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  • FIRST POST
    • PoorPaul
    • By PoorPaul 15th Apr 19, 6:16 PM
    • 91Posts
    • 18Thanks
    PoorPaul
    Prudential AVC / LGPS
    • #1
    • 15th Apr 19, 6:16 PM
    Prudential AVC / LGPS 15th Apr 19 at 6:16 PM
    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
Page 1
    • Pension Geek
    • By Pension Geek 15th Apr 19, 6:26 PM
    • 174 Posts
    • 133 Thanks
    Pension Geek
    • #2
    • 15th Apr 19, 6:26 PM
    • #2
    • 15th Apr 19, 6:26 PM
    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).
    Not an expert, but like pensions, tax questions and giving guidance. There is no substitute for tailored financial advice.
    • pandora205
    • By pandora205 15th Apr 19, 6:30 PM
    • 2,841 Posts
    • 2,690 Thanks
    pandora205
    • #3
    • 15th Apr 19, 6:30 PM
    • #3
    • 15th Apr 19, 6:30 PM
    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.
    somewhere between Heaven and Woolworth's
    • PoorPaul
    • By PoorPaul 15th Apr 19, 6:55 PM
    • 91 Posts
    • 18 Thanks
    PoorPaul
    • #4
    • 15th Apr 19, 6:55 PM
    • #4
    • 15th Apr 19, 6:55 PM
    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.
    Originally posted by pandora205
    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?
    Last edited by PoorPaul; 15-04-2019 at 6:58 PM.
    • OldBeanz
    • By OldBeanz 15th Apr 19, 7:21 PM
    • 824 Posts
    • 637 Thanks
    OldBeanz
    • #5
    • 15th Apr 19, 7:21 PM
    • #5
    • 15th Apr 19, 7:21 PM
    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
    • By Silvertabby 15th Apr 19, 8:05 PM
    • 4,044 Posts
    • 6,115 Thanks
    Silvertabby
    • #6
    • 15th Apr 19, 8:05 PM
    • #6
    • 15th Apr 19, 8:05 PM
    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 wouldnít come anywhere near the amount calculated as described and I could therefore take 100%.

    Being 5 - 6 years away from this anyway, Iím considering doubling the £100pm I currently put into the AVC - still a reasonably good idea?
    Originally posted by PoorPaul
    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.
    Last edited by Silvertabby; 15-04-2019 at 8:12 PM.
    • PoorPaul
    • By PoorPaul 15th Apr 19, 10:55 PM
    • 91 Posts
    • 18 Thanks
    PoorPaul
    • #7
    • 15th Apr 19, 10:55 PM
    • #7
    • 15th Apr 19, 10:55 PM
    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.
    Originally posted by Silvertabby

    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 didnít mention them in my post above

    The other half, same age as myself, has an NHS pension and (we believe) falls under the Ďspecial classesí 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 Iím missing?

    Thanks again for all the input so far, much appreciated.
    • Silvertabby
    • By Silvertabby 16th Apr 19, 11:41 AM
    • 4,044 Posts
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    Silvertabby
    • #8
    • 16th Apr 19, 11:41 AM
    • #8
    • 16th Apr 19, 11:41 AM
    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 Iím 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?
    Last edited by Silvertabby; 16-04-2019 at 11:44 AM.
    • PoorPaul
    • By PoorPaul 16th Apr 19, 3:40 PM
    • 91 Posts
    • 18 Thanks
    PoorPaul
    • #9
    • 16th Apr 19, 3:40 PM
    • #9
    • 16th Apr 19, 3:40 PM
    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?
    Originally posted by Silvertabby
    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)
    Last edited by PoorPaul; 16-04-2019 at 3:42 PM.
    • Silvertabby
    • By Silvertabby 16th Apr 19, 6:24 PM
    • 4,044 Posts
    • 6,115 Thanks
    Silvertabby
    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
    • By EP456 17th Apr 19, 11:24 AM
    • 3 Posts
    • 5 Thanks
    EP456
    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
    Last edited by EP456; 17-04-2019 at 12:54 PM. Reason: Addition
    • AlanP
    • By AlanP 17th Apr 19, 1:27 PM
    • 1,591 Posts
    • 1,264 Thanks
    AlanP
    Your AVC contributions are invested in whichever of the Prudential funds on offer you choose.

    Like all stock market / equity / bond investments they can go down in value although historically they have gone up over time.

    Depending on when you want to take your LGPS you have between 4 years (if at 60) to 11 years (if at 67) for your AVC to grow. If you expect it to be nearer 4 years invest in a "lower volatility" option, if nearer 11 you can be a bit more aggressive if you want to be.

    Have you worked out what income / cash lump sum you want, when over the retirement period?

    If you don't need "growth" on the AVC fund just go for a near-cash (money market maybe?) option and take the tax saved as a bonus with minimal growth (possibly even losing out to inflation).
    • EP456
    • By EP456 17th Apr 19, 3:34 PM
    • 3 Posts
    • 5 Thanks
    EP456
    Hi AlanP - many thanks for your reply.

    I need to do an in depth budget plan but ideally I would prefer to take the lump sums from both pensions and retire when I reach 60, unless there was a significant gain in deferring the LGPS one.

    AVCs sound appealing, and so I think I will go ahead with this.

    Many thanks again
    • AlanP
    • By AlanP 17th Apr 19, 3:59 PM
    • 1,591 Posts
    • 1,264 Thanks
    AlanP
    If you want to take the LGPS AVC as your tax free lump sum it must be taken at the same time as the main LGPS pension.
    • PoorPaul
    • By PoorPaul 17th Apr 19, 6:47 PM
    • 91 Posts
    • 18 Thanks
    PoorPaul
    Your AVC contributions are invested in whichever of the Prudential funds on offer you choose.
    .
    .
    .
    If you expect it to be nearer 4 years invest in a "lower volatility" option, if nearer 11 you can be a bit more aggressive if you want to be.
    Originally posted by AlanP
    Presumably the same rule of thumb applies to an existing AVC fund too? e.g. If my AVC is all in a higher risk fund, and I wish to take it as a lump sum in 5 years time, I should consider moving it to a lower risk fund soon-ish to protect it somewhat? New money going into the AVC could still be invested in a higher risk fund I guess to give a bit of balance?
    • OldBeanz
    • By OldBeanz 18th Apr 19, 1:05 AM
    • 824 Posts
    • 637 Thanks
    OldBeanz
    Presumably the same rule of thumb applies to an existing AVC fund too? e.g. If my AVC is all in a higher risk fund, and I wish to take it as a lump sum in 5 years time, I should consider moving it to a lower risk fund soon-ish to protect it somewhat? New money going into the AVC could still be invested in a higher risk fund I guess to give a bit of balance?
    Originally posted by PoorPaul
    You should de-risk as you come to spend the money. So if you have no short - medium term plans for the money de-risking is leaving you open to losing out to inflation and profit. Selling then re-investing at the bottom of the market is not an issue.
    • AlanP
    • By AlanP 18th Apr 19, 8:04 AM
    • 1,591 Posts
    • 1,264 Thanks
    AlanP
    Presumably the same rule of thumb applies to an existing AVC fund too? e.g. If my AVC is all in a higher risk fund, and I wish to take it as a lump sum in 5 years time, I should consider moving it to a lower risk fund soon-ish to protect it somewhat? New money going into the AVC could still be invested in a higher risk fund I guess to give a bit of balance?
    Originally posted by PoorPaul
    Intuitively that feels right doesn't it? As OldBeanz says however if all you are going to do is move it from LGPS AVC fund ABC to same / equivalent fund on HL or AJ Bell for 10-30 years then what's the point of de-risking?

    My AVC was started later and is much smaller than my wife's (as she is HR taxpayer) and we plan on spending mine quite quickly after receipt whilst hers is intended to be for the longer term so different strategies for each of us.
    • PoorPaul
    • By PoorPaul 18th Apr 19, 6:32 PM
    • 91 Posts
    • 18 Thanks
    PoorPaul
    Intuitively that feels right doesn't it? As OldBeanz says however if all you are going to do is move it from LGPS AVC fund ABC to same / equivalent fund on HL or AJ Bell for 10-30 years then what's the point of de-risking?

    My AVC was started later and is much smaller than my wife's (as she is HR taxpayer) and we plan on spending mine quite quickly after receipt whilst hers is intended to be for the longer term so different strategies for each of us.
    Originally posted by AlanP
    Thanks, for the reply.
    Rather than moving to a different provider, I actually meant the various options to choose from within the Pru AVC itself.
    I understand my AVC is currently all in the 'Prudential UK Equity fund' which must have been the default option when taking it out, and its not been changed since.
    The Pru classes this as a "Higher Risk" fund - it lists 2 others in this category, along with 2 options of "Medium to Higher Risk", 4 options of "Medium Risk", 2 options of "Lower to Medium Risk" and 1 of "Minimal Risk" !!
    And there was me thinking an AVC was an AVC.... clearly not that easy
    • OldBeanz
    • By OldBeanz 20th Apr 19, 8:21 AM
    • 824 Posts
    • 637 Thanks
    OldBeanz
    Your risk appetite should depend on how much money you have and when you intend to spend it. If you are going to use the money to pay off a mortgage and you have no other cash then you want to be in minimal risk. On the other hand if you have no plans for the money and have money in low risk/gain eg the bank then you can have a higher risk attitude. There is also your optimism/pessimism outlook on life. If going for 5 years you could invest in a progressively lower risk fund each year.
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