Increasing your pension benefits

AVCs, APCs and other ways to increase your pension.

Additional voluntary contributions (AVCs)

Additional voluntary contributions (AVC) are a flexible, and for many, a tax efficient way to allow members to save up to 100 per cent of taxable pay towards increasing their pensions - subject to HMRC tax and pension savings limits and LGPS regulations.

If you pay income tax, you will receive tax relief on the contributions you pay, as these contributions are deducted before your pay is assessed for tax.

From 2015, additional flexibilities for your AVC fund may be available before drawing your main LGPS pension, subject to the current HMRC tax and pension saving limits, when you began your AVC plan, when you leave the LGPS and when you take your main scheme benefits.

Find out more about AVCs on the Prudential website.

Frequently asked questions about AVCs

A guide to AVCs in the LGPS (pdf format, 15Mb)    

Who will manage and administer my AVCs?

Your contributions will be invested in the funds of your choice, but managed and administered by our AVC provider Prudential.

You will have your own personal account that will reflect your contributions and investment returns.

The Prudential will provide information about the funds available and give indications on their ‘risk’levels, and let you know when the profile of the funds change.

When you retire, your personal account will provide a fund value. You will have to decide what you would like to do with your fund, Make sure you have the relevant details for your own situation before making financial decisions.

Can my employer contribute to my AVCs?

There are no automatic employer contributions to your AVC. You should ask your employer if they have a policy to assist or share in your AVC.

AVC options at retirement

As part of the retirement procedure Pension Services will ask members how they would like to use their accumulated AVC plan, in accordance with the options below.  A member’s options will depend on when their AVC plan began, when they leave LGPS and reasons for drawing their pension. Failing to make a decision could hold up payment of your pension.  

  • Buy one or more annuities from a pension provider at the same time as drawing the main scheme LGPS benefits
  • Buy a top-up LGPS pension – you can use some or all of the AVC plan to buy a top-up pension from the LGPS.  Some members will only have this option when they take immediate payment of their main scheme benefits when they leave the scheme.
  • Take AVC as cash - a pension commencement lump sum – you can take up to 100% of the AVC plan as a tax free lump sum if taken at the same time as the main scheme pension. The limit is that, when added to any LGPS lump sum, it does not exceed 25% of the overall value of the LGPS benefits (including the AVC plan) or 25% of the member’s available lifetime allowance.
  • Buy extra membership in the LGPS – if your AVC contract started before 13 November 2001 you may be able, in certain circumstances (such as flexible retirement, retirement on ill health grounds or on ceasing payment of AVCs before retirement – decisions must be made on the last point before last day of service – ask Pension Services for full details) to convert the AVC plan into extra LGPS membership to increase their LGPS benefits. The extra membership will provide a pension of 1/60th of final pay for each year of membership purchased.
  • Leave their AVC plan invested and use it at a later date – members who began their AVC plan before 2014 and left LGPS before April 2014  can elect to defer taking their AVC anytime up to the eve of their 75th birthday.  However, taking their AVC at a later date can normally only take up to 25% of the AVC plan as a tax free lump sum and would be obliged to buy one or more annuities from an insurance company, bank or building society with the remainder. If a member defers taking their AVC when they take their main scheme pension, they MAY have a statutory right to transfer their AVC plan out up to the eve of their 75th birthday, but there are conditions to meet, and the option has limited availability. Ask Pension Services for more details  

Do exit charges apply?

  • Conditions for charges have varied over the time, check the current situation with the provider, Prudential.    

A market value reduction may apply if you switch funds from the With Profits to other fund choices, please contact the Prudential for more information.

If in any doubt ask the Prudential for details of charges.

Please note: Any exit charge will be applied after any Market Value Reduction has been applied to any disinvestment from the With-Profits Fund.

Can I pay AVCs to provide extra life cover?

Yes. AVCs can provide extra life cover. Your membership of the LGPS already gives a death grant cover of approximately three times your annual pay if you die in service. You can pay AVCs to increase this and to provide additional benefits for your family, in the event of your death in service.

Please note that Prudential may, in some circumstances, need medical evidence before the arrangement starts. Any  extra life cover provided through AVCs will cease when you leave, retire or stop contributing for any other reason.

How do freedom and choice reforms affect my AVCs

Ask Pension Services for details about your options because the full freedom and choice provisions are not available to in-house AVCs.  

You are recommended to seek guidance if you are considering a transfer of your AVC funds. Pension Wise is a new service from the Government that will offer free and impartial guidance. Visit www.pensionwise.gov.uk.

Additional pension contributions (APCs)

If you are in the main section of the pension scheme and want to buy extra pension, you can pay additional pension contributions (APCs).

This option is not available if you are in the 50/50 section of the pension scheme.

You can choose to buy extra pension by:

  • spreading payment using instalments over a period of complete years - the APCs are deducted from your pay each pay period, reducing your pay before it is taxed. The extra pension you buy will be added to your pension account in equal instalments over the number of years of the agreement.  We will ask for a medical statement (docx format, 86Kb) to confirm you are in good health when you buy additional pension this way.

Or by

  • making a one-off lump sum payment. However, if you have one year or less before your normal pension age (NPA) the lump sum method is your only option.  We will add the additional pension to your pension account after we receive the payment.

Frequently asked questions about APCs

How do I calculate the costs of buying an additional pension?

Use this website for an idea of the costs and to obtain a formal quote to buy additional pension.

Using this site and the information you supply, print out the formal quote. Send the quote to Pension Services and your employer if you want to take the next step.

Be sure to read all the terms and conditions on the website with the calculator. Keep a copy for your records. 

Please note that Pensions Services must check the quote.

The APC deduction can change, the fund must comply with instructions from the Government’s Actuary Department on behalf of the Secretary of State 

Can my employer share the cost of the extra pension to be bought?

Your employer can choose to share the cost of the extra pension and should have a policy in place to outline their arrangements. If this is the case please ensure you have obtained written confirmation of the share to be paid by your employer before making an application for APCs.

Who calculates the cost of buying the additional pension?

The cost of buying the additional pension is calculated by the government’s actuary and those costs can be reviewed at any time

Will the extra pension I buy increase in line with the cost of living indexes?

The extra pension you buy will increase in line with the cost of living indexes, both before and after you draw your pension.

How do I stop paying APCs?

You can choose to stop paying APCs at any time by contacting Pension Services and your employer in writing. Pension Services will calculate and notify you of the proportion of extra pension that you have secured.

How does tax affect my APCs?

Additional pension contributions are ‘tax efficient’ and your employer will deduct them from your pay, in the same way as your basic pension contributions, before your pay is assessed for income tax .

Her Majesty's Revenue and Customs (HMRC) limit a person’s pension savings within a year before incurring a tax charge. This is called your annual allowance. The annual allowance (2019/2020) is £40,000  

You will need to be mindful that buying additional pension may result in a tax charge. For more information about how this change may affect you and your pension, read the leaflet Tax controls and your LGPS benefits (pdf format, 278Kb) and for detailed personal information seek the advice of an independent financial advisor with expertise in taxation.

There is an annual allowance calculator on www.lgpsmember.org

What happens if I leave or retire before completing the additional payments? 

If you leave or retire before completing all the additional payments agreed in your contract, Pension Services will calculate and notify you of the proportion of extra pension that you have paid for.

What happens if I retire due to permanent ill health

However, if you retire due to permanent ill health and you qualify for a first or second tier ill health pension, you will be credited with the entire extra pension that you set out to buy, even if you have not completed the full contract period.

When will my extra pension be paid?

Your extra pension will be paid at the same time as your LGPS benefits.

What happens if I retire early

If you choose to retire early and draw your benefits before your normal pension age, or are dismissed by your employer on redundancy or business efficiency grounds, we will reduce the extra pension you have bought.

If your employer agrees to your request for flexible retirement, you must stop this APC.   Pension Services will notify you  of how much additional pension you have bought.

Paying for additional pension before April 2014

Any arrangement you had set up before April 2014 for additional regular contributions (ARCs) or added years will continue until either you leave your job or decide to  end this additional contribution  contract.

An ARC as a ‘flat rate’ deduction to buy extra pension would not need an adjustment with the change to the definitions of pay; an added years contribution to buy membership as a percentage of  ‘pensionable pay’ on pre 2008 terms, may need to be checked if your employment hours change

Please refer to your original papers for details of those terms and conditions, and if you have questions get in touch with Pension Services.

Other additional contributions

Paying free standing additional voluntary contributions (FSAVCs).

These are similar to in-house AVCs but not linked to the LGPS.

With FSAVCs, you choose a provider, usually an insurance company and you may want to consider their different charges, alternative investments and past performance when you do this.

You choose how much to pay into an FSAVC arrangement but is limited to 100 per cent of your taxable earnings, less your normal pension contributions.

Contributing to a concurrent personal pension plan or stakeholder pension scheme

You may be able to make your own arrangements to pay into a personal pension plan or stakeholder pension scheme at the same time as paying into the LGPS. With these arrangements, you choose your own provider. You may want to consider their charges, alternative investments and past performance when you do this.

You choose how much to pay into the arrangement. You can pay up to 100 per cent of your total taxable earnings in any one tax year (or £3,600 if greater) into any number of concurrent pension arrangements of your choice and be eligible for tax relief on those contributions.

If you pay into a personal pension plan or stakeholder pension scheme, the contributions you make to it are invested in funds managed by an insurance company. You have your own personal account that, over time, builds up with your contributions and the returns on your investment, and will be available later in your life to convert into benefits. 

Tax and pension saving

There are limits to the amount of tax free pension saving a person can build up in a year and over a lifetime. 

There are also increased opportunities for flexible access to your defined contribution pensions, although there may be tax implications    

If you need a pension saving statement in relation to your LGPS benefits with this fund you must request one from Pension Services. Please remember there are strict timetables for reporting annual allowance excesses with the HMRC   

Leaflets, factsheets and calculators are available from the national website - www.lgpsmember.org  

Pension Services cannot give advice on these matters, and you may need to consult an independent financial advisor with expertise in taxation

The HMRC website can provide additional information. You can also find information in our leaflets.