = 44% reduction)

As long as you do meet R85 at 60, then leaving your benefits until age 60 would mean that:

Pre 2008 benefits unreduced.

1 April 2008 to 31 March 2014 = 22.2% reduction
1 April 2014 to date of leaving = 29% reduction.

Would make quite a difference - especially is you carry on working/accruing benefits for these 5 years instead of leaving them deferred.

Pandora is correct about AVCs and the maximum tax free lump sum.

Sorry, yes I was aware of the larger reductions for the post 2008 benefits and have considered these in my calculations, but for some reason didn’t mention them in my post above

The other half, same age as myself, has an NHS pension and (we believe) falls under the ‘special classes’ which if true means she wants to retire at 55 - and wants me to go too, assuming we can afford it...

Obviously if I go at 55 I leave on a much smaller package than I would at 60 but taking them for longer. To calculate the point at which I break even on the Pension, is it just a simple equation of
(Pension at 55 x 5) divided by the difference (Pension at 60 - Pension at 55)
or is there something I’m missing?

Thanks again for all the input so far, much appreciated.

Silvertabby · 16 April 2019 at 12:41PM

Obviously if I go at 55 I leave on a much smaller package than I would at 60 but taking them for longer. To calculate the point at which I break even on the Pension, is it just a simple equation of
(Pension at 55 x 5) divided by the difference (Pension at 60 - Pension at 55)
or is there something I’m missing?

Thanks again for all the input so far, much appreciated. Posted by PoorPaul

You're welcome. I've never seen that equation before, but it seems to be coming out a bit low.

For example, using £10K for pension at 55 and £15K for pension at 60:

£50K / £5K = 10 years break even point.

Rule of thumb for a normal rate tax payer taking reduced benefits from 60 was nearer 14 years.

Let's try it another way.

Retire at 55 and expect to live to 85:

£10K x 30 = £300K

Take benefits from 60:

£15K x 25 = £375K

Retire at 55 and expect to live to 80:

£10K x 25 = £250K

Take benefits from 60:

£15K x 20 = £300K

Retire at 55 and expect to live to 75:

£10K x 20 = £200K

Take benefits from 60:

£15K x 15 = £225K

Retire at 55 and expect to live to 70:

£10K x 15 = £150K

Take benefits from 60:

£15K x 10 = £150K

So, the break even point in this example would notionally be 15 years. Do you have enough information to be able to run your own figures?

PoorPaul · 16 April 2019 at 4:40PM

Silvertabby wrote: »

I've never seen that equation before, but it seems to be coming out a bit low.

For example, using £10K for pension at 55 and £15K for pension at 60:

£50K / £5K = 10 years break even point.

Rule of thumb for a normal rate tax payer taking reduced benefits from 60 was nearer 14 years.

Let's try it another way.

Retire at 55 and expect to live to 85:

£10K x 30 = £300K

Take benefits from 60:

£15K x 25 = £375K

Retire at 55 and expect to live to 80:

£10K x 25 = £250K

Take benefits from 60:

£15K x 20 = £300K

Retire at 55 and expect to live to 75:

£10K x 20 = £200K

Take benefits from 60:

£15K x 15 = £225K

Retire at 55 and expect to live to 70:

£10K x 15 = £150K

Take benefits from 60:

£15K x 10 = £150K

So, the break even point in this example would notionally be 15 years. Do you have enough information to be able to run your own figures?

And you'd be right of course - it was a bit low

That'll teach me for typing late at night on a tablet without double-checking before posting... I'd missed out part of the equation (which, by the way, is only my workings out so could always be wrong!)

It should have been...
Break even in years = ((Pension at 55 x 5) divided by the difference (Pension at 60 - Pension at 55)) +Difference in years)

So in your example
((10K x 5) / (15K-10K) + 5) = 15 years to break even

I have worked out based on my own figures and (assuming my figures are close) my 'break even' is at 16 years.

Thanks again for the guidance, its really helpful.

Now just to decide if topping up my AVC is my best plan, based on the fact that I'd be clueless looking at anything else (SIPPs etc)

Silvertabby · 16 April 2019 at 7:24PM

Now just to decide if topping up my AVC is my best plan, based on the fact that I'd be clueless looking at anything else (SIPPs etc) Posted by PoorPaul

Remember that with the LGPS the AVC isn't just limited to tax free cash - you can use some or all of it to buy extra pension benefits instead.

EP456 · 17 April 2019 at 12:24PM

Hello,

I am in a LGPS in Scotland ( Support Worker in Scottish Fire & Rescue Service) and am considering making AVC payments via Prudential too.

I am 56 years old and hope to retire at 60 in September 2022, after 15 years service. I note on the Prudential site that payments in aren’t guaranteed and the value can decrease.

Has anyone ever experienced a loss?

Am I too late to make a significant difference to my pension from LGPS?

I also have a DB Pension from 26 years in BT that will be paid from age 60 - hence my wish to retire then.

I also need to consider whether to defer my LGPS pension until NPA of 67 or to take it at 60 with a reduction.

Any advice much appreciated

Prudential AVC / LGPS

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