Increasing your benefits
To increase the value of the benefits that you and your dependants receive, you may:
- make additional voluntary contributions (AVCs) arranged through the Local Government Pension Scheme (LGPS)
- contribute to a concurrent personal pension plan or stakeholder pension scheme
Under the councillor pension scheme there is no option to buy Added Years or purchase an Additional Regular Contributions contract (ARC).
- Contribute to an AVC
If you choose to pay AVCs under the LGPS, the AVCs are invested separately, in funds managed by the AVC provider. You have your own personal account that, over time, builds up with your contributions and the returns on your investment, and will be available to you when you retire. You can often choose which investment route you prefer.
You decide how much you can afford to pay. You can pay up to 50% of your pay into an in-house AVC in each office you hold where you pay into the LGPS.
AVCs are deducted from your allowances, just like your normal contributions.
Your LGPS and AVC contributions are deducted before your tax is worked out, so, if you pay tax, you receive tax relief (normally at your highest rate) automatically through the payroll. You qualify for tax relief on all pension contributions up to 100% of your taxable earnings, including your normal contributions. Deductions start from the next available pay day after you join the scheme; you may vary or cease payment at any time whilst you are paying into the LGPS.
At retirement any of your AVC fund which you do not take as a lump sum is used to buy you an annuity. An insurance company, bank or building society of your choice takes your AVC fund and pays you a pension in return. You can do this at the same time you draw your LGPS benefits or you may be able to choose to defer buying an annuity any time up to the eve of your 75th birthday.
If you carry on paying into the LGPS after age 65 you cannot buy an annuity until you retire, or you reach the eve of your 75th birthday if this is earlier
An annuity is paid separately from your LGPS benefits.
The amount of annuity depends on several factors, such as interest rates and your age. You also have some choice over the type of annuity, for example:
- Whether you want a flat-rate pension or one that increases each year, and whether you also want to provide for dependants' benefits in the event of your death.
- Annuities are subject to annuity rates which in turn are affected by interest rates. When interest rates rise, the organisation selling annuities is able to obtain a greater income from each pound in your AVC fund, and therefore can provide a higher pension. A fall in interest rates reduces the pension which can be purchased.
If you draw your AVCs at the same time as your LGPS pension, you may be able to take some or all of your AVCs as a tax-free lump sum.
Provided when added to the automatic LGPS lump sum it does not exceed 25% of the overall value of your LGPS benefits (including your AVC fund) or, if less, 25% of the lifetime allowance less an adjustment for the value of any other pension benefits you are already drawing. If you retire and decide to draw your AVCs later, you can normally only have up to 25% of your AVC fund as a lump sum.
You can also pay AVCs to increase your death in service lump sum cover over and above the two times career average pay provided by the LGPS, or to provide additional dependants' benefits.
- Contribute 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 a provider, usually an insurance company. You may want to consider their charges, alternative investments and past performance when you do this.