Can I pay more to increase my benefits?
In the LGPS you have access to two tax efficient ways to make additional pension savings.
Additional Voluntary Contributions (AVCs)
Additional Voluntary Contributions (AVCs) allow you to pay more to build up extra savings for retirement.
If you choose to pay AVCs, they are invested separately in funds managed by the AVC provider. You have your own personal account that, over time, builds up with your contributions and the returns on your investment, and will be available to you when you retire.
You can elect to pay an AVC if you are in either the main or 50/50 section of the Scheme.
From 1 April 2014, if you take out a new AVC contract, your contributions to an AVC arrangement will no longer be limited to 50% of your pay, so you can, if you wish, pay up to 100% of your pay towards an AVC, after allowing for any tax and National Insurance liability or any other existing deductions you may have.
For new AVC contracts from 1 April 2014, you can take up to 25% of your AVC fund as a tax free-cash lump sum (subject to HM Revenue and Customs limits).
Any AVCs are taken from your pay and if you pay tax, you receive tax relief automatically through the payroll. Deductions start from the next available pay after your election has been accepted and you may vary or cease AVC payments at any time whilst you are paying into the LGPS.
Your employer can also pay towards your AVC. This is known as a Shared Cost AVC. Shared cost AVCs are an employer discretion.
When you retire you can use this AVC to buy an annuity, buy a top-up LGPS pension or take up to 25% of your AVC fund as a tax-free cash lump sum.
Please note that the arrangements for AVCs are a matter between you and the provider and the Fund is not responsible for the performance of the funds. Professional advice should be sought from the provider prior to selecting an investment.
Additional Pension Contributions (APCs)
If you want to buy extra pension for your retirement you have the option of paying APCs. In some circumstances you can buy back lost pension (for example where you have a period of authorised unpaid leave) where your employer must also pay towards buying back this lost pension if you decide to buy it within 30 days of returning to work.
If you are in the main section of the Scheme, you can pay more in contributions to buy up to £7,194 (2020/21 rates) of extra pension. Any extra pension you purchase is payable each year in retirement and is payable on top of your normal LGPS benefits.
You can normally pay for this extra pension either regularly over a complete number of years directly from your pay or via a lump sum (either from your pay or directly to your Pension Fund). The minimum period of time you can spread payment of APCs over is 12 months and the maximum period is the number of years to your Normal Pension Age.
Any extra regular contributions are taken from your pay and if you pay tax, you receive tax relief automatically through the payroll.
You can choose to stop paying APCs at any time by notifying your Pension Fund in writing. You will be credited with the extra pension that you have paid for at the time of ceasing payment.
The cost of any extra pension you buy is paid for by you unless your employer chooses to pay some or all of the cost of the APC. Shared cost APCs (except in cases where a member chooses to buy lost pension within 30 days of returning to work) are an employer discretion.
If you choose to retire early (before your Normal Pension Age) the extra pension you have bought will be reduced for early payment. If you choose to draw your pension after your Normal Pension Age any extra pension you buy is increased because it's being paid later.
On retirement, you can choose to exchange some of the extra pension you have bought for a tax-free cash lump sum in the same way as your main LGPS pension.
If you die in service then no extra benefits from your APC contract will be payable. This is because the amount of extra pension you purchase is for you only.
You may be required to undergo a medical examination at your own expense before being allowed to buy extra pension.
You can use the online calculator below to see how much it costs to buy extra pension and if you want to start paying APCs you can print off an application form to send to your employer and Pension Fund.
Buying back lost pension
Additional Pension Contributions (APCs) can be used to buy back lost pension in the event of:
- Any unpaid additional maternity or adoption leave
- Unpaid shared parental leave
- Strike leave
- Bereavement leave
- Unpaid authorised leave
Other than for strike leave, if you make the election within 30 days of returning to work (or such longer period as your employer may allow) then your employer will cover 2/3rds of the cost. Otherwise, you will pay the full cost to buy the lost pension.
