AVC and Local Government Pension Scheme

[PensionConfusion24]

I want to pay extra into my local government pension but I'm really confused about how it works.

My employer (local authority) is operating on the bones of its arse and I'm struggling to get hold of anyone or any information internally. There's nothing on their internal or external website.

My main question is do the LA contribute at the same level they contribute for the basic pension? Or does it vary?

The website for the pension fund has some info but not about how to actually apply. It says the application form is on the LGPS website but then also says AVCs are operated by a private pension provider and I should contact them (?).

How does the process work?

The AVCs are run by someone else maybe Prudential, is there a link on the LGPS? I don't think there is an employer contribution for AVCs.
I'm a bit vague as it was long time ago.

It's Clerical Medical for my LA apparently (it varies by LA according to the website). But no idea where to start on the website.
I guess it would make sense that there's no employer contribution, I'm confused about why the form asks for the amount in that case though.

Maybe it varies by employer, what does your employer say?

@Coldanddamp that's the problem, I cannot find anyone at the council who can tell me. HR functions seem to have completely collapsed.

Your workplace should have a payroll/HR function who will know if you get employer contributions

You can set up an AVC with a private company, your employer does not contribute but there may be tax breaks (there are in my country). The civil service tends to recommend one, but from what I’ve gathered from talking to providers is that the management fees vary on AVCs so you should shop around. The employer has nothing to do with it and doesn’t contribute.

In my workplace if you go with the one they name then you can set up our contributions to come directly from payroll.

I would advise speaking to an independent financial advisor before setting one up. I felt pushed into it at work and after speaking to an independent advisor it turned out that it wasn’t in my interest to have an AVC. In my opinion employers should be banned from promoting one company over others.

or are you saying your workplace doesn't have this? they must do if you are getting paid.

when I worked for the LA my workplace was a school so I talked to the schools HR function.

HR should be able to help you, or your pension provider. If you're a union member your union may also be able to give you some advice. My AVC was different because I was a teacher, so not employed by the LA and TPS has an AVC arrangement with The Prudential.

AVC Pensions are private pensions facilitated by employers, who have an arrangement usually with an insurance company such as Prudential. It is separate from your LA pension.

Essentially similar to a SIPP (self invested personal pension), but you pay a fee for the convenience of having it 'in house' and managed by the provider; you have little control over the investment options, and you are restricted to the one provider. Over time, the effect of the higher fees can significantly affect the growth returns of the investment .

A cheaper, more flexible option would be to invest in a SIPP on a low cost platform choosing a passive global index tracker. Historically, this almost invariably provides better value and returns in the longer term.
(I'm not a FA ).

There are two ways of paying additional contributions in the LGPS. Firstly, you could pay AVCs to whichever company your LGPS fund uses (Clerical Medical in your case). The other option is buying additional pension within the main LGPS. More information about both options here: https://www.lgpsmember.org/your-pension/paying-in/paying-more/

The employer doesn’t pay any additional contributions - well they theoretically can but I don’t know of any that do! They’re already paying high contributions as standard.

For my one, you pay into the local authority recommended AVC (prudential for me). Employer doesn't make contributions. It's salary sacrifice so comes off your salary BEFORE tax, so a tax break.

When you retire, the AVC is lumped in with your final salary and then you get options of how you take it. Basically, your AVC becomes your 25% tax free lump sum and the rest an annuity

When you retire, the AVC is lumped in with your final salary and then you get options of how you take it. Basically, your AVC becomes your 25% tax free lump sum and the rest an annuity

I thought the tax breaks as you have highlighted & I forgot about were the many advantage.

Thanks, this is helpful. AVCs aren't quite as advantageous as I thought then. Just the tax breaks. I'll have a look at other options.

SIPPs have the same tax advantages but in a different format - the tax relief is added to the investment.

An advantage of a SIPP is its flexibility - you're not tied to taking it with your main pension and you don't need to opt for annuity purchase.

You could for instance choose to retire earlier than the LA scheme's usual retirement age by using the SIPP. This could delay the need to access the LA scheme which might well have penalties for early access.

Another possibility is to opt for part time working a few years before full retirement, and utilise the SIPP for topping your income.

BetterMoneyHabits is right about the advantages of a SIPP - potentially greater range of funds to choose from, flexibility to take from 10 years before state pension age (so you could use to fund the first part of your retirement so you don't lose annual pension by taking your LGPS pension as early). Charges may also be lower (but check the fee structure as they vary).

The main advantages to AVCs compared to the SIPP are:

• If you contribute via a salary sacrifice scheme like AVCs rather than a SIPP, you usually save on National Insurance as well as tax
• LGPS AVCs can be treated as being in the same 'pot' as the rest of your LGPS pension if taken at the same time. This means that, if you are happy to take them at the same time as your LGPS pension, you can use them for the tax free element without reducing your guaranteed annual pension. This can be a good option if a) you want/need a lump sum (e.g. to pay off mortgage), and b) you don't want to reduce your annual pension going forward. You can't do it that way if you have a separate SIPP - you could take 25% of each tax free, but taking 25% from the LGPS defined benefit pension would mean having lower annual pension from that time onwards.

I don't believe you are tied to buying an annuity if you make AVCs into a DC scheme via LGPS. You can choose drawdown just like any other DC pot.

As PP there are generally two schemes - Additional Payment Contributions and Additional Voluntary Contributions. APCs you will receive at State Pension Age but if you die before this time there are no survivor benefits. I initially used this to top up my LGPS to the value I lost going from FT to PT. There will be a form online for you to submit to your pension scheme.
I now pay into an AVC scheme which is payable from age 57 (for now). There are financial savings in that your contribution is paid before tax/NI on your monthly salary and your "savings" would be payable to beneficiaries when you die. This information should also be online and you would just need to register with your scheme and choose how your funds are invested.

As PP there are generally two schemes - Additional Payment Contributions and Additional Voluntary Contributions. APCs you will receive at State Pension Age but if you die before this time there are no survivor benefits. I initially used this to top up my LGPS to the value I lost going from FT to PT. There will be a form online for you to submit to your pension scheme.
I now pay into an AVC scheme which is payable from age 57 (for now). There are financial savings in that your contribution is paid before tax/NI on your monthly salary and your "savings" would be payable to beneficiaries when you die. This information should also be online and you would just need to register with your scheme and choose how your funds are invested.

I was not LG (private sector) but was in a DB scheme and made AVC's.
Despite not actually contributing to the AVC's, my employer set it all up and negotiated a 90% discount on the fees. I am now (early) retired and am drawing the DB pension.
The AVC's were incorporated into my TFLS.

When our DB scheme closed and we were moved on to a DC pension, I just made overpayments and the (similar) discount for managing the scheme has remained after I retired (and will do for the life of the pension).

I guess all employers do it differently.

You never get employer contributions on AVCs.