LGPS

A question about : LGPS

I will be retiring probably at 60-62 in 2 - 4 years and want a last ditch savings push.

I have 34 years in the LGPS and will get a lump sum of about Ј40k.

I am just about to set up a S&S ISA and have about Ј50k cash. I've got a AVC, opened last year (under the old system where I can take 100% as cash) and currently pay Ј750 gross p.m. This is a SL 50:50 split between Balanced Lifestyle and a with-profits (I don’t know if this is a good mix, but was in a rush to get in before April).

I want to save another Ј300-400 pm.

What are people’s views about what to do with this? Put it in S&S ISA or more in my AVC? The latter seems more attractive with the tax break, but am I putting my eggs in one basket should things change and I can’t take all as cash or there's a crash? Is it better to wait until after the election and see where the land lies? And any views about my AVC funds? Thanks.

Best answers:

• You only receive tax relief on the tax you would notionally have paid. So the maximum you should pay in is the amount that reduces your income tax to Ј0. The rest could go into a PP where the tax relief could be reclaimed by the pension company and you could claim 25%tf in retirement.
  As the AVC has a 20% uplift then you have a good chance of coming out in front so, depending on your risk appetite, appears reasonable.
• Thanks Dunnit. I won't be able to save more than my tax and yes, the 20% return is great even if it doesn't make anything else.
  I don't have any risk appetite really as I will be retiring in 2-4 years. I am thinking of changing my with-profits element into the balanced lifestyle fund. The charges on the with-profits are higher for a lower return, and the Lifestyle fund moves to safer investments as retirement approaches.
  What do people think of getting rid of the with profits? And sinking all my future savings into an AVC?
• If your risk appetite is nil then the 20% pension uplift is likely to beat inflation and any safe cash savings, over the next 2-4 years. So the normal risk of cash - losing out to inflation - is not applicable. Minimising risk would move your with profits to cash as well.
  Your Lifestyle fund will mainly be in cash as well.
  What are you intending to do with all the cash?
• If the AVC is the old type, that you can use to fund your lump sum and not reduce your valuable LGPS pension, then yes I'd whack in as much as you can.
• I'd double check that lifestyle option just to make sure that it is one that moves everything to the cash fund. An awful lot of lifestyle options out there move to 75% UK gilts on the assumption that you will want to but an annuity.
  The big piece of the picture we are missing is what do you plan to do with the money once you do retire? If it earmarked to clear a mortgage or other debt or for a specific purchase, then cash within the AVC sounds like the most sensible thing to do. On the other hand, if you plan to invest it in a S&S ISA to generate additional income through your retirement, then the most sensible thing is probably to have much the same investment mix in the AVC as you intend to have once it's in the ISA.
• Thanks all, I do appreciate this. I shall check about the gilts/cash. Three more questions if I may?
  1) why would I not be able to take cash, rather than an annuity, if the money has been invested in gilts?
  The money is intended as my medium/long term capital pot. I should have enough defined benefit pension to live on modestly, so this pot will fund the holidays,new car etc. I don't care about leaving any bequests.
  2) I don't understand Triumph's suggestion about the AVC investment mix being similar to the ISA. I have to take the AVC as cash (or an annuity which I don't want), when I retire (hence I don't want to gamble with it). So why should the AVC mix now be the same as a future ISA?
  3) Do you think maxing out my savings in an AVC is safe before an election in case there are retrospective changes to being able to take all as cash/tax changes etc?
  Thanks again for your responses.
• I would think, that you no longer have to buy an annuity but can transfer the AVC pot to a pension that allows you to drawdown what you like when you like?
  but the best thing to use the AVC for, is to provide the up to 25% tax free lump sum from your lgps pension. Rather than taking lump sum from the lgps pension and reducing it?
• Thanks everybody, it's getting a little clearer. I'm confused with this though:
  Quote:
• Multiply the pension by 20.
  So if the pension was going to be say Ј15k a year and your lump sum plus AVCs were up to Ј100k you could take them all tax free (15 x 20 = 300 add the 100 to get 400 of which 25% = 100 can be tax fee)
• But if the AVC is higher than 25% of total pot- you can't.
• Thanks everybody, you've all been very patient and very helpful and things are a lot clearer now.
  Next step - I must decide whether I'm happy with the funds!...