Paying into LGPS, considering AVCs but not sure

Gin_and_Milk · 14 August 2018 at 4:11PM

Hi,

I've been paying into my LGPS for over 20 years, but I have another 23 to go before I retire (providing it doesn't go up again). I would like to top up my pension, so I went to a seminar at work about taking out AVCs with the Pru. Unfortunately for me, the seminar was in a small stuffy room straight after lunch, so there were times when I was struggling to stay awake, never mind keep up with what was going on.

Having done some research - some of it a bit confusing, I'm not sure if an AVC is the way to go. I realise that the value of it could go down before I retire, but that's the nature of all investments I guess.

I was planning on saving £100 per month over 23 years, which would give me an estimated lump sum of around 44K, but obviously there's tax to deduct if I wanted to take it all at once, which I'm not sure if I would want to do anyway.

I suppose my question is, does it seem like a good deal, or might there be other alternatives I could/should look into?

Thanks
Gin

blue_eyes · 14 August 2018 at 6:07PM

A couple of things that may be of use:

As long as the total of the AVC is less 25% of the total value of the LGPS +any lump sum + AVC together, you can take the whole AVC tax free (I believe you multiply your pension by 20 to get the figure). This is under the current regulations, I can't say whether it would be the same in 23 years time. If it ever changes, the change might only affect new AVCs from that point forwards - who knows.

In order to get this, i think you DO need to take the whole AVC pot at the same time that you begin to take your pension.

The fund choices within your AVC would be limited to what your pension scheme has chosen to offer, as opposed to a SIPP where you could choose from many.

OldBeanz · 14 August 2018 at 6:23PM

LGPS AVCs; one of the gems on a gold plated pension.

Gin_and_Milk · 14 August 2018 at 6:49PM

Thanks,

I did wonder about a SIPP, but even though I have a small amount of shares (3k in Sirius Minerals), I'm not savvy enough to choose for a pension plan. If I lose my shares I'll be really cheesed off, but if I lost my pension I'd be panicking. I know the AVCs etc are a risk, but I trust the Pru more than I trust myself.

Yes, it is a good pension scheme, but it lost some of it's sheen when it went from final salary to career average earnings, but it is what it is.

OldBeanz · 14 August 2018 at 7:18PM

Gin_and_Milk wrote: »

...

Yes, it is a good pension scheme, but it lost some of it's sheen when it went from final salary to career average earnings, but it is what it is.

It is still very good and the ability to build a tax free lump sum alongside a pension is very rare in Govt nowadays.

Silvertabby · 14 August 2018 at 7:18PM

Further to the other answers, if taking the AVCs as tax free cash doesn't float your boat then (as long as you retire from actual service and don't leave/defer/take pension later) you can currently use your AVC fund to buy extra index linked pension in the LGPS. Of course, no guarantee that this will still be the case when you retire.....

Gin_and_Milk · 14 August 2018 at 7:38PM

Thank you both - and I didn't realise you could use your AVC that way Silvertabby, there's just so much reading to do and sometimes I don't think it quite sinks in.
I know what you mean about how things might change. I sometimes wonder if I'll ever get to retire. When I first started working I could have retired at 55, when I moved to my current employer it went up to 60, then 65 and now 67. It would be funny if it wasn't true!

I think the AVC may well be the way to go then.

kidmugsy · 14 August 2018 at 10:57PM

I see that the ordinary LGPS lump sum is offered on dismal terms: "for every £1 of pension you exchange you will receive £12 of tax free lump sum".

No wonder OldBeanz thinks AVCs are a gem.

What if our OP eventually decided to draw the LGPS pension early? Would the AVCs retain their value? As a money purchase deal, presumably they must have whatever value the investment markets dictate at the time?

Lungboy · 15 August 2018 at 8:16AM

No, as far as I can remember, if you take the lgps early you lose the benefit of taking the avc tax free.

kidmugsy · 15 August 2018 at 10:27AM

Lungboy wrote: »

No, as far as I can remember, if you take the lgps early you lose the benefit of taking the avc tax free.

Ah, in which case that would inhibit me from using AVCs unless I thought that later in life some other pot of money would be available to plug the gap between retiring early and drawing the LGPS.

Why the cruel rule, though?

blue_eyes · 15 August 2018 at 10:37AM

I don't believe you would lose the tax free status (subject to the 25% rule of the overall pension, for example)
But you can't take the AVC pot earlier than drawing your pension so yes in that sense you might need something in between.

"If you take your AVC at the same time you take your main scheme benefits you can take up to 100% of your AVC plan as tax free cash"
from
https://www.lgpsmember.org/more/AVCoptions.php

So it is on taking the main benefits.

"Your LGPS pension is payable in full from your Normal Pension Age which is linked to your State Pension Age (but with a minimum of age 65). However, you can choose to retire and draw your pension from the LGPS at any time from age 55 to 75, provided you have met the 2 years vesting period in the scheme"
from https://www.lgpsmember.org/tol/thinking-leaving-when.php

so you can take the main benefits (subject to actuarial adjustment) from 55 onwards.

As kidmugsy said earlier, the AVC is effectively a DC pot so would be subject to the fund valuation at the time the pension is taken. And not subject to any actuarial revaluation as a result of earliness.

Paying into LGPS, considering AVCs but not sure

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