Additional voluntary contributions (AVCs)

Additional voluntary contributions (AVC) are flexible, and for many, are a tax-efficient way to save. You can save up to 100 per cent of taxable pay towards increasing your pension. These savings are subject to HMRC tax, pension savings limits, and LGPS regulations. We take the voluntary contributions from your pay before tax. So, if you pay income tax, you will receive tax relief on what you pay. 

No automatic employer contributions

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.

Find out more about AVCs on the Legal and General website.

Who will manage and administer your AVCs

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

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

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

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 situation before making financial decisions.

AVC options at retirement

As part of the retirement procedure, Pension Services will ask you how you'd like to use your saved AVC plan.

Your options will depend on:

• when your AVC plan began
• when you leave the LGPS
• the reasons for drawing your pension. 

Failing to make a decision could hold up payment of your pension. 

How you can use your saved AVC plan

Buy annuities

You can buy one or more annuities from a pension provider at the same time as drawing your 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. You will only have this option when you take immediate payment of your main scheme benefits when you leave the scheme.

Take AVC as cash

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. When added to any LGPS lump sum, it must not exceed:

• 25% of the overall value of your LGPS benefits (including the AVC plan)
• 25% of your available lifetime allowance.

Buy extra membership in the LGPS

If your AVC contract started before 13 November 2001, you might be able to convert the AVC plan into extra LGPS membership to increase your benefits. The extra membership will provide a pension of 1/60th of final pay for each year of membership purchased.

The extra membership is possible if you:

• took flexible retirement
• took retirement on ill-health grounds
• ceased payment of AVCs before retirement.

You must decide before your last day of service. Contact Pension Services for full details. 

Leave your AVC plan invested and use it at a later date

If you began your AVC plan before 2014 and left LGPS before April 2014, you can choose to defer. You can take your AVC up to the eve of your 75th birthday. 

Taking your AVC later typically means you can only take up to 25% of the AVC plan as a tax-free lump sum. You would be obliged to buy one or more annuities from an insurance company, bank or building society with the remainder. 

If you defer and take your AVC when you take your main scheme pension, you may have a statutory right to transfer your AVC plan out. You'll be able to do the transfer up to the eve of your 75th birthday. There are conditions to meet, and the option has limited availability. Contact Pension Services for more details.

Exit charges for AVCs

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.

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

How freedom and choice reforms affect your 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 service from the Government that will offer free and impartial guidance. Visit www.pensionwise.gov.uk.

Additional pension contributions (APCs)

If you're in the main section of the LGPS, you can pay additional pension contributions (APCs) to buy extra pension. This option is not available if you are in the 50/50 section.

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

Employer contributions

Your employer can choose to share the cost of the extra pension and should have a policy describing the arrangement. Ensure you get written confirmation of the share your employer will pay before making an application for APCs.

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 to make additional pension contributions

There are two ways to buy extra pension.

Instalments

You can pay instalments over complete years. We take the APCs from your pay before tax. We'll add the extra pension you buy to your account in equal portions over the number of years of the agreement. 

We'll ask for a medical statement to confirm you are in good health when you buy additional pension this way.

Lump-sum

You can make a one-off lump-sum payment. If you have one year or less before your normal pension age, the lump sum method is your only option. We'll add the additional pension to your account after we receive the payment.

Medical certificate

You may need to provide a medical certificate to record opinion about your general health.

How to stop paying APCs

You can choose to stop paying APCs at any time. 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.

Calculating the cost of APCs

Use the buy extra pension calculator on the LGPS website to work out the cost and get a formal quote.

Send the quote to Pension Services and your employer if you want to take the next step. Keep a copy for your records. Pension Services must check the quote.

The cost is calculated by the government’s actuary and those costs can be reviewed at any time.

How tax affects your APCs

Additional pension contributions are tax-efficient. Your employer will deduct them from your pay before tax.

There is a limit to the amount of pension you can save in a year before you pay a tax charge. This limit is your annual allowance. 

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).

APCs and retirement

Retiring before you finish paying your APCs

If you leave or retire before paying all the APCs agreed in your contract, we'll tell you how much extra pension you have bought.

Early retirement

We will reduce the extra pension you have bought if you:

• choose to retire early and draw your benefits before your normal pension age
• are dismissed by your employer on redundancy or business efficiency grounds.

Flexible retirement

If your employer agrees to your request for flexible retirement, you must stop this APC.  We'll tell you how much extra pension you have bought.

Ill-health retirement

If you qualify for a first or second-tier ill-health pension, you'll get the entire extra pension that you set out to buy. It doesn't matter if you have not completed the full contract period.

Other additional contributions

Paying for additional pension before April 2014

Additional regular contributions (ARCs) or added years set up before April 2014 will continue until either:

• you leave your job
• you decide to end this additional contribution contract.

Refer to your original papers for details of terms and conditions. Contact Pension Services if you have any questions.

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. Consider their different charges, alternative investments and past performance when you do this.

You choose how much to pay into an FSAVC arrangement but it 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 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 provider. Consider their charges, alternative investments and past performance when you do this.

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. You'll be eligible for tax relief on those contributions.

If you pay into a personal pension plan or stakeholder pension scheme, the insurance company invest your contributions in funds they manage. You have an account that, over time, builds up with your contributions and the returns on your investment. This investment is available later to convert to benefits.