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  • FIRST POST
    • MPD
    • By MPD 6th Mar 18, 7:55 PM
    • 220Posts
    • 301Thanks
    MPD
    Don't want to work to 68
    • #1
    • 6th Mar 18, 7:55 PM
    Don't want to work to 68 6th Mar 18 at 7:55 PM
    I am 43, when I started work my SPA was 60, now its 67 and soon to be 68. I am a member of the LGPS (all post 2014 service) so this is linked to SPA. In addition to this I have deferred DB pension of circa 4k due at 60. I expect to receive a full state pension and approx 11k from the LGPS at 68.

    I would like to reduce the 68 to as close to 60 as possible. My thoughts on this are using the LGPS AVC scheme provided by the Pru to take advantage of the tax savings available and for simplicity with the contributions being taken through payroll. I would then use this as a bridge before taking my LGPS at SPA or slightly before if I could live with the reduction.

    I am looking at investing in the Prudential International Equity Fund with a fee of 0.65% pa, these are invested in M&G PP International Equity Funds.

    Does this sound like a sensible plan? I am looking to reduce charges to a minimum and access the funds from around 60 onwards.
    After years of disappointment with get-rich-quick schemes, I know I'm gonna get rich with this scheme...and quick! - Homer Simpson
Page 1
    • quotememiserable
    • By quotememiserable 6th Mar 18, 8:36 PM
    • 412 Posts
    • 268 Thanks
    quotememiserable
    • #2
    • 6th Mar 18, 8:36 PM
    • #2
    • 6th Mar 18, 8:36 PM
    Certainly paying AVCs so that you have access to an early pension works well with your plan. Not sure about the fund choice though. Although the press make a lot of fuss about fees, they don't know much about pensions. Fund performance is far more important. What options do they offer? It's normally a good idea to spread the risk around rather than go into just one fund.
    • dunstonh
    • By dunstonh 6th Mar 18, 8:55 PM
    • 92,594 Posts
    • 59,910 Thanks
    dunstonh
    • #3
    • 6th Mar 18, 8:55 PM
    • #3
    • 6th Mar 18, 8:55 PM
    I am 43, when I started work my SPA was 60, now its 67 and soon to be 68.
    So, you are 43 in 2018. The state pension age was increased from 60 to 65 back in 1993. That would make you 18 at the time. Possibly the very same year you started work. So, the increases should not have been a surprise for you.

    AVCs are largely old hat now. Most havent been updated since 2006 when the rules changed allowing companies to cease offering them. Many hadnt been changed for over a decade before that.

    That doesnt mean all AVCs are bad. There are a few gems and a few with quirks that can be beneficial. However, if it has none of those things, you can end up with an option with limited investments, out-of-date charges and no flexibility to meet current retirement income options. For example, you mention the charge is 0.65%. That is double what you can get in the retail pension market.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • AlanP
    • By AlanP 6th Mar 18, 8:58 PM
    • 1,178 Posts
    • 850 Thanks
    AlanP
    • #4
    • 6th Mar 18, 8:58 PM
    • #4
    • 6th Mar 18, 8:58 PM
    Certainly paying AVCs so that you have access to an early pension works well with your plan. Not sure about the fund choice though. Although the press make a lot of fuss about fees, they don't know much about pensions. Fund performance is far more important. What options do they offer? It's normally a good idea to spread the risk around rather than go into just one fund.
    Originally posted by quotememiserable
    It's a fund of funds so risks are spread. Essentially no UK content though so quite exposed to currency movements.

    Following the Brexit vote overseas investments rose substantially because the value of the fell in value against Dollar / Euro etc. not because the underlying investments had performed wonderfully. If the becomes stronger the reverse will happen.

    Most UK based investors would have a reasonable proportion of their money invested in UK based investments to "balance" this out a bit more.

    What other fund choices do you have OP, and don't worry too much about the charge for now?

    With my LGPS AVC if I wanted to access the AVC without taking the main CARE pension I would have to transfer it out as the scheme doesn't allow them to be disconnected. Have you checked this out with your scheme admin team?

    The big advantage of the LGPS AVC scheme is that the AVC pot can be taken as your 25% tax free lump sum when taken at the the same time as your main benefits, breaking the link and taking it early takes away that advantage so other options are also worth thinking about.
    Last edited by AlanP; 06-03-2018 at 9:02 PM.
    • Lungboy
    • By Lungboy 6th Mar 18, 9:45 PM
    • 1,363 Posts
    • 1,312 Thanks
    Lungboy
    • #5
    • 6th Mar 18, 9:45 PM
    • #5
    • 6th Mar 18, 9:45 PM
    I'm in almost the exact same situation as the OP, (a few years younger but otherwise identical from what's been mentioned) and have pretty much written off the AVC option as it seems to offer no benefits at all for someone looking at early retirement over a SIPP while being hugely restricted in the funds on offer.
    • Brynsam
    • By Brynsam 6th Mar 18, 10:30 PM
    • 931 Posts
    • 605 Thanks
    Brynsam
    • #6
    • 6th Mar 18, 10:30 PM
    • #6
    • 6th Mar 18, 10:30 PM
    Look at other options as well as pensions. The days when 'retirement income' = 'pension' are long gone.
    • FatherAbraham
    • By FatherAbraham 6th Mar 18, 10:35 PM
    • 765 Posts
    • 588 Thanks
    FatherAbraham
    • #7
    • 6th Mar 18, 10:35 PM
    • #7
    • 6th Mar 18, 10:35 PM
    I'm in almost the exact same situation as the OP, (a few years younger but otherwise identical from what's been mentioned) and have pretty much written off the AVC option as it seems to offer no benefits at all for someone looking at early retirement over a SIPP while being hugely restricted in the funds on offer.
    Originally posted by Lungboy
    Can the AVC contributions be made through payroll as sacrificed salary to avoid National Insurance charges?
    • Lungboy
    • By Lungboy 6th Mar 18, 10:57 PM
    • 1,363 Posts
    • 1,312 Thanks
    Lungboy
    • #8
    • 6th Mar 18, 10:57 PM
    • #8
    • 6th Mar 18, 10:57 PM
    Can the AVC contributions be made through payroll as sacrificed salary to avoid National Insurance charges?
    Originally posted by FatherAbraham
    Not where I work unfortunately, but some places they can be.
    • bostonerimus
    • By bostonerimus 7th Mar 18, 2:49 AM
    • 1,820 Posts
    • 1,168 Thanks
    bostonerimus
    • #9
    • 7th Mar 18, 2:49 AM
    • #9
    • 7th Mar 18, 2:49 AM
    Don't forget about ISAs......tax free growth, no tax on withdrawals, of course, and the lack of withdrawal restrictions give you great early retirement income flexibility.
    Misanthrope in search of similar for mutual loathing
    • Lungboy
    • By Lungboy 7th Mar 18, 7:08 AM
    • 1,363 Posts
    • 1,312 Thanks
    Lungboy
    Don't forget about ISAs......tax free growth, no tax on withdrawals, of course, and the lack of withdrawal restrictions give you great early retirement income flexibility.
    Originally posted by bostonerimus
    I have a chronic illness so having money in a pension is more appealing than an ISA as it won't count towards means tested benefits if I had to leave my job. I do plan to open an ISA too, but with the pension as my core investment.
    • MPD
    • By MPD 7th Mar 18, 5:30 PM
    • 220 Posts
    • 301 Thanks
    MPD
    Don't forget about ISAs......tax free growth, no tax on withdrawals, of course, and the lack of withdrawal restrictions give you great early retirement income flexibility.
    Originally posted by bostonerimus
    I have decided on a pension due to the tax relief and not wanting it until around 60.
    After years of disappointment with get-rich-quick schemes, I know I'm gonna get rich with this scheme...and quick! - Homer Simpson
    • MPD
    • By MPD 7th Mar 18, 5:32 PM
    • 220 Posts
    • 301 Thanks
    MPD
    I'm in almost the exact same situation as the OP, (a few years younger but otherwise identical from what's been mentioned) and have pretty much written off the AVC option as it seems to offer no benefits at all for someone looking at early retirement over a SIPP while being hugely restricted in the funds on offer.
    Originally posted by Lungboy
    I think this is the way I will probably go. AVCs seemed very easy but if a bit of effort can give a better result then I will put that effort in.
    After years of disappointment with get-rich-quick schemes, I know I'm gonna get rich with this scheme...and quick! - Homer Simpson
    • cloud_dog
    • By cloud_dog 7th Mar 18, 6:08 PM
    • 3,687 Posts
    • 2,186 Thanks
    cloud_dog
    I would like to reduce the 68 to as close to 60 as possible. My thoughts on this are using the LGPS AVC scheme provided by the Pru to take advantage of the tax savings available and for simplicity with the contributions being taken through payroll. I would then use this as a bridge before taking my LGPS at SPA or slightly before if I could live with the reduction.

    I am looking at investing in the Prudential International Equity Fund with a fee of 0.65% pa, these are invested in M&G PP International Equity Funds.

    Does this sound like a sensible plan? I am looking to reduce charges to a minimum and access the funds from around 60 onwards.
    Originally posted by MPD
    After much deliberating, this is the route I took with my company's DB pension AVC scheme. And even funnier, that is the fund I am using (initially) for my payments in to the AVC.

    I took this route as I will benefit from salary sacrifice (saving 2% NI for 40% tax rate, and then 12% NI for 20% tax rate).

    My primary driver was in achieving flexibility for retirement age and it seemed rude not to take the generous tax benefits on offer.

    Under normal circumstances I cannot take my AVC pot until I take the main DB scheme pension but, should I leave the company before NRA, i.e. stop working (retire), then I can transfer the AVC pot to a SIPP (probably) and manage the draw down that way. I obtained confirmation of this in writing before continuing with this approach.

    The main reason people highlight ISAs is because your money is not taxed on the way out (draw down in essence) but if you are stoping work early (retiring) then you may have little or no other taxable income anyway so you can use the pension to benefit from the tax savings going in and little or no tax coming out. As a HRT payer, even paying 20% on some of it makes good financial sense.

    There are additional reasons, outside of the ballpark, for using the pension vehicle as opposed to ISAs; such as benefit considerations should you unfortunately find yourself in that position.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • Thrugelmir
    • By Thrugelmir 7th Mar 18, 7:54 PM
    • 58,462 Posts
    • 51,842 Thanks
    Thrugelmir
    I think this is the way I will probably go. AVCs seemed very easy but if a bit of effort can give a better result then I will put that effort in.
    Originally posted by MPD
    Or a separate pension vehicle that you can use to tide you over until NRA. Thereby leaving your scheme benfits intact and continuing to grow. My intention is to use my SIPP to bridge the gap (25% tax free sum plus drawdown up to annual personal tax free allowance).
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • MPD
    • By MPD 7th Mar 18, 8:42 PM
    • 220 Posts
    • 301 Thanks
    MPD
    Looking at HL for a SIPP, probably invest in the L&G UK index and international index trust in equal amounts.
    After years of disappointment with get-rich-quick schemes, I know I'm gonna get rich with this scheme...and quick! - Homer Simpson
    • enthusiasticsaver
    • By enthusiasticsaver 7th Mar 18, 10:38 PM
    • 6,386 Posts
    • 13,114 Thanks
    enthusiasticsaver
    HL is quite expensive. Have you looked at other platforms? If you are going for 50% UK and 50% international that is quite a lot of UK exposure.
    Debt free and mortgage free and early retiree. Living the dream

    I'm a Board Guide on the Debt-Free Wannabe, Mortgages and Endowments, Banking and Budgeting boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Any views are mine and not the official line of moneysavingexpert.com. Pease remember, board guides don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com
    • MPD
    • By MPD 8th Mar 18, 6:41 PM
    • 220 Posts
    • 301 Thanks
    MPD
    For the small amounts I'm starting with the zero transaction charges are most important along with the discounts on the L&G funds. The 1.50 dealing charge for AJ Bell for funds makes a big difference.
    After years of disappointment with get-rich-quick schemes, I know I'm gonna get rich with this scheme...and quick! - Homer Simpson
    • longleggedhair
    • By longleggedhair 9th Mar 18, 11:26 AM
    • 306 Posts
    • 373 Thanks
    longleggedhair
    You can only take AVC benefits at the same time as you take your main scheme benefits in the LGPS. So I'm afaid your plan won't work unless you are willing to take your main scheme benefits at 60 and take the actuarial reduction.

    If you want a bridge you would be better with a SIPP, though I would continue with the AVC as in the LGPS scheme you can take 100% of the balance with no tax to pay, if the balance is less than 25% of the total cash equivalent value of your overall scheme CETV.
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