Increasing your Benefits
As a member of the Local Government Pension Scheme (LGPS), you have the opportunity to make additional contributions to top up your retirement benefits.
The LGPS offers two tax efficient ways of doing so:
- Additional Voluntary Contributions (AVC)
- Additional Pension Contributions (APC)
You may also wish to consider private arrangements that sit outside of the scheme; such as a Personal or Stakeholder pension plan or a Free Standing Additional Voluntary Contribution arrangement (FSAVC).
It should also be noted that extra contributions can be made to increase the level of death benefits payable, if you were to die in service.
Are there any limits on extra contributions?
HM Revenue & Customs (HMRC) rules allow you to pay up as much as 100% of your earnings with full tax relief to provide benefits within prescribed limits. As your normal LGPS contribution will lie between 5.5% and 12.5% this leaves a significant proportion of your taxable earnings to invest in additional contributions.
However, you should also be mindful of HMRC's Annual Allowance limit, which sets out the amount that your pension benefits can increase in any given year i.e. from 1 April to 31 March. This limit is currently set at £40,000. To find out more, please contact the Dyfed Pension Fund.
The Dyfed Pension Fund is unable to provide you with any financial advice in relation to these options. You may therefore wish to consider seeking Independent Financial Advice on this matter.
Additional Voluntary Contributions (AVC)
An Additional Voluntary Contribution (AVC) arrangement enables you save tax efficiently towards your retirement, whilst an active member of the LGPS.
The additional contributions that you choose to make are deducted from your salary before the deduction of income tax, which means that they attract tax relief at the appropriate rate. The money deducted is then invested in a fund of your choice, held with either of the Dyfed Pension Fund providers; Prudential or Standard Life.
Note that you are able to contribute up to 100% of your monthly pay (once all statutory deductions have been made) to your AVC fund, until further notice. Your are also able to update your contribution level as you wish, as well as amend your investment fund choice.
Upon your retirement, you can take some or all of your AVC fund as a tax-free cash lump sum (subject to HMRC limits).
Additional Life Cover
You can also pay into an in-house AVC to provide additional life cover. Your LGPS membership already gives you cover of 3 times your pensionable pay if you die in service, but you can increase this or use it to provide additional benefits for your Survivors in the event of your death in service. This may be subject to satisfactory completion of a medical questionnaire.
To find out more about the Prudential option, please visit their website.
In order to find out more about the Standard Life option, please contact the Dyfed Pension Fund.
If employed by Carmarthenshire County Council, Pembrokeshire County Council, Ceredigion County Council or Mid & West Wales Fire & Rescue Service, please contact your Employer (Payroll department) to find out more about the AVC Wise arrangement.
Additional Pension Contributions (APC)
As a member of the Local Government Pension Scheme (LGPS), you can elect to purchase an additional amount of annual pension, which is then added to your 'standard pension' and paid each and every year during your retirement. This is now known as an Additional Pension Contribution (APC) contract (previously known as as Additional Regular Contribution (ARC) arrangement).
The maximum amount of additional annual pension that can be purchased is currently £7,316.00.
How will the additional contributions be collected?
To buy your chosen pension amount, additional contributions will be deducted from your salary each month, as calculated by the Dyfed Pension Fund. The term of your contract must be over a 'whole number' of years and must cease before your Normal Pension Age (NPA). However, you may choose to pay over a shorter period if you wish and there is also the option to pay as a 'one off lump sum'.
Note that you are free to cease your contract part way through. However. if you decide to so, you will only be credited with the proportionate amount of extra pension that you have paid for.
How do I calculate an estimate of the cost involved?
The cost of purchasing the additional pension is based on your age, gender and your chosen term i.e. whether it be a year of your choice or if making a one off lump sum payment.
Are there any other terms and conditions?
As an APC contract is deemed to be paid in full if you have to retire on the grounds of ill-health or die as an active member of the scheme, a medical examination must be undertaken by the Independent Registered Medical Practitioner (IRMP) appointed by your Employer, in order to verify that you are in good health. (Note that you will be expected to pay for this examination).
It should be noted that if you enter into a contract to buy APCs via regular payments, the contributions you pay are subject to periodic review and may increase in the future. If this applies, the Dyfed Pension Fund will let you know the revised contributions payable and the new contributions will apply from the April following the review.