Local Government Pension scheme - Questions about APCs and also how final salary is calculated

[Pensionheadache]

I am looking for advice on my LG pension.

two queries: firstly, are APCs worth buying? What is their benefit as opposed to an ISA or investing elsewhere? i have been advised that to purchase £7,316 of extra pension (the maximum i can buy), it would cost £104,911. Appart from this being a signifcant outgoing each month, it would also mean I would need to live for at least 12.5 years after I retire to be paid that back in pension.

The second question I have is around my salary. I have been in an interim position in the LA for five years. i am about to return to my substantive role which is £15k a year less. Would the higher salary count towards my pension if i retire in the next two years?

Very grateful for any advice.

Since 2014 pension has been on career average tarter than “Best/final salary”, so those higher paying years would bump up your average.
No idea about the additional years - I’d like to know too..

Thanks @Gardenista.

If you definitely mean APCs (as opposed to AVCs) the benefit is they are a defined benefit ie you know from putting £105k in, you will get a pension of £7.5k a year out.

If you were to invest in an ISA, with stock market fluctuations, you don't know what the final value will be.

Downsides? You can only get it at state pension age (or % reduction if you retired early) and it can't be passed on to beneficiaries.

£105k in the stock market could pass to your children.

You could also look at AVCs. The LGPS offer these through Prudential.

The amount you choose to invest is taken monthly before tax from your wage slip, and depending on your age / attitude to risk, you choose the funds you'd like it invested in.

You can have access to this 10 years before your state retirement age so it is a tax efficient way to save for early retirement.

Have a look in your staff handbook. All the info should be there. My LA also offers regular "financial planning for retirement" courses (which are basically a sales pitch for the Pru funds but are useful in other ways).

FWIW I decided to pay APC to take me to the value of a FT pension as I returned PT after DC and I also pay AVC as OH is older than me and we'd like to retire around the same time.

I've had a promotion since then so I really need to look at the numbers again.

@JamMakingWannaBe, so helpful, thank you. From what you have said, perhaps AVCs are the way to go for me. I am now within 10 years of retirement but want to go early.

Check your NI contributions will entitle you to a full state pension, and check your state pension age.

I've just read your original post. If you are looking to retire in 2 years, additional pension investing may not be for you. People would start to move their AVC funds into very low risk investments at (and before) this time with a view to cashing them in.

Try and speak to someone at the Pru regarding AVCs. Neither they, or I, are financial advisors but they may be able to give you more guidance in your individual circumstances.

Lots of people where I work are taking "flexi retirement", so they have access to their LGPS pension but are continuing to work PT.

It's not so "off you go at 65" anymore.

Thanks @JamMakingWannaBe, will do,

I'm in a similar situation OP but have very little in my LGPS having only worked there for 5 years and nearing 60. I was wondering if it was worth buying AVC or AVCs with my savings. An extra £7k of pension annually for £104k purchase doesn't seem alot. Where did you get this figure?

The proportion of the pension before 2014 remains linked to final salary I believe. That's what I thought in relation to the 20 years I transferred in, in 2013.

@RosesAndHellebores

The proportion of the pension before 2014 remains linked to final salary I believe. That's what I thought in relation to the 20 years I transferred in, in 2013.

My understanding is that it is the highest achieved salary earned before 2014. so if your highest earning year was say 2010 - it would be linked to that. That was my understanding when they change the scheme

@Fancyaunt, that figure was a direct quote from my pension provider (LA).

@RosesAndHellebores, the salary before 2014 for me was much lower. I am currently on a higher salary but will shortly revert to a lower one (not as low as pre 2014, even allowing for inflation). So, the loss of a higher salary now shouldnt have much impact except to contirbute towards providing an average from 2014?

Thanks all.

@gardenista, so, it is the highest salary before 2014, plus the career average bwtween 2015 and when you retire, added together and divided by 2?

@JamMakingWannaBe

Check your NI contributions will entitle you to a full state pension, and check your state pension age.

I've just read your original post. If you are looking to retire in 2 years, additional pension investing may not be for you. People would start to move their AVC funds into very low risk investments at (and before) this time with a view to cashing them in.

Try and speak to someone at the Pru regarding AVCs. Neither they, or I, are financial advisors but they may be able to give you more guidance in your individual circumstances.

Lots of people where I work are taking "flexi retirement", so they have access to their LGPS pension but are continuing to work PT.

It's not so "off you go at 65" anymore.

@JamMakingWannaBe - your contributions on this have been really helpful, particularly your experience of what your colleagues are doing, and your observations on flexi retirement. From watching colleagues work full time then retire or those who have taken the flexi retirement it seems to me that winding down gradually can be a really good option.

[quote Pensionheadache]@gardenista, so, it is the highest salary before 2014, plus the career average bwtween 2015 and when you retire, added together and divided by 2?[/quote]
I'm not sure how the proportions are allocated - I would not expect it to be divided 50/50.

But yes my understanding is it is highest salary before 2014 and then career average from 2015 onwards.

@Gardenista, thanks for the update and I agree, @JamMakingWannaBe has been so helpful.

I am going to look at flexi retirement too as I think you can buy into your pension while you are doing it.

I have a meeting with pensions next week and have lots of questions around how the pension is calculated, AVCs and around flexi retirement and how it impacts your abiity to continue to pay into a pension.

An extra £7k of pension annually for £104k purchase doesn't seem alot. It's a fantastic deal. If you were to spend £104k to get an annuity with inflation protection and spousal benefits from a private provider you'd be lucky to get half of that. www.thetimes.co.uk/money-mentor/article/100k-pension-pot/ If you add that LGPS is government backed it's even more valuable.

Of course that doesn't mean that it's necessarily the right choice for the OP as it depends on her other income/health/spending etc but it's an attractive deal.

• It's a fantastic deal. If you were to spend £104k to get an annuity with inflation protection and spousal benefits from a private provider you'd be lucky to get half of that

I might be wrong but am not sure that the LGPS will allow you to buy £104k of additional pension in the space of time the OP and I have left. I'm a similar age to the OP and have only 10 years left to increase my pension. I thought there were limits on how much a year we are allowed to buy.

@Fancyaunt, they seem to be letting me do it but I would need to pay £1,487.34 a month (extra pension) for the next seven years. Doing the maths, that seems to be an extra £124,936 for that period so not sure they have the figures right. In any event, I don't want to carry on working for another seven years. I wish that I had thought about this a few years earlier and paid more in then.

I may opt to pay more in now just for the two to three years I want to work. That could bump up the annual pension by £2k or £3k a year. That would bump up the monthly income by £200 or so a month. Lots to think about...

Thanks Pensionheadache - I wish I'd done it too but messy divorce and FT work whilst being a single parent left me too exhausted to even think about it at the time.

@Fancyaunt, life gets in the way doesn't it? There should be a compulsory pension tutoria when you start work and a requirement to attend one every five years or so once you have started, particularly after the age of 40.

[quote Pensionheadache]@Fancyaunt, life gets in the way doesn't it? There should be a compulsory pension tutoria when you start work and a requirement to attend one every five years or so once you have started, particularly after the age of 40.[/quote]
I agree with this!
And the implications of taking maternity leave explained. I only know what I know because I had to go digging for the information. It is there, but you do need to get your head around it.

Whenever I have a new start, and every year or so, I remind my team to make sure their Death in Service nominations are up-to-date too.

I've just checked and I was wrong about the pre2014 scheme being highest salary , it is final salary before you retire ( lots of variations on this but basically final not highest salary), apologies and then career average from 2015 onwards.

Annoying for me as I have taken a big pay cut since 2014 to work part time around my child and don't see my salary going back up to its pre 2014 levels before I retire

Thanks @Gardenista, I am about to take a £15k cut so will need to talk to pensions and weigh up my options.

@JamMakingWannaBe, yes, the pitfalls of maternity leave. i took additional leave with my second child and didn't buy back the pension and it is too late now. I exepct that has dented my final figure quite significantly.

Your pension fund will automaticallly look at the best of the last 3 years leading up to your date of leaving. You may also request that the best 3 year average in the 13 years leading up to leaving is also looked into. The 3 in 13 has to be requested by yourself at point of leaving.