Frequently Asked Questions about Additional Voluntary Contributions (AVCs)
You decide how much you can afford to pay.
You can pay up to 100% of your pay into an in-house AVC in each job where you pay into the LGPS.
Your employer can also pay towards your AVC. This is known as a Shared Cost AVC.
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.
Deductions start from the next available pay period after your election has been accepted and you may vary or cease payment at any time whilst you are paying into the LGPS.
AVCs automatically cease one month prior to retiring. This allows the disinvestment process to align with the Fund’s retirement processing timescales and to allow the timely payment of retirement benefits.
The exception to this is when AVCs are paid for extra life cover. These will continue until you leave or draw your LGPS benefits.
Your membership of the LGPS already gives you cover of three times your assumed pensionable pay if you die in service, but you can pay AVCs to increase this and to provide additional benefits for your dependants in the event of your death in service.
This may be subject to satisfactory completion of a medical questionnaire. Any extra life cover paid for through AVCs will stop when you retire or leave.
Your contributions will cease when you leave. The value of your AVC fund will continue to be invested until it is paid out.
Your AVC plan is similar to your main LGPS benefits: it can be transferred to another pension arrangement, drawn at the same time as your LGPS benefits.
Payments into in-house AVCs will stop when you leave or retire.
Buy an Annuity
This is where an insurance company, bank or building society of your choice takes your AVC Fund and pays you a pension in return. You would buy an annuity at the same time as you draw your LGPS benefits.
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. 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.
Buy a Top-up LGPS Pension
When you draw your LGPS benefits you can use some or all of your AVC fund to buy a top-up pension from the LGPS. This automatically provides an inflation-proofed pension and dependants’ benefits and is based on set purchase factors which do not tend to change.
Take your AVCs as cash
You can take up to 100% of your AVC fund as a tax-free cash lump sum subject to Scheme and HMRC limits.
If your election to start paying AVCs was made before 1 April 2014 then different provisions are in place.