How you can use your AVC
The different ways you may be able to use your AVC plan when you retire are:
- Take up to 100% of your AVC plan as tax free cash
If you take your AVC at the same time you take your main scheme benefits you can take up to 100% of your AVC plan as tax free cash, as long as your total lump sums from the LGPS do not exceed any of the below:
- 25% of the combined value of your benefits including your AVC plan
- 25% of the lifetime allowance, which is £268,275 (the lifetime allowance is currently £1,073,100)
- 25% of your remaining lifetime allowance if you have previously taken payment of any pension benefits.
- Buy one or more annuities (regular income that is guaranteed for life)
You can buy one or more annuties with your AVC plan from an insurance company, bank or buidling society of your choice. Your chosen provider(s) will take your AVC plan and pay you a pension in return. The amount of pension you are paid depends on several factors such as your age, if you want to provide for dependent benefits in the event of your death and interest rates. Annuities offer different features which may be of interest to you, such as a guaranteed minimum payment period, improved terms if you are in poor health and annual increases to keep up with the cost of living. When you buy an annuity, you can usually take some of your AVC plan as a tax-free lump sum at the same time and use some or all of the balance to buy an annuity.
- Buy a top-up LGPS pension
If you were an active member of the scheme on or after 1 April 2014, you can buy a top-up pension LGPS pension with your AVC plan. Dependents' benefits will be automatically provided in the event of your death. The top-up pension you buy will increase in line with inflation.
If you left the LGPS before 1 April 2014, you can only buy a top-up pension with your AVC plan if you take immediate payment of your main scheme pension benefits when you leave the scheme and you take your AVC plan at the same time i.e. you are not allowed to buy a top-up pension with your AVC plan if you defer your main scheme pension benefits when you leave the LGPS and take them at a later date. You have the option to provide for dependents' benefits in the event of your death. The top-up pension you buy will increase in line with inflation.
- Buy extra membership in the LGPS
You can buy extra membership in the LGPS but only if your election to pay AVCs was made before 13 November 2001. You should contact your pension fund if you think this applies to you.
- Defer taking your AVC plan up to age 75
If you left the LGPS before 1 April 2014, you do not have to take your AVC at the same time you take your main scheme benefits. You can leave your AVC plan invested up to your 75th birthday. However, if you defer taking your AVC you will not be able to buy a top up pension or membership (if applicable) in the LGPS or take 100% of your plan as tax free cash. If you were a member of the LGPS on or after 1 April 2014 you must take your AVC at the same time as you access your main scheme benefits (unless you flexibly retire in which case see below).
- Transfer your AVC plan
You have the right to transfer your AVC plan independently of your main scheme benefits 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 out 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)
If you transfer your AVC plan to one or more different pension arrangements you may be able to access options that are not available under the LGPS rules.
If you are thinking of transferring your AVC plan you should be aware that scammers operate in these markets and are after your pension. To help protect yourself from scammers see the Pension Regulator's website.
- You can take a combination of the options above if they apply to you
Deciding how to use your AVC plan is one of the most important financial decisions you are likely to make, so you should consider getting 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 to provide guidance once you reach age 50, to help you understand your AVC options. You can find out more on their website or by calling 0800 138 3944 to book a phone or face to face appointment. Help with finding an independent financial advisor is available from the money advice service.
If you elected to start paying AVCs before 13 November 2001 your AVC contract will cease when you flexibly retire and you will have to use all of your AVC plan in one of the above ways at the same time you draw your flexible retirement benefits. If you elected to start paying AVCs after 13 November 2001 you can choose to take all or none of your AVC plan in one of the above ways, and if you wish, continue paying AVCs.