Local government pension - AVCs

[Toomuchpud]

Hello, I am a member of the LGPS and want to make additional contributions. I have inherited approx £100,000 which I would like to help reduce the shortfall in pension I have from working part time while bringing up children.
I earn approx £1700 net per month and can either have money taken from my monthly salary or pay a lump sum. Which would be best?
And is this the best thing to do with the money? I have asked financial advisors but they seem more keen on selling a separate private pension. Ideally I would like to be able to take some pension at 60 (5 years time).

I'd say definitely pay into an AVC if you can, linked to your pension scheme so the AVC can become part of your tax free lump sum, and it's very tax efficient as in effect you have the deduction before tax so if you pay say £1000 a month before tax if you are on 20% tax you lose £800 from your nett.

There are certain rules so you can't pay in more than your salary in a year, and you really need to not exceed the annual tax free allowance (currently now £60k pa) which is for all of your pension contributions in a tax year, or else you generate a tax liability

I am hoping to retire in 12 months or so and have been paying various amounts into my LGPS linked AVC over the last 2 years or so since my husband got a small inheritance- I'm a higher rate tax payer so we get more if I pay into my scheme. We're hoping to pay another £30k or so in 25/26 and that will bring my tax free lump sum upto about £100k without affecting my annual pension, which is more than enough to pay off what remains of our mortgage and 2 x credit cards and leaves some for spends.

Having said all that I'm not a financial or tax advisor so I'd also suggest you speak to an IFA for their advice. In my experience however not all IFAs are fully up to speed on the LGPS so worth checking that with them before you start.

Thank you @Janeb1965
What is the difference between AVCs and APCs? And why did you choose AVCs?

It looks like I will have to drip feed the money in over the next few years.

AVCs were what were discussed in the pre-retirement course I went on 3 years ago, I don't remember APCs being discussed tbh. Your pension team at your employer might be able to advise which woukd be best for you but I know ours at mine don't give advice as such, which is fair enough. If it helps I pay into the Prudential and specifically into a scheme which is linked to my LA. If you look on the Prudential AVC site you can see if your employer is there.

Again - not an expert !

This might also be worth a read - having skimmed it just now I'm happier with the AVC , which is just as well really :)

forums.moneysavingexpert.com/discussion/6195241/in-lgps-should-i-go-for-an-avc-or-apc

Massively up the %age you contribute from your salary each month and draw down from the savings if you need to.

I would pay 50% of my salary to reduce my tax bill.

Are AVCs better than typical defined contribution pensions?

That link to MSE is very interesting @Janeb1965

It suggests that AVCs are much more flexible, so if I wanted to retire early (60 sounds ideal for me) I could access an AVC without it affecting my main pension.

I suppose working out how to bridge the financial gap between 60 and 67 without hugely diminishing my pension is the challenge.

Very much worth looking at the Prudential website and attending one of their advisory sessions. I paid into AVCs through my salary for the tax relief. I didn't have an inheritance but had paid off the mortgage and seen two DC through university so had surplus money to invest. Best thing I ever did.

@Oblahdeeoblahdoe thank you - this is something I definitely need to do. Unfortunately I still have university expenses, but at least no mortgage.

You can buy up to about an extra £7K pa in LGPS which will take most of your £100K

Given that you are close to retirement age my immediate thought might be to think about what you currently have and what you might need in retirement.

You dont necessarily have to tie the money up in a pension. Clearly you will need to buy some 'big ticket' items between your retirement and well, death/incapacity eg a car - or two, you will probably need to do some house maintenance/improvements etc etc etc

You may also want to consider what happens if you die 'prematurely' in which case the unspent money can go to your partner or children. By the same token you can live too long........

Your pension funs should offer you some 121 time with an adviser who can take you through the ins and outs of whats available.

If you dont mind me asking what is your current pension worth and whats your retirement date?

Do you have a partner in which case how are they placed?

If you want to take an income at 60 then if the money isnt in a pension plan then you can do what you want with it.

Finally of course if you put the money in a pension plan you might get tax relief BUT the income is taxable BUT in an ISA you dont get tax relief on the contributions BUT the income is tax free

Decisions Decisions

That's a great post 👏

You'll need to think about the 25% tax free lump sum too which might be very efficient for you. I think this goes to show how important taking advice is.

Thank you @JohnofWessex for your response. It is really very much appreciated.
In reply to your question, my pension is approx as follows;

Current - LGPS £1500 pa from 67 years (projected £8200 if I continue to 67)
Defined benefit pension £7500 pa from 60 years (can’t add to this)
additional DB pension £1000 pa from 67 years
full state pension from 67 years

I have minimal outgoings (no mortgage, children have CTFs) and would like to have the option of retiring at 60, so have a bit more money available then (5years time). I am using my full ISA allowance from this year.

I have looked at the Prudential AVCs online but have been unable to find how to contact a real human who could advise - the website gives a helpline, but only for people who have bought an AVC.

So you currently have a pension of £16K pa from age 67 in addition to the State Pension of just over £10K pa.

If you want to retire at 60 you will need to use the money you have to tide you over to 67 which if you just look at the State Pension that's currently about £70k.

My suggestion might be to consider working part time from 60 so you wont have to use all your lump sum and will still be building up some pension