Increasing your benefits
As a member of the Local Government Pension Scheme (LGPS), you have the opportunity to make additional contributions to top up your retirement benefits.
The LGPS offers two tax efficient ways of doing so:
Additional Voluntary Contribution (AVCs) are a tax efficient way to save towards your retirement, as an active member of the LGPS.
All AVC contributions are deducted from your salary before you pay Income Tax and National Insurance, which means you will get tax relief at the appropriate rate. The AVC contributions paid are invested in a fund of your choice, with Prudential
You are able to contribute up to 100% of your monthly pay (once all statutory deductions have been made) to your AVC fund. You can amend your AVC contribution level and investment fund choice as many times as you like.
When you retire, you can take some or all of your AVC fund as a tax-free cash lump sum (subject to HMRC limits). You can find out other ways of using your AVC fund at the LGPS website.
What if I started paying into an AVC on or before 31 March 2014?
Prior to 31 March 2014, your contribution level was limited to 50% of your monthly pay. However, you are now able to contribute up to 100% of your monthly pay (once all statutory deductions have been made) to your AVC fund from 14th May 2018.
If you are an active member of the Local Government Pension Scheme (LGPS), you can purchase an additional amount of annual pension. The additional pension will be added to your ‘base pension’ and paid every year for the whole of your retirement. This is known as an Additional Pension Contributions (APCs) contract.
The maximum amount of additional annual pension that can be purchased is £7,579. However, you will need to provide a medical report from your doctor to confirm you are currently in good health – if your doctor charges for this service, you will need to cover this cost.
How will the additional contributions be collected?
The extra pension contributions are deducted from your salary each month. You can select the length of your contract, but it must be in ‘complete years’ and the contract must end before your Normal Pension Age (NPA). You also have the option to pay for the additional pension as a ‘one off lump sum’.
You can stop your APC contributions part way through the contract. However, you will only be credited with the proportion of extra pension that you have paid for.
How do I calculate an estimate of the cost involved?
The cost of purchasing the additional pension is based on your age, gender and how you pay, for example as a lump sum or by instalments – find out the estimated cost of purchasing additional pension .
You could also increase your pension benefits with a Personal Pension, Stakeholder pension plan or a Free Standing Additional Voluntary Contribution arrangement (FSAVC) – these are available via private companies.
Are there any limits on extra contributions?
HM Revenue & Customs (HMRC) rules allow you to pay as much as 100% of your earnings with full tax relief to provide pension benefits within prescribed limits. Your normal LGPS contributions are between 5.5% and 12.5%, so this leaves a large proportion of your taxable earnings available to invest in additional contributions.
However, HMRC’s Annual Allowance limit, tells us the maximum your pension benefits can increase in each tax year. The limit is currently at £40,000.
We cannot provide you with any financial advice in relation to these options, however, you can seek independent financial advice to help you – visit unbiased .
If you have any questions relating to your personal tax or National Insurance in relation to your pension you can find information here.
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