How may I be able to use my AVC on retirement?
There are a number of ways in which you can use your AVC when you retire and it will depend on your personal circumstances as to which is the best option for you. The Fund cannot offer advice on these options as to their suitability.
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 some or all of your AVC fund as a tax-free cash lump-sum , but you can only take it all as a lump-sum if you draw it at the same time as your main LGPS benefits and provided, when added to your LGPS lump-sum, it does not exceed 25% of the overall value of your LGPS benefits (including your AVC fund).
Buy extra membership in the LGPS
If your election to start paying AVCs was made before 13 November 2001, 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 fund into extra LGPS membership in order to increase your LGPS benefits.
Transfer your AVC fund to another pension scheme or arrangement
You can transfer your AVC fund to another pension scheme or arrangement, including to a scheme that offers flexible benefits. If you were to transfer your AVC funds to a defined contribution scheme which provides flexible benefits, the four main flexible benefit options that scheme might offer include:
1) To purchase an annuity (yearly pension) or scheme pension
2) Taking a number of cash sums at different stages
3) taking the entire pot as cash in one go
4) flexi-access drawdown
You should be aware that there may be tax implications associated with accessing flexible benefits. The income from a pension is taxable; the rate of tax you would pay depends on the amount of income that you receive from a pension and from other sources.
Pension guidance is available from the Pension Wise, a service from MoneyHelper, if you are considering taking flexible benefits. The guidance is free and impartial and can be accessed on the internet, by phone, or face-to- face. For more information, see https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise/?source=pw
If you are considering taking flexible benefits, you should consider accessing this pension guidance and taking independent advice to help you decide which option is most suitable for you.
Please note, Pension Wise does not provide guidance about taking benefits from a defined benefit scheme such as the LGPS. If you draw benefits on flexible retirement and your AVC contract started on or after 13 November 2001, you can choose to take all of your AVC fund at the time you draw your flexible retirement benefits, and, if you wish, continue paying AVCs. If your AVC contract started before 13 November 2001, your AVC contract will cease and you will have to use all of your AVC fund in one of the above ways at the time you draw your flexible retirement benefits.
If you leave before retirement, 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 or drawn at the same time as your LGPS benefits. Payments into in-house AVCs will stop when you leave or retire. You can also contact the Fund for further information on paying AVCs
