Flexibility to pay more or less

Details on how to increase your pension benefits or temporarily reduce your contributions.

How can you increase your pension benefits?

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 Additional Pension Contributions (APCs) and Additional Voluntary Contributions (AVCs).

Additional Pension Contributions (APCs)

If you are in the main section of the LGPS, you can pay additional pension contributions (APCs) to boost your pension at retirement or to cover lost pension due to authorised unpaid leave or industrial action. The APCs you make will buy you an additional amount of extra pension in retirement. You can choose to pay for the extra pension by spreading the payment of the Additional Pension Contributions (APCs) over a number of complete years or by paying a lump sum.

Here you will find more information on APCs.To obtain an APC quotation or to apply, access the APC calculator.

Additional Voluntary Contributions (AVCs)

When you save AVCs, you build up a pot of money which is then used to provide additional benefits to your LGPS benefits. The Fund's current AVC provider is Prudential, however up until the year 2000 we used both Prudential, and the Equitable Life Assurance Society (however funds have since transferred to Utmost Life & Pensions). The money is deducted directly from your pay before your tax is worked out, so, if you pay tax you receive tax relief automatically. 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 and you decide how the money in your pot is to be invested. You can elect to pay an AVC if you are in either the main or 50/50 section of the LGPS.

If you wish to apply to Prudential for an AVC, or amend an existing AVC contract, please contact Prudential. Alternatively, please follow the links below for more information:

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:

To purchase an annuity (yearly pension) or scheme pension
Taking a number of cash sums at different stages
Taking the entire pot as cash in one go
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 Money Helper

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.

Utmost AVCs (formerly Equitable Life AVCs)

Transfer of policies from Equitable Life Assurance (ELAS) to Utmost Life & Pensions

Equitable life closed to new business in December 2000, however they continue to manage existing AVC policies for members.

ELAS June 2018 Announcement

ELAS announced in June 2018 their proposal to transfer the society and all its polices to Reliance Life, now known as Utmost Life & Pensions.

Who are Utmost Life?

Utmost Life & Pensions (previously known as Reliance Life prior to 4 March 2019) is a life and pensions company operating in the UK. They currently look after 100,000 customers, with £1.7 billion of assets and are also part of the wider Utmost Group of Companies, who are a growing specialist life assurance group currently managing £33 billion of assets under administration and 240,000 customers.

Find out more on the Utmost Life and Pensions website.

How can you temporarily reduce your contributions?

The LGPS offers you the flexibility to pay half your normal contribution rate and build up half your normal pension whilst retaining full life and ill-health cover. This is called the 50/50 section of the LGPS, it is designed to help members stay in the scheme, building up valuable pension benefits, during times of financial hardship.

To move to the 50/50 section, you will need to contact your employer pensions/payroll department.

For more information on the 50/50 section, please follow these links:

WEST MIDLANDS PENSION FUND