Increasing Your Pension Benefits
As a member of the Local Government Pension Scheme (LGPS) it is possible, subject to certain conditions, to improve your pension entitlements by paying additional contributions over and above the standard contributions that you already pay.
There are currently 5 options available to you:
- Purchase of Additional Regular Contributions (ARCs)
- Additional Voluntary Contributions (AVCs)
- Free Standing Additional Voluntary Contributions (FSAVCs)
- Stakeholder Pension Scheme
- Personal Pension Plan
Additional Regular Contributions (ARCs)
ARCs have replaced added years from 1 April 2008. You can purchase additional LGPS pension by way of Additional Regular Contributions (ARCs). The amount that you choose to pay is calculated in accordance with guidance issued by the Government Actuary's Department (GAD).
You can purchase £250 of additional pension or multiples thereof up to a maximum of £5,000. You can also choose to provide for survivors' benefits as part of your additional pension, although the amount of your ARCs will be higher if you choose to do this.
You can start to buy extra pension at any time up to your 64th birthday. You can decide how long you want to pay additional contributions for, although the period you choose to pay them over must be a whole number of years and payments must be completed by age 65. You can choose to stop paying at any time and you will be credited with the extra pension you have paid for at the time of ceasing payment.
Should you choose to provide for survivors' benefits, in the event of your death, they will become entitled to a percentage of the additional pension you have elected to buy in accordance with the following:
Spouse/Nominated Cohabiting Partner/Civil Partner: 37.5%
1 eligible child: 18.75%
2 or more eligible children: 37.5%
No Spouses/Nominated Cohabiting Partner/Civil Partner: 0%
1 eligible child: 25%
2 or more eligible children: 50%
The cost of purchasing ARCs is calculated in accordance with guidance issued by our Government Actuary's Department (GAD).
GAD have issued a number of easy to follow tables detailing the monthly cost of purchasing ARCs (which is based on your age, gender and length of ARC payment period) and can be viewed via the LGE website by clicking on the attached link ARC Tables and following tables C to F on the corresponding tabs.
Should you decide to pay ARCs you will have to state the length of the period (the ARC payment period) over which you wish to pay your ARCs, although this must end before your normal retirement age. To obtain further information on ARCS please click here to download 'A guide to increasing your pension benefits', which includes a form to complete if you would like a personal quote.
Alternatively, you can request a quotation by contacting the Pension Team on 0845 602 7237 or by emailing info@berkshirepensions.org.uk. Please state the period over which you think you like to pay your Additional Regular Contributions and whether or not you wish to provide for survivors' benefits.
ARCs are deducted through payroll and you therefore receive tax relief automatically on the contributions you pay at your marginal rate. This means that your LGPS contributions and your ARCs are deducted from your gross pay before income tax is calculated.
ARC Examples
|
Example 1
• Male
• Cost = £129.24 per month X 60 months = £7,754.40 |
|
Example 2
• Female
• Cost = £329.00 per month for 12 months = £3,948.00 |
|
Example 3
• Male
• Cost = £121.00 per month for 36 months = £4356.00 |
Additional Voluntary Contributions (AVCs)
You can pay additional pension contributions to the in-house AVC scheme as run by The Prudential Assurance Company. If you are an existing AVC customer you can access your individual AVC scheme details online enabling you to update your personal details and keep track of the value of your benefits.
The maximum that you can pay into AVCs is 50% of your earnings and you choose how you would like your contributions to be invested. AVCs are invested separately from the main LGPS Fund and a number of investment opportunities are available to you.
AVCs are deducted through payroll and you therefore receive tax relief automatically on the contributions you pay at your marginal rate. This means that your LGPS contributions and your AVCs are deducted from your gross pay before income tax is calculated.
Deductions commence from the next available pay day following your election to pay AVCs and you can vary or cease payment at any time whilst you are contributing to the LGPS.
If you leave local government employment and transfer your LGPS benefits to another scheme you can also normally transfer your AVC fund as well.
At retirement you will have a number of options available to you:
- Use your AVC Fund to buy an annuity from an insurance company, bank or building society of your choice (although you can defer purchasing an annuity until, at the latest, the eve of your 75th birthday)
- Buy an additional amount of pension as an annuity within the LGPS
- Use your AVC Fund to increase your tax-free cash
If you started paying your AVC before 13th November 2001 you can, in certain circumstances, even transfer your AVC Fund into the LGPS to buy additional LGPS membership.
Retirement Calculator - available online
You can now access a Local Government retirement calculator online which enables you to estimate the pension you might expect to receive if your monies were invested with Prudential. Please note that all quotations are only illustrative and are not guaranteed.
Some points to consider:
An annuity is an amount of additional pension benefit. You can choose the type of pension that best suits your needs e.g. a flat-rate pension for yourself or one that increases each year, or perhaps a pension that will include a pension for your spouse or partner in the event of your death.
Annuities are subject to annuity rates that in turn are affected by interest rates.
If you take your AVC Fund as tax-free cash at the same time as drawing your LGPS benefits you may be able to take 100% of your AVC Fund without incurring a tax charge subject to HM Revenue & Customs limits. If you defer taking your AVCs until some time after your LGPS benefits have been brought into payment, you will only be able to take a maximum of 25% of your AVC Fund as tax-free cash without incurring a tax charge.
If you have previously contributed to a free-standing AVC plan you may be able to transfer the accumulated FSAVC Fund into your in-house AVC Fund or even into the LGPS.
To obtain further information regarding Additional Voluntary Contributions (AVCs) you can contact the Prudential directly on 0845 6070077 or visit their website at www.pru.co.uk/localgovavc
Free Standing Additional Voluntary Contributions (AVCs)
An FSAVC plan is similar to an AVC plan except that it is completely independent of the LGPS. You therefore choose your own provider and make your own arrangements to pay contributions to your FSAVC plan. Therefore, your contributions will not be deducted through payroll and you will not receive tax-relief at source. Instead you will have to claim the tax relief from HM Revenue & Customs yourself.
You may also find that an FSAVC plan involves higher charges than an AVC plan.
Stakeholder or Personal Pension Plan
You can make your own arrangements to pay contributions to a stakeholder pension scheme or a personal pension scheme at the same time as being a member of the LGPS. Any contributions you pay will receive tax relief up to 100% of your earnings.
These arrangements are similar to those offered under an AVC or FSAVC plan as you have your own account that builds up over time. These schemes are often known as money purchase schemes and therefore the benefits you receive at retirement are determined by how much you have contributed to the scheme, how well it has been invested over the years and what the market conditions are at the time you retire.
There are, of course other ways to save for your retirement other than by paying more pension contributions e.g. National Savings, ISAs, Venture Capital Trusts etc. Please note that no one employed by The Royal County of Berkshire Pension Fund can give you financial advice and you should always seek your own independent financial advice before making a final decision.
Related Links:
