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Most of us look forward to a happy and comfortable retirement and in order to have that little bit extra during your retirement years you may wish to consider paying extra contributions. As a member of the LGPS you have access to two tax efficient ways of increasing your pension benefits in addition to the benefits you are already building up these are AVC's and APC's.

We shall also have a look at a couple of existing ways that members could use to improve their pension benefits through ARCS and Added Years Contracts

Additional Voluntary Contributions (AVC)

Our AVC provider, Prudential, are currently experiencing some issues with investing AVC contributions and paying out AVC funds. Here is a statement from the Prudential about the issues they are currently facing:

“As you know Prudential has been experiencing delays in the processing of some transactions. The delays have been caused by the impact of COVID and the majority of colleagues working from home following the latest lockdown. This has impacted our productivity and recovery plans. The implementation of a new system that has taken additional time to embed within our processes has also contributed to the delays.

Finally, I would like to emphasize that there will be no financial detriment to a member’s claim or investment as a result of the delays”

The Clwyd Pension Fund continues to be in contact with Prudential to monitor their progress in resolving the matter.

How to apply for an AVC

To apply or for more information regarding how you can benefit from contributing into an AVC, please click the above Prudential logo:

If you are already contributing to an AVC and have any questions, speak to a Retirement Specialists based in Prudentials Reading office by calling the number below. You can also request a paper application pack by calling this number.

0345 6000 343

Additional Voluntary Contributions (AVCs) allow you to pay more to build up extra savings for retirement

If you choose to pay AVCs, they are invested separately in funds managed by the AVC provider, the Prudential is the AVC provider for the Clwyd Pension Fund.

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.

AVCs are deducted from your pay, 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 automatically through the payroll. You qualify for tax relief (normally at your highest rate) on all pension contributions up to 100% of your taxable earnings, including your normal contributions.

If you leave before retirement, your AVC contributions will cease when you leave. The value of your AVC fund will continue to be invested until it is paid out. Your AVC can be transferred to another pension arrangement or drawn at the same time as your LGPS benefits.

AVC options at retirement

When a member takes their main scheme benefits from the LGPS they must notify the relevant administering authority how they would like to use their accumulated AVC plan in accordance with the options below:

• Take a pension commencement lump sum – members can take up to 100%** of their AVC plan as a tax free lump sum if taken at the same time as the main scheme pension provided, when added to any LGPS lump sum, it does not exceed 25% of the overall value of the LGPS benefits (including the AVC plan) or 25% of the member’s available lifetime allowance.
• Buy one or more annuities – from an insurance company, bank or building society of the member’s choice at the same time as taking their main scheme benefits
• Buy a top-up LGPS pension – they can use some or all of their AVC plan to buy a top up pension from the LGPS but, if the member’s AVC contract started before 1 April 2014, only if the member takes immediate payment of their main scheme benefits when they leave the scheme.
• Buy extra membership in the LGPS – if the member’s AVC contract started before 13 November 2001 the member may be able in certain circumstances (such as flexible retirement, retirement on ill health grounds or on ceasing payment of AVCs before retirement) to convert the AVC plan into extra LGPS membership in order to increase their LGPS benefits. The extra membership will attract a pension of 1/60th of final pay for each year of membership purchased.
• Leave their AVC plan invested and use it at a later date - if the member’s AVC contract started before 1 April 2014 they can elect to defer taking their AVC anytime up to the eve of their 75th birthday. However, members that take their AVC at a later date can normally only take up to 25% of the AVC as a tax free lump sum and would be obliged to buy an annuity with the remainder of the fund if they use it within the LGPS. If a member defers taking their AVC when they take their main scheme pension, provided the conditions set out in the transfer section of this guide are met, they have a statutory right to transfer out their AVC plan up to the eve of their 75th birthday. Note, members whose AVC contracts started on or after 1 April 2014 must take their AVC at the same time as they take their main scheme benefits (except for some flexible retirees, see below).

  ** HM Treasury previously stated it was policy intent to limit AVC contracts taken out after 31 March 2014 to a 25% tax free lump sum. However, given that the current LGPS Regulations allow all AVC payers (including those with post 31 March 2014 AVC contracts) to take up to 100% of the AVC as a tax free lump sum and no such amendments are on the horizon, administering authorities should allow members with post 2014 AVC contracts to take up to 100% of the AVC fund as tax free cash in line with the conditions set out above.

For more details regarding the key features of an AVC within the local government pension scheme please click the below Key Features button. In addition to this please browse through the Freedom and Choice Guidance which is accessible below also

20 Key Facts

Additional Pension Contributions (APC)

APCs allow the opportunity to buy extra pension up to a total maximum of £7,352 – APC limit (2022/2023) across all employments, or to buy back any lost pension due to a period of absence.

The extra pension you are buying will be paid at the same time as your main LGPS pension benefits and will increase in line with the cost of living, both before and after you draw your pension.

Any additional pension bought will be incorporated in your conversion options at retirement where you can choose to give up part of your annual pension to create/increase your tax-free lump sum.

How can I pay Additional Pension Contributions?

Additional pension can be purchased via a one off lump sum payment or by paying regular payments over a complete number of years (minimum 1 year period).

The cost of purchasing this additional pension is based using both your age at application and gender with reference to guidance issued by the Government Actuary Department (GAD). Regular pension contributions are taken directly from your pay and shall attract tax relief similar to your pension contributions, however, the Clwyd Pension Fund do request that members paying over a set period do undergo a medical examination by a Registered Medical Practitioner at their own expense to assure that they are in ‘reasonably good health’.

Elections are subject to a medical declaration, and in some cases a full medical may be required (at your expense) before the contract may proceed.

Before completing the Election to purchase additional pension form you should use the APC calculator on the national LGPS website to decide your payment preference.

To apply to pay Additional Pension Contributions, please click here.

What happens if I leave?

If you leave your employment whilst paying regular APC's, then only the proportion of benefits that had been paid up until leaving shall be accrued as a pension benefit.

Example – a member elects to buy £1,000 additional pension over a two year period, but leaves the employment exactly 1 year following the start of their contract, then only £500 additional pension would have been brought and shall be added to the members LGPS benefits.

However, any additional pension bought is only for the benefit of the member, meaning that if a member dies there are no additional pension benefits payable to dependants in respect of the additional pension bought.

Shared Cost Additional Pension Contributions (SCAPC)

You shall not build up any pension benefits if you have a period of unpaid additional maternity, paternity, and adoption/shared parental leave, or other periods of authorised unpaid leave

Members are able to recuperate any lost pension once returning to work by applying for a Shared Cost APC contract. This election must be made within 30 days of returning to work whereby the employer would agree to share the cost of buying back that lost pension by paying 2/3rds of the cost

The returning to work date is the initial date whereby you recommence paid employment or the day after your Maternity, Paternity, adoption, shared parental leave or any other unpaid period of authorised leave ends. So would recommence if sick leave or annual leave was taken immediately after this unpaid period.

The availability for SCAPC’s is not possible for any absence due to strike or industrial action, and can only be bought back using an APC, with the employer not being eligible to repay these contributions.

ARCs - Where a member is paying or has paid towards an ARC, their ARC contract is limited to purchasing up to £5,000 worth of extra pension. Any applications to purchase an APCs or SCAPCs contracts need to take into consideration any existing or previous ARC contracts when determining the maximum amount of extra or lost pension the member can buy, and include it in this calculation.

Added Years Contract

From 1st April 2008, No further Added Years Contracts are accessible.

Prior to 01/04/2008 members were able to buy extra years’ service to boost their pensionable benefits. These purchased years would then be credited on the same basis to what the member agreed to when calculating the pensionable benefits at leaving the employment.

If a member retires through:

Ill Health Retirement the Added Years will be credited with the entire period of membership that the member set out to buy, even if the contract had not been completed.

Redundancy or business efficiency grounds members will be provided with the opportunity to pay the remaining contributions via a lump sum to pay off the remainder of the contract.

Flexible retirement and elected before 1 October 2006 to commence the added years contract that will be credited with the extra years of membership that you have paid for and this will increase the value of the benefits paid on flexible retirement. If you do not choose to be credited with the extra years of membership on flexible retirement, the added year’s contract will continue.

Flexible retirement and elected on or after 1 October 2006 to commence your added years contract, you can, if you wish, choose to be credited with the extra years of membership that you have paid for at the point of flexible retirement and this will increase the value of your benefits paid. If you do not choose to be credited with the extra years of membership on flexible retirement, your added year’s contract will continue.

Conversion options

All accrued added years benefits shall be included when providing members with the option to convert some of their pension to create or increase their tax-free lump sum.

Reduced Pension

If your pension benefits when you draw them are reduced for early payment then your benefits from the added years are reduced in the same way.

Additional Regular Contributions (ARC)

No further ARC contracts are accessible from 1st April 2014.

Between 01/04/2008 and 31/03/2014 members were able to purchase additional pension through an Additional Regular Contributions contract.

However, they are no longer available following the introduction of the CARE scheme on 01/04/2014, and have now been replaced by APC's following the introduction of the CARE scheme.

Where a member is paying or has paid towards an ARC, their ARC contract is limited to purchasing up to £5,000 worth of extra pension. Any applications to purchase an APCs or SCAPCs contracts need to take into consideration any existing or previous ARC contracts when determining the maximum amount of extra or lost pension the member can buy, and include it in this calculation.

If a member retires through:

Tier 1 or Tier 2 ill health retirement (where a proportion of the members benefits are enhanced), this ARC contract will be credited with the entire pension that the member set out to buy, even if the contract had not been completed.

Before age 65, retired on redundancy or business efficiency grounds, the extra pension bought through an ARC contract will be reduced for early payment.

Flexible retirement, a member can draw the entire extra pension paid for, although it will be reduced for early payment. If you choose to draw these flexible retirement benefits your ARCs contract will cease. If you do not choose to be credited with the ARC on flexible retirement, your ARC contract will continue.

Conversion Option

All accrued ARC benefits shall be included when providing members with the option to convert some of their pension to create or increase their tax-free lump sum.

Reduced benefits

If your pre-01/04/2014 benefits when you draw them are reduced for early payment then your benefits from the ARC contract are reduced in the same way.

Existing ARCs

Where a member is paying or has paid towards an ARC, their ARC contract is limited to purchasing up to £5,000 worth of extra pension. Any applications to purchase an APCs or SCAPCs contracts need to take into consideration any existing or previous ARC contracts when determining the maximum amount of extra or lost pension the member can buy, and include it in this calculation.