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When you take payment of your main Local Government Pension Scheme (LGPS) benefits, we’ll ask you to choose what you’d like to do with your additional voluntary contributions (AVC) that you paid into when you were an active member.
You can't take your AVC before you take payment of your main LGPS pension.
When you can take your main LGPS pension
You can take payment of deferred benefits at any time from the age of 55 and before your 75th birthday. If you have permanent ill health and meet certain criteria, you can take your deferred pension from any age. If this happens you should contact us at that time.
Taking your AVC with your LGPS benefits
There are several ways you can use your AVC benefits in the LGPS as a deferred member.
The LGPS rules gives 5 options:
1. Take some or all your AVC as a single tax-free lump sum
If you left the LGPS on or after 1 April 2014, you must take your main LGPS pension at the same time as your AVC. 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 can’t exceed 25% of the overall value of your LGPS pension. This includes the value of your AVC. More information on how the capital value of your pension is worked out can be found on the lump sums and tax webpage.
Your maximum tax-free lump sum must also not exceed 25% of the lifetime allowance.
2. Buy an annuity from the LGPS (for leavers on or after 1 April 2014)
If you paid into the LGPS on or after 1 April 2014, you could use some or all your AVC to buy an LGPS pension annuity when you take your main LGPS pension. The amount of extra pension you buy with your AVC depends on your age and whether you are retiring on ill health. The extra pension you buy will increase in line with the cost of living.
An LGPS annuity is taxable. The tax rate you pay depends on the overall income you receive from your LGPS pension and other sources during the tax year.
We’ll provide any dependants with extra pension in the event of your death.
3. Buy an annuity on the open market
An open market annuity gives you regular income guaranteed to be paid for life. You can choose from:
- a guaranteed minimum payment period
- an enhanced annuity if you are in poor health
- an annuity that increases in line with the cost of living
You can usually take some of your AVC as tax-free cash and use some or all 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 important that you shop around to get the best ‘annuity rate’ based on your personal circumstances and the annuity features you’re looking for.
Any potential annuity providers will need to know:
- the value of the AVC fund
- that the AVC fund is held with an AVC scheme to be used for the purchase of an annuity
- your LGPS pension will be going into payment
- the percentage of lifetime allowance used
You may wish to use MoneyHelper's Annuity Comparison Tool to help you make your decision.
4. Leave your AVC invested and use it later
If you left the LGPS before 1 April 2014, when you take your main LGPS pension you can leave your AVC invested and use it at a later date. You must take it by the age of 75.
If you choose to leave your AVC invested, you’ll lose your right to:
- take a 100% tax free lump sum (you’ll only be able to take up to 25% of the plan as a tax-free lump sum)
- buy an LGPS annuity
- buy extra membership in the LGPS
If you leave your AVC invested, this will give your pot a chance to grow. As with any investment, the value of your AVC can go up as well as down.
If you paid into the LGPS on or after 1 April 2014, you must take your AVC at the same time as you take your main LGPS pension.
5. A combination of a tax-free lump sum and annuity
As long as you’re eligible, you can mix and match these options.
Our in-house AVC providers
Over time, our Fund has had four in-house AVC providers:
- Prudential
- Clerical Medical
- Standard Life
- Utmost Life and Pensions (previously Equitable Life)
If you have any queries about your AVC held with these providers, please contact us on your My Pension Online account or on our enquiry form.
Taking your AVCs within the next 12 months
By law you must attend an appointment with Pension Wise as part of the application process for taking payment of your AVCs. In some cases, this also applies to transferring AVCs.
We’ll write to you with details on how to book an appointment at the time you apply to take your AVCs. You can also book an appointment within 12 months of when you are thinking of applying:
Transferring your AVC to another pension arrangement
You have the right to transfer out your AVC independently of your main LGPS pension to one or more pension arrangements, even if you are still paying in. There are certain conditions that must be met:
- you must have stopped paying AVCs in any LGPS employment you hold
- you can’t have used an AVC and taken payment of it through an LGPS annuity or an open market annuity previously
- if you hold more than one LGPS AVC you must transfer them all out, even if the AVCs are held with different LGPS funds (other than an AVC awarded to you as part of a divorce settlement
If you paid into the LGPS on or after 1 April 2014, you must take your AVC when you take your main LGPS benefits. This means any option to transfer your AVC plan would have to be made before the date your main LGPS benefits become payable. If you choose to transfer your AVC out, you may be able to access additional options that aren’t available under the LGPS rules.
Different pension providers offer different options with what you can do with your AVC. You can find out more about these options in MoneyHelper’s free online booklet Your pension; your choices.
Be aware of scammers
If you’re thinking about transferring your AVC to one or more different pension arrangements, be aware that scammers operate in these markets. The Pensions Regulator’s ‘Pensions Scam Guide’ is attached to this page. We encourage you to familiarise yourself with this guide and also visit our page how to identify a pension scam.
Transfer out charges
The LGPS won’t charge you if you transfer out your AVC. Your AVC provider may however adjust your AVC value. Please contact your AVC provider about this.
Unavailable options under the LGPS rules
It might be that the options available under the LGPS rules aren’t your preference, or you’re ineligible for your preferred option.
By transferring out to one or more different pension arrangements, you may be able to use your AVC from age 55.
Use your pension pot to provide a flexible retirement income
This is known as flexi-access drawdown. You’re normally allowed to take a tax-free lump sum of up to 25%, then set aside the rest to provide either 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 a tax year.
Take lump sums
The first 25% of each cash withdrawal from your pot will usually 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 a tax year.
Take your pension pot in one go as cash
The first 25% will usually 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 a tax year. In certain circumstances it’s possible to take all your LGPS AVC plan as a tax-free lump sum.
If you are thinking of investigating any of these unavailable options in the LGPS you will need to seek independent financial advice.
Further support
Deciding how to use your AVC is one of the most important financial decisions you’re likely to make. You should seek guidance or independent financial advice to help you when you’re ready to decide.
Pension Wise
Pension Wise is a free, impartial service offered by the government as part of their MoneyHelper service. If you're over 50, Pension Wise can you offer you an appointment with a pensions specialist to explain the options to take money from your AVC and the other things you need to think about.
You can visit the Pension Wise homepage to book an appointment.
Independent financial advice
You can use MoneyHelper’s Find a retirement adviser tool to help you find an independent financial adviser.
Links to useful documents