Paying extra

Frequently Asked Questions about paying extra

Can I pay more towards my pension?
Does my employer contribute too?

Additional Pension Contributions (APCs)

How do I buy extra pension by paying APCs?
How much do APCs it cost?
How do I start an APCs?
What happens to my APCs if I leave
How do I make a lump sum payment to my APCs?

Additional Voluntary Contributions (AVCs)




Can I pay more towards my pension?

To increase your pension when you retire, you can pay extra to purchase additional benefits or pension with either Additional Pension Contributions (APCs) or Additional Voluntary Contributions (AVCs). These extra contributions are normally taken from your pay by your employer, just like your normal contributions and are deducted before your tax is worked out. So, if you pay tax, you receive tax relief (at your highest rate) automatically through the payroll or if you're paying into your APC as a lump sum we'll issue a tax certificate to give to HMRC to claim back your tax.

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Does my employer contribute too?

If you're choosing to make extra contributions voluntarily, your employer doesn’t pay into these.  If you are absent from work with your employer permission (other than sickness or injury) you can read more about how to buy back lost pension

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How do I buy extra pension by paying Additional Pension Contributions (APCs)?

You can buy extra pension by paying APCs regularly, over a period of time, or as a one-off lump sum. APCs allow you to buy extra pension for you only and not for additional dependants’ benefits. You'll have to submit a medical certificate, obtained at your own expense, to apply. APCs are based on working to your Normal Pension Age which is linked to your State Pension Age. Your normal pension age is the age from which you can retire and receive your pension in full. You can check your normal pension age by looking up your current State Pension Age. If you take your benefits before this age, your Additional Pension Contributions  will be reduced. You also can’t start an Additional Pension Contributions contract whilst in the 50/50 section of the scheme.

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What happens to my APCs if I leave?

If you leave employment before you have finished paying for your APCs then a pro rata calculation is made to work out how much of the original pension contract has been bought. It’s not possible for you to pay the unpaid additional contributions on leaving early. If you retire on Tier 1 or Tier 2 ill-health grounds then all contributions will be deemed to have been paid and full pension being bought will be added to your pension account.

 

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How much do APCs it cost?

The amount it costs depends on how much extra pension you want to buy, the age you start paying the extra contributions and the length of time you want to pay them for. The APCs calculator at https://www.lgpsmember.org/scotlgps2015/apc will show you the costs of buying pension and help you decide. The maximum amount of additional annual pension you can add to your pension is £6,923 for 2020/21.

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How do I start an APC?

Visit https://www.lgpsmember.org/scotlgps2015/apc and read the section on "Buying extra pension".  Once you have decided the amount of pension to buy, complete the form and return it to your employer.  Monthly contributions are subject to review by the Scheme Actuary and may change in the future.

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How do I make a lump sum payment to my APCs?

You can pay by lump sum through your salary or direct to the Fund. However, you won’t receive tax relief immediately. You’ll need to claim any tax relief through submission of your annual tax return or directly with Her Majesty's Revenue and Customs (HMRC). 

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What are Additional Voluntary Contributions (AVCs)?

AVCs allow you to pay more to build up extra savings for your retirement. When you save AVCs you pay money into a separate AVCs plan to provide additional benefits to your main Local Government Pension Scheme (LGPS) benefits.  You choose how the money in your AVC plan is invested. As with all investments, the value may go up or down and you should review your AVCs regularly.

Your AVCs can be paid from age 55 separately or with your main LGPS benefits. Our AVCs providers invest your extra money in funds your chose.
AVCs contributions are deducted directly from your pay before your tax is worked out, so, if you pay tax you receive tax relief automatically. The amount of tax relief you receive depends on whether you are a basic, higher or additional rate taxpayer. If you don’t pay tax, you won’t benefit from tax relief.  Read more on the tax benefits and implications for Annual Allowance.

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How do I start paying extra through AVCs?

To start an AVCs, follow the links for the two providers to find out more or click on the Prudential link to start your application.
 
Prudential
Prudential website  - information about Prudential AVCs or  apply online
• Telephone: To start an AVCs call 0800 032 6674. If you holder an AVCs and want to make changes to your investments call 0345 600 0343  
 
Standard Life
Standard Life website - further information only Currently closed to new entrants
• Standard Life: 0345 279 8831 or 0345 60 60 047

How much can I pay in?

You can pay up to 100% of your pensionable pay (subject to other deductions made by your employer) into an AVCs. You can choose to pay a fixed amount or a percentage of your pay, or both, into an AVCs – as long as it doesn’t exceed 100% of your pay. AVCs are deducted from your pay, just like your normal pension contributions. You can only pay into your AVC from your regular pay.
Deductions start from the next available pay period after you’ve set up the AVC. You may vary your contributions or cease payment at any time while you are paying into the LGPS. You can pay an AVC if you are in either the Main or 50/50 section of the LGPS. When you retire you must stop your AVCs at least one month before your retirement date.

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What can I do with my AVCs?

 

When you take your main LGPS benefits, you can use your AVCs to:
  • If you are an active member paying into the Scheme, you can buy a top-up LGPS pension
    If you paid into the LGPS on or after 1 April 2009 you can use some or all of your AVC plan to buy extra pension from the LGPS. The extra pension you buy will increase in line with the cost of living. You can choose a personal or personal and dependent’s pension benefits. If you choose the option including dependent’s benefits, these will automatically be provided as extra pension in the event of your death.
  • Take some or all of your AVCs as a single tax-free lump sum
    You can take some or all of your AVCs plan as a tax-free lump sum, provided that: o When added to any lump sum you take from your main LGPS benefits, the total tax–free lump sum does not exceed 25% of the overall value of your LGPS benefits you are taking at that particular time (this includes the value of your AVCs plan). o Your maximum tax-free lump sum does not exceed 25% of the lifetime allowance (£1,073,100 for the tax year 2020/21) or 25% of your remaining lifetime allowance, if you have previously taken payment of any benefits.
  • Buy a regular income that is guaranteed to be paid for the rest of your life
    You can use your AVCs plan to buy a lifelong, regular income (also known as an annuity) that’s guaranteed to be paid for as long as you live. Annuities offer different features which may be of interest to you, such as improved terms if you are in poor health and annual increases to keep up with the cost of living. When you buy an annuity, you can usually take some of your AVCs as a tax-free lump sum at the same time and use some or all of the balance to buy an annuity. An annuity is paid completely separately from your LGPS benefits. The amount of annuity depends on several factors, such as interest rates and your age. As a rule of thumb, the older you are when you take out an annuity, the higher the income you’ll get. You also have some choice over the type of annuity, for example, whether you want a level annuity that provides a higher income to start with, but the payments will stay the same for life, or an escalating annuity that will start at a lower rate but will increase over time to keep up with the cost of living. You can also choose whether you want to provide for dependants’ benefits in the event of your death. You don’t have to buy an annuity from your AVCs provider – it’s really important that you shop around to get the best ‘annuity rate’ based on your personal circumstances and the annuity features you’re looking for.  You would normally buy an annuity at the same time as you take your main LGPS benefits. However, if you left the LGPS you can leave your AVC plan invested and use it later as long as it is paid out by age 75.
  • Buy extra membership in the LGPS
    This only applies if you started paying into your AVCs plan before . If this was the case, you may be able in certain circumstances (such as flexible retirement, retirement on Ill-health grounds, or on ceasing payment of your AVCs before retirement) to convert your AVC plan into extra LGPS membership in order to increase your LGPS benefits. The extra membership will attract a pension of 1/60th of your final pay for each year of membership purchased.
     
     
  • If you joined the scheme on or after 1 April 2015 you can access your AVCs from age 55. You will not be able to take the whole amount as tax free cash but you could have the following options:
    - take lump sums at different stages – usually the first 25% of each cash withdrawal from your pot will be tax-free with the rest subject to tax.
    - take the entire pot as cash in one go  – usually the first 25% will be tax-free with the rest subject to tax. Remember, it is possible to take all your LGPS AVCs as a tax-free lump sum, subject to certain conditions, if you leave it in the LGPS and take it at the same time as your main LGPS benefits.
    - to provide a flexible retirement income – this is known as flexi-access drawdown. You can take your benefits as regular taxable income.
There may be tax implications associated with accessing your benefits in the ways described above. The income from a pension is taxable; the rate of tax you pay depends on the amount of income that you receive from a pension and from other sources. 

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What happens to my AVCs if I leave before retiring?

If you leave before retirement, your contributions will cease when you leave. The value of your AVCs plan will continue to be invested until it is paid out. Your AVC plan can be transferred to one or more different pension arrangements or taken at the same time as your LGPS benefits.

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What happens to my AVCs if I die before taking it?

If you die before taking your AVC plan, it will be payable as a lump sum. Your AVCs provider will pay the amount due to your LGPS administering authority who will then make payment in accordance with the scheme rules. If you have elected to pay AVCs for the purchase of life cover, a death in service lump sum and/or dependents’ pension will be payable.

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Can I transfer in my previous AVCs held in the LGPS?

If you have paid AVCs to the LGPS in Scotland, the value of your AVCs must normally be transferred to an AVCs arrangement offered by your new LGPS administering authority, if you combine your main scheme benefits.


 

What are the tax implications of paying extra?

Though pension saving is often tax-efficient, you should always consult an independent financial adviser as Annual and Lifetime Allowance limits apply to the amount of pension you can build up before you may have to pay tax.

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If I pay tax, do I get tax relief?

Your LGPS, AVCs and APCs contributions are deducted before your tax is worked out, so, if you pay tax, you receive tax relief automatically through the payroll. Although most people will be able to save as much as they wish into these, the amount of pension tax relief you can receive is limited. AVCs and APCs contributions are taken from your pay before tax. Any money you would normally pay as income tax automatically goes into your APCs or AVCs pot instead as you can see below. If you pay tax at a higher rate, your tax savings will be higher. If you don't pay tax, you won't benefit from tax savings. If you are paying into your APCs as a lump sum we issue a tax certificate which they can give to HMRC to claim back tax.

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