5. Increasing your benefits
Most of us look forward to a happy and comfortable retirement. If you'd like a little bit extra during your retirement years, you should consider paying extra contributions. As a member of the LGPS there are two tax efficient ways to increase your pension benefits. These extra contributions 'top up' the pension benefits you are already building up:
- Additional Pension Contributions (APCs)
- Additional Voluntary Contributions (AVCs)
Additional pension contributions (APCs)
If you are in the main section of the LGPS you can pay extra contributions to buy up to £7,316 of extra annual pension (effective 1 April 2021). You can pay for the extra pension by spreading the payment of the APCs over a number of complete years, or by paying a lump sum.
If you want to spread the payment, the regular extra contributions are taken from your pay, like your normal pension contributions. Your normal LGPS contributions plus the APCs are taken before your tax is worked out, so, if you pay tax, you receive tax relief through payroll.
You can spread payments out over any length of time between one year and the date of your Normal Pension Age. Your normal pension age is equal to your State Pension age (at least age 65). If you are less than one year from your normal pension age you can only pay by lump sum.
If you wish to buy extra pension by paying a one-off lump sum you can do so either via your payroll, or by making a payment to the pension fund. If you make a direct payment, you will need to arrange tax relief with HMRC. You can do this via your self-assessment tax return or by calling or writing to HMRC.
Tax relief is available on all pension contributions up to 100% of your taxable earnings.
You cannot elect to buy extra pension if you are in the 50/50 section of the LGPS.
APCs differ to AVCs in that they buy extra annual pension within the LGPS itself, rather than contributing to a 'pot' held by an external AVC provider.
Visit Additional Pension Contributions (APCs) on the national LGPS member website where the calculator will provide you with the cost and an application form
Additional voluntary contributions (AVCs)
When you pay AVCs, you build up a pot of money which is then used to provide benefits in addition to your LGPS benefits. We have arrangements with two AVC providers, Prudential and Scottish Widows.
AVC payments are taken from your pay before your tax is worked out, so, if you pay tax, you receive tax relief automatically. You have your own personal account and you decide how the money in your pot is invested.
- You can elect to pay AVCs if you are in either the main or 50/50 section of the LGPS.
- You can pay up to 100% of your pensionable pay into an AVC fund managed by Prudential or Scottish Widows, but if you are paying directly from your wages, you must leave enough for your main LGPS contributions, tax and national insurance contributions.
- Your AVC fund is separate from your main LGPS benefits.
- You may start, stop or vary your contributions at any time. With Prudential, you can do this via the online self-service website at: www.pru.co.uk/online
- The contributions made, as well as returns earned on your fund, attract tax relief and build up until your retirement.
For more information on the AVC options offered by both of these providers, including how to apply, follow the links at the end of this page.
Tax controls on your pension savings
There are two tax controls, these are:
- the annual allowance
- the lifetime allowance
Further information is available in the Annual Allowance section of our website.
- A guide to Additional Voluntary Contributions in the LGPS
- Additional Pension Contributions (APC) calculator
- Prudential website for AVC applications
- Prudential website to manage your AVC fund online
- Prudential newsletter
- Scottish Widows website
- Freedom and Choice Q&A – Transfers from the LGPS to Defined Contribution schemes
Last updated: 31 March 2021