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Following our recent round of pension webinars, one of the more common questions asked by attendees was around paying extra under the LGPS, and whether it was better to pay Additional Voluntary Contributions (AVCs) or Additional Pension Contributions (APCs).
Whilst we’re unable to comment on whether APCs are better than AVCs, we can point out the good and bad points for each one:
| AVC Advantages |
APC Advantages |
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Flexible contribution rate - can change contribution at any time.
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You’re buying a guaranteed amount of pension, which increases in line with inflation.
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| AVCs can be used in a number of different ways at retirement; can be used to provide extra Scheme pension and/or a tax free lump sum (in some cases, up to the whole of your AVC pot can be used to provide tax free cash). |
If you’re forced to stop paying APCs as a result of retiring on Tier 1/Tier 2 ill health, your APC contract will be deemed to have been paid up (and would be paid without early retirement reductions being applied). |
| If you choose to use your AVCs to provide extra Scheme pension, your partner/eligible children would, on your death, be entitled to 30.625% of the extra pension you’ve bought, too. |
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| AVC Disadvantages |
APC Disadvantages |
The value of pot can go up and down (depending on the ‘risk’ category that they’re invested in, it’s also possible that you could end up with an AVC fund that’s less than the amount you’ve paid in).
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Can be expensive.
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The cost of the contract can change every few years (though you’ve the right to stop paying APCs and you’ll be awarded an amount of pension proportionate to what you’ve paid).
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Your partner/eligible children wouldn’t be entitled to a proportion of the APC pension you’ve bought.
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Please note that the above list is not exhaustive, and we’d always recommend that you seek independent financial advice from a qualified and authorised specialist before making any important financial decisions.
More information on paying extra into the Scheme can be found in our factsheet ‘Topping up my LGPS pension’.
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