You can take your main LGPS pension at any time from the age of 55 if you leave your employment or your employer agrees to you flexibly retiring (flexible retirement means reducing your hours or moving to a less senior position and taking some or all of your main LGPS benefits).
You must take payment of your pension benefits before your 75th birthday. Your pension can be paid from any age if you suffer from permanent ill health and meet certain criteria.
When you take your main LGPS pension you will be asked to make a decision about what you would like to do with your AVC plan. It is not possible to take your AVC plan before you take your main LGPS pension (unless you transfer your AVC plan to another pension arrangement, you can read more about this below).
Please read this document carefully as it contains information about the options available to you in respect of your AVC plan.
There are a number of ways to access your AVC benefits:
In scheme - the LGPS rules give 6 options which are explained in turn below
Out of scheme - you can transfer your AVC plan to another pension arrangement
In scheme options
The options available to you if you take your AVC plan within the LGPS are listed below. Certain restrictions apply to some options and these are explained under each option.
1.Take some or all of your AVC plan as a single tax free lump sum
To do this you must take your main LGPS benefits at the same time as your AVC plan. There are some rules which limit how much tax free lump sum you can take:
when added to your main LGPS lump sum (if you have one), your total tax free lump sum cannot exceed 25% of the overall value of your LGPS benefits at that particular time. This includes the value of your AVC plan.
your maximum tax free lump sum must also not exceed 25% of the lifetime allowance (£268,275 up to the tax year 2025/26) or 25% of your remaining lifetime allowance if you have previously taken payment of any pension benefits.
2.Buy a top-up pension from the LGPS
When you take your main benefits, you can use some or all of your AVC plan to buy a top-up pension from the LGPS if you paid into the LGPS on or after 1 April 2014. The amount of extra pension you buy with your AVC plan depends on your age and your state of health. The extra pension you buy will increase in line with the cost of living.
Your dependents will automatically be provided with extra pension in the event of your death.
The top-up pension is taxable; the rate of tax you pay will depend on the overall amount of income you receive from your LGPS pension and other sources during the tax year.
If you left the LGPS before 1 April 2014 this option is not available to you.
3.Buy an annuity - Regular income guaranteed to be paid for life
You can choose from a guarantee minimum payment period, an enhanced annuity if you are in poor health or annual increases in line with cost of living.
You can usually take some as tax free cash and use some or all of the remaining balance to buy an annuity.
Your income from an annuity will be taxed in a similar way to your pension. This means that the amount of tax you pay depends on the amount of income you receive from your annuity and other sources during the tax year.
You don’t have to buy an annuity from your AVC provider – it’s really important that you shop around to get the best ‘annuity rate’ based on your personal circumstances and the annuity features you’re looking for. It’s worth knowing that if you’re in poor health, you may be able to get a better income from an ‘enhanced annuity’
4. Buy extra membership in the LGPS
If your AVC plan started before 13 November 2001 you may have the option of using it to buy extra years and days final salary membership in the LGPS. This option only applies in certain circumstances:
you are aged over 50, are in active service and have stopped your AVC contributions, or
you are taking ill health or flexible retirement.
The extra membership will provide you with additional LGPS pension when you retire. The extra pension you receive is taxable; the rate at which you pay tax will depend on the overall amount of income you receive from your LGPS pension and other sources in any particular tax year.
Can I leave my AVC invested and use it later?
If you paid into the LGPS on or after 1 April 2014 you must take your AVC plan at the same time as you take your main LGPS pension.
If you flexibly retire
If you flexibly retire from the LGPS the rules about taking your AVC are slightly different:
if your AVC plan started before 13 November 2001 you must use all of your AVC plan in one or more of the ways described in options above at the same time as you take your flexible benefits. Your AVC plan will cease.
if your AVC started on or after 13 November 2001 you can choose to take all or none of your AVC plan in one or more of the ways described in the options above and if you wish, you can continue paying into your AVC plan. If you claim all your AVC plan you can start a new contract.
5.A combination of the above options.
You can mix and match options one to three as long as you are eligible for those options individually.
Out of scheme option -transferring your AVC plan
You have the right to transfer your AVC plan independently of your main LGPS benefits to one of more different pension arrangements, even if you are still paying into the main LGPS scheme. However, there are certain conditions that must be met:
you must have stopped paying AVCs in any LGPS employment you hold
you must not be in receipt of regular income either from an annuity or a top-up pension in the LGPS in respect of a LGPS AVC plan that you paid into and took payment of previously
if you hold more than one LGPS AVC plan you must transfer all of your plans, even if the plans are held with different LGPS funds (other than an AVC plan awarded to you as part of a divorce settlement)
Please note, if you paid into the LGPS on or after 1 April 2014, you must take your AVC plan when you take your main LGPS benefits. Therefore, any option to transfer your AVC plan would have to be made before the date your main LGPS benefits become payable.
If you transfer your AVC plan to one or more different pension arrangements you may be able to access additional options that are not available under the LGPS rules. More information about this is provided below.
Different pension providers offer different options in relation to what you can do with your AVC, including the option to buy regular income (an annuity). The different options have different features, different rates of payment, different charges and different tax implications – these are all explained in the ‘Your pension; it’s time to choose’ leaflet from the Money Advice Service. Visit www.moneyadviceservice.org.uk/en/articles/free-printed-guides
The LGPS will not apply a charge if you transfer your AVC plan. However, your AVC provider may make an adjustment to your AVC plan value – you should speak to your AVC provider about this.
If you are thinking of transferring your AVC plan to one or more different pension arrangements you should be aware that scammers operate in these markets and are after your pension. Please read the leaflet providing tips on how to protect yourself from scammers. Visit www.thepensionsregulator.gov.uk/docs/pension-scams-booklet-members.pdf
What options are not available under the LGPS rules?
It could be that the options available under the LGPS rules are not what you are looking for, or you are not eligible for your preferred option. By transferring out to one or more different pension arrangements you may, depending on the pension arrangements you choose, from age 55 be able to use your AVC plan in the following ways:
Use your pension pot to provide a flexible retirement income – this is known as flexi-access drawdown. You are normally allowed to take a tax-free lump sum of up to 25% then set aside the rest to provide taxable lump sums as and when or a regular taxable income. The amount of tax and the rate at which you pay tax will depend on your total income in any particular tax year.
Take a number of lump sums – usually the first 25% of each cash withdrawal from your pot will be tax-free with the rest subject to tax. The amount of tax and the rate at which you pay tax will depend on your total income in any particular tax year.
Take your pension pot in one go as cash – usually the first 25% will be tax free with the rest subject to tax. The amount of tax and the rate at which you pay tax will depend on your total income in any particular tax year. Remember, it is possible to take all of your LGPS AVC plan as a tax free lump sum in certain circumstances.
Where can I get more help?
Deciding how to use your AVC plan is one of the most important financial decisions you are likely to make. You should seek guidance or independent financial advice to help you when you are ready to make a decision.
Pension Wise is a free, impartial service offered by the Government as part of their Money Helper service. It aims to provide guidance once you reach age 50, to help you understand your AVC options.
You can find out more at www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise or by calling 0800 138 3944 to book an appointment.
Help with finding an independent financial adviser is available at www.moneyhelper.org.uk/en
Are you thinking of taking your AVC's within the next 12 months?
The Government legislates you must attend an appointment with Pensions Wise as part of your application process when you are either taking payment of your AVCs or in some cases transferring your AVCs. We will write to you with details on how to book an appointment at the time you apply to take your AVCs, or you can book an appointment within 12 months of when you are thinking to apply:
-By calling 0800 100 166; or
-Booking online; or
-You can opt out of receiving Pension Wise guidance.
Next steps
We will contact you about your AVC options again as you approach retirement age. If you have any queries before then or would like to know the current value of your AVC plan and details of any bonuses or charges that may apply call us on 01274 434999. This information may help you decide what you would like to do with your AVC plan.