Depends on your attitude to risk and how far you are off retiring. Most people at your age would take a low risk approach. Note that at the moment you can take all of your avc as cash when you retire if it is less than 25% of the total value of your pension.

How much do you earn over your personal allowance?

And, how much are you looking to contribute to the LGPS AVC?

The reason I ask is that once you are below your personal allowance you will not benefit from the tax relief usually associated with making pension contributions.

The OH is with the LGPS, working part time, and she does not earn enough to pay tax. When we were looking to make additional pension payments we decided to use a personal pension/SIPP because that way she would still benefit from the automatic tax relief, i.e. pay in £100 and automatically get the £25 tax relief even though she does not earn enough to pay tax.

Thank you for your replies.
I'm not a risk taker! And I have 5 years until retirement.

I expect in the next tax year to earn maybe about £1000 - £2000 over the tax allowance with my little cottage business and part time job. So I'm hardly a big earner although I'm hoping to expand my business a bit so it could be more.
I'm planning to maybe contribute about £80 - £100 per month to AVC's.

All this is very confusing.

Ok, you can probably ignore my comments as they are unlikely to be relevant.

Thank you anyway.

I also work part time and have been paying into LGPS AVC's for a good few years and have about another 14 years to go.


I don't know much about Standard Life as mine is with Prudential.
However, as you are close to retirement , it would make sense to put in as much as you can possibly afford as you will be able to take out the AVC total as a cash lump sum if it doesn't total more than 25 percent your total pension including the LGPS plus AVC.
You're also getting it topped up by 20 percent from the taxman.


My aim is to not to commute any of my LGPS pension to a lump sum as the commutation rate is not good and use all of my AVC's as my lump sum.


Sorry I can't help you with the funds though but I would steer clear of equities and specialist funds if you are cautious and are near retirement. You will still get the 20 percent boost from the tax.

Given that you need the investments sold and turned into cash at a specific point in time I would suggest one of the Lifestyle options as they move a greater proportion towards "cash" and lower volatility investments the closer you get to the desired date automatically.

Given you also say "low risk" (which makes sense over your time horizon) I would look carefully at the Cautious option.

My wife and I have LGPS AVCs and we are not trying to get fantastic returns by chasing higher volatility investments. Slow & Steady, protecting the nominal gain from tax saved, is the objective for the next 3-5 years until we cash them in.

Thank you everyone for your replies and advice. I'm going to go for one of the Lifestyle AVC's and pump as much as I can into them. It looks like a good way to save a bit of tax.

You will only gain tax relief for the AVC on the tax you pay on your LGPS salary. You need to check your pay slip and base your monthly contributions on that figure. To gain tax relief on your other earnings you would have to open a PP/SIPP/Stakeholder.

Magic57, this is the reason we didn't go down your proposed route for the OH, we would not gain by any tax relief, in her case.

As suggested you need to review the numbers and it may be that you contribute sufficient to the LGPS AVC contribution (to max out the tax relief), and any additional contributions you wish to make go in to a separate personal pension/SIPP, to gain by the free tax relief on offer.

Thanks. I'm a little confused again! I contribute 5.5% to the LGPS and that amount is taken off before tax and is down as 'Gross taxable'. (I'm just under the tax paying threshold) However I submit a self assessment and declare the small amount I earn from my craft business. If I pay AVC's wouldn't that decrease the amount of tax I have to pay from my additional earnings as they would be added together?

Hi

A couple of things...One, I thought you had additional income that put you in to the tax rate by a thousand or so?

Two, once you pay sufficient in to your AVC so that you are below the income tax threshold (£11850) you will no longer benefit from any tax relief because you would not incur taxation.

Example 1.
If you earnt £12500 and you pay your existing LGPS of 5.5% that would take you down to a taxable income of £11812.50. This is below the personal allowance level where you would start paying tax so, there would be no taxable benefit of paying in to AVCs, i.e. every £100 going in to the AVC would actually cost you £100.

Example 2.
If you earnt £14500 and you pay your existing LGPS of 5.5% that would take you down to a taxable income of £13702.50. This is above the £11850 personal allowance level by £1852.50. There would be a taxable benefit of paying in to AVCs in this scenario. If you contributed £1852.50 in to your AVC this would only cost you (reduce your take home pay by) £1482.00, i.e. every £100 going in to the AVC would actually cost you £80. The £1482.00 is an equivalent of £123.50 per month.

Example 3.
If your earnings were the same as the above but you really wanted to set aside £250 per month in to a pension it would only be tax efficient to pay the £123.50 per month in to the AVCs (this would take you down to the tax personal allowance of £11850; so no tax to pay), and then you would pay the remainder, £126.50 in to a personal pension/SIPP. As you are entitled to make a gross payment of £3600 in to a pension and benefit from the tax relief, even if you haven't been taxed on the money you are paying in, you would still be able to pay the remainder £126.50 in to a PP/SIPP and this would be grossed up to be £158.12.

(I've ran through this quite quickly but hopefully the net/gross numbers stack up).

Agree with your basic summary but I didn't think the £3600 limit applied in this case. If you have no earned / relevant income it would but that isn't the case here.

I think 80% of the remaining income could be paid into a SIPP / PP and it would be grossed up by HMRC even though NO TAX has been paid on it.

Agreed, badly explained scenario. Just meant (as you say) that the OP could benefit from the tax relief with the additional contributions outside of LGPS, even though (in essence) that element of the income has not been taxed by using a PP/SIPP.

If the main consideration is just to build LGPS benefits rather than considering tax efficiency then this part of the conversation is a bit mute.

Thank you to everyone who is offering such helpful advice. Just to clarify as I don't think I'm being very clear. I earn just over £11000 from my local gov job. £10300 is taxable as 5.5% I contribute to the LGPS. My craft business will earn me an extra £1000 - £2000 (if I'm lucky) but I'm hoping to increase that in the future. If I pay AVC's my taxable earnings from my employment will reduce so therefore when I add my additional earnings on the tax form I should end up paying less tax. I hope that's right.

So using the £10300 and lets say a mid value additional earnings of £1500 from craft, this gives you a figure of £11800. This is still £50 below your personal tax allowance for 2018/2019 of £11850.

If you make additional payments in to the LGPS AVC (using the numbers above) you will not benefit from any tax relief as you are already below the taxation limit, and this includes your additional craft earnings.

So, based on your numbers and my guess of £1500 additional earnings, even without paying any AVCs you will not pay any tax.

If you really want to make additional contributions towards your retirement then you need to ask yourself if the LGPS AVC benefits are worth paying without receiving any tax relief, or, if it would make more financial sense to make additional payments in to a PP/SIPP and gain from tax relief.

For the LGPS, pay £100 from your salary and £100 goes in to the LGPS AVC.

For a PP/SIPP, pay £100 from your net salary and £125 goes in to the PP/SIPP.

Going back to my original post, this is why for my OH we chose to go down the SIPP route rather than LGPS AVC.

Thanks cloud_dog that makes it clear for me. You are right. I may rethink the whole situation unless my craft business takes off and earns me more than I expect.

Thank you for taking the time and trouble to explain it to me.