Additional voluntary contributions to pension - Help please

[Tasmin200]

I work in local government and have the opportunity to make additional voluntary contributions to my pension using AVCWISE. This is also a salary sacrifice scheme to it seems like a no brainer to take up the offer. My problem is as a member of the Local Government Pension Scheme I have no experience of investing money.

AVCWISE use Standard Life investment option titles like ‘Balanced Life Managed Universal Lifestyle Profile’ and ‘Moderately Adventurous Pension Fund’ I literally have no idea what these are. There seem to be hundreds of options.

I plan to retire when I’m 60 in 11 years. Does anyone have any advice regarding what option I should select?

[PistonHead007]

I'd look at purchasing additional defined benefit pension rather than putting money into a fairly generic defined contribution pot.

Depends on your own views but I believe you have the option to buy more guaranteed annual pension at a notably better rate than an open market annuity.

[Tasmin200]

Yes, I think I can put more into my LGPS but it was the salary sacrifice part of the AVC scheme that interested me. If I put in a couple of hundred a month my actual pot grows by over £300. Seems like free money.

[PistonHead007]

Salary sacrifice can be used for AVC or APC, meaning you get that part of your pay fully going into your pension without tax or NI.

I've yet to come across an LGPS that contributes extra to your AVC so it's not really free money. Once you've made the contribution you're then subject to the vagaries of stock market returns and you don't know what you'll get in the future.

Use this link to see the cost to you of APCs: https://www.lgpsmember.org/help-and-support/tools-...

Yes, you might be able to do better by investing the same amount but you might not. I don't know your personal situation like if the NRA and spouse's pension suit with APC but you're lucky to have the ability to buy more guaranteed income at rates higher than you could convert your AVC on the open annuity market.

[Zigster]

What 007 says.

If you have the option to buy more DB pension (added years or additional pension) that is an absolute steal and almost certainly a better bet than regular style DC AVCs.

[Tasmin200]

Thanks for your responses, now I think about it what you're saying makes a lot of sense.

I've got a bit of research to do I think. I've just turned 49 and want to retire when I'm 60. By doing that the LGPS slash about a third off my predicted pension. I am looking for a way to top that back up a wee bit

[Welshbeef]

PistonHead007 said:

Salary sacrifice can be used for AVC or APC, meaning you get that part of your pay fully going into your pension without tax or NI.

I've yet to come across an LGPS that contributes extra to your AVC so it's not really free money. Once you've made the contribution you're then subject to the vagaries of stock market returns and you don't know what you'll get in the future.

Use this link to see the cost to you of APCs: https://www.lgpsmember.org/help-and-support/tools-...

Yes, you might be able to do better by investing the same amount but you might not. I don't know your personal situation like if the NRA and spouse's pension suit with APC but you're lucky to have the ability to buy more guaranteed income at rates higher than you could convert your AVC on the open annuity market.

Wouldn’t salary sacrifice also impact the Final salary (based on the fact you have lowered your salary)


In the same way if you salary sacrifice your pension contributions a mortgage company will take the lower value for borrowing purposes.

[PistonHead007]

Normally runs off your reference salary.

From the LGPS website:

1/49th of your pensionable pay is added each year.

Pensionable pay is the pay that pension contributions are deducted from. Pensionable pay includes:

your normal salary or wages
bonuses
overtime – both contractual and non-contractual
pay for additional hours if you work part time
maternity, paternity, adoption and shared parental pay
shift allowance
any other taxable benefits specified as pensionable in your contract.

[PistonHead007]

If you want to retire at 60, 7 years before NRA, then you could look at saving elsewhere to build a defined sum to spend over that time to avoid early retirement reductions on your LGPS pension. It partly depends on the early retirement factors and some maths to see how long it takes before you crossover and become better off for having waited longer to begin drawing it.

[thekingisdead]

1/49th!?

That’s amazing. My DB scheme (now closed) was 1/80ths, the old timers has accrued at 1/60th’s.


🤯

[Welshbeef]

thekingisdead said:

1/49th!?

That’s amazing. My DB scheme (now closed) was 1/80ths, the old timers has accrued at 1/60th’s.


??

I was lucky 1/60 for 2% also had some 1/80th but that was 9% from memory then a career average too but god knows what that was.

[PistonHead007]

Things against LGPS compared to other schemes are fairly late NRA and only 30.625% spouse's pension on accrual after 2014. That makes it less amazing.

[Tasmin200]

PistonHead007 said:

If you want to retire at 60, 7 years before NRA, then you could look at saving elsewhere to build a defined sum to spend over that time to avoid early retirement reductions on your LGPS pension. It partly depends on the early retirement factors and some maths to see how long it takes before you crossover and become better off for having waited longer to begin drawing it.

It's all food for thought. I'm not rushing into anything so I'll do my research to try to get my head around it all. Thanks.

[Sargeant Orange]

I chose AVCs over APCs due to the greater flexibility over taking a lump sum and that I don't intend working past 60.

My existing forecast DB pension is also more than sufficient so didn't see the need to top that up.

It's hard to define a rule of thumb on whether APC or AVC is better because it very much depends on your planned retirement age and individual circumstances.

I should declare that my view may well be clouded on this by a relative who dropped dead 2 weeks after taking his pension and took minimal lump sum and had limited survivor benefits!

[Downward]

Hello old one but I am in the 40% tax bracket.
Pay 10.7% employer pension and I top up an AVC monthly.

Payslip doesn’t breakdown what amount of pay is 40% and I’m wondering how to find out if paying more into an AVC taking me back down out of the 40% bracket is worth it ?
14 years left to work.

[The Ferret]

Downward said:

Hello old one but I am in the 40% tax bracket.
Pay 10.7% employer pension and I top up an AVC monthly.

Payslip doesn t breakdown what amount of pay is 40% and I m wondering how to find out if paying more into an AVC taking me back down out of the 40% bracket is worth it ?
14 years left to work.

This is where payroll depts need to do more to help the staff at work. I can give you a ballpark only idea, without more info its tricky to know exactly.

Very simplistically, work out your basic salary for this tax year, add on any benefits in kind, deduct everything you'll personally pay into your pension for the year (via payroll contributions and AVCs, ignore any employer contributions) and if that figure is over £50k then you have scope to put the difference in and save 40% on it.

As I said though that's not going to be bang on so please don't rely on it. It could be affected a few factors, some minor, some potentially more major.

If you go and see your payroll manager (perhaps with a pack of biscuits), I'm sure they can look at for you and in 10 mins they could give you a figure which is within a few quid.

[Downward]

The Ferret said:

Downward said:

Hello old one but I am in the 40% tax bracket.
Pay 10.7% employer pension and I top up an AVC monthly.

Payslip doesn t breakdown what amount of pay is 40% and I m wondering how to find out if paying more into an AVC taking me back down out of the 40% bracket is worth it ?
14 years left to work.

This is where payroll depts need to do more to help the staff at work. I can give you a ballpark only idea, without more info its tricky to know exactly.

Very simplistically, work out your basic salary for this tax year, add on any benefits in kind, deduct everything you'll personally pay into your pension for the year (via payroll contributions and AVCs, ignore any employer contributions) and if that figure is over £50k then you have scope to put the difference in and save 40% on it.

As I said though that's not going to be bang on so please don't rely on it. It could be affected a few factors, some minor, some potentially more major.

If you go and see your payroll manager (perhaps with a pack of biscuits), I'm sure they can look at for you and in 10 mins they could give you a figure which is within a few quid.

Thanks see this is one area I don’t know and payslips don’t breakdown enough imo.

So I pay like 11% into a pension so about £6k taking me under the 40% so is the 40% tax after salary deductions ?

[Defcon5]

Jumping on here as it was just discussed.

I’m in the LGPS too and looking at additional pension.

The most I can buy is £8903pa

I am 40, and want to retire at 60

The £8903 will be reduced proportionately owing to retiring 8 years early, to £5075pa

The LGPS calculator says to earn the notional £8903pa, it will cost me £568 a month for the next 20 years.

Taking off the 40% tax, the total cost to me is £81792 meaning it will take 16 years of receiving the pension for me to end up in profit?

Whereas with the AVCs, at 3% growth for 20 years with the same £568 a month I’d have £186,111 as a lump sum to buy a Ferrari with?