Increasing your retirement benefits

You can increase your retirement benefits by any of the methods below.  You can combine any of these options, but there are tax rules on pension savings which are described in more detail here.

Purchase of Additional Years (this option is only available if you made an election to purchase before 1^st April 2009)

Additional Voluntary Contributions (AVCs)

Free Standing Additional Voluntary Contributions (FSAVCs)

Contributing to concurrent Personal Pension Plans or Stakeholder Pensions

Can my employer award me additional pension benefits?

Tax rules on pension savings

Additional Regular Contributions

You can pay additional regular contributions to purchase additional pension either for yourself only or for yourself plus any dependants, providing you pass a Good Health medical. 

How much can I buy?

You can buy annual pension, either for yourself or for yourself plus any dependants, in multiples of £250 up to a maximum of £5,000 per annum in aggregate.

What period do I pay over?

Contracts may commence at any time during the year but you must pay over a whole number of years not exceeding the period to normal retirement age (age 65).

You may not commence buying additional pension on or after your 64^th birthday.

When is the additional pension payable?

The additional pension is payable at retirement.

How much will my additional pension cost?

The cost is calculated using tables provided by the Government Actuary’s Department (GAD).  The cost depends on the following factors:

• your age at the date the contributions start;
• the period you wish to pay over;
• the amount you are buying in multiples of £250;
• whether you are buying additional pension for yourself or yourself plus any dependants; and
• whether you are male or female. 

You can calculate the cost using the ARC calculator, by contacting NILGOSC on 0845 308346 or completing and returning our query form.  We are happy to provide a quotation, however, you may find the calculator on this website more useful as it allows you to consider the costs over various payment periods. 

How do I apply to buy additional pension?

You should complete the ARC application form, form LGS 26, and forward this to NILGOSC along with a cheque for your Good Health Medical.  The current fee for a Good Health Medical is £107.00. When we receive your application form and payment for the medical we will advise you of the medical appointment.  If you pass the Good Health Medical we will write to both you and your employer confirming the additional monthly deductions which should be made from your pay and the period you will be paying over.

What if I stop contributing before the end of the payment period?

If you stop contributing, leave or retire before the end of your payment period you will receive a pension based on the contributions made up until the date they ceased.  If you retire early on ill-health grounds the contract is deemed to have been paid in full. 

What if I am on unpaid leave?

If you are on unpaid leave or child related leave you must continue to make the contributions to buy additional pension.

Can I make a lump sum payment?

No.  The minimum period which you can contribute over is one year.

What happens if I draw my pension before age 65?

If you draw your pension before age 65 (and not on ill-health grounds) then your additional pension will be reduced to take account of the early payment.  The reduction for early payment does not apply to any dependant’s cover which you have chosen to buy.

What happens if I draw my pension after age 65?

If you draw your pension after age 65, your extra pension will be increased to take account of late payment.  The increase for payment after age 65 does not apply to any dependant’s cover which you have chosen to buy.

Why do I have to have a medical and do I have to pay for it?

If you retire on grounds of permanent ill-health your extra pension will be deemed to have been paid for in full.  Therefore, NILGOSC needs to know that you are in reasonably good health and unlikely to retire on ill-health grounds before age 65 before it will agree to your purchase of additional pension.  You must pay the cost of the Good Health medical.

Could the monthly payments change?

It is possible that the monthly payments could change in future.  The actuary may change the rates from time to time and this change will affect both new applicants and members who are already buying additional pension.  If the rates change, the new rates will apply from 1^st April following the change and we will let you know the change beforehand.

Will the extra pension go up in value?

Yes.  The amount of additional pension is increased by the Retail Prices Index (RPI) from the date of the first contribution until the date the benefits come into payment.  Once in payment the additional pension is increased by RPI.

If I choose to buy extra pension now, can I buy more at a later date?

Yes, as long as the total amount does not exceed £5,000.  It should be remembered that the cost of any later purchases of additional pension will depend on your age at that date.

What are the additional dependants’ benefits that are provided if I choose to buy additional pension for myself plus dependants?

If you die in service an additional dependant’s pension of 37.5% of the rate of additional pension you were purchasing is payable to an eligible spouse, civil partner or nominated co-habiting partner.  A pension is also payable to eligible children at the rate of 18.75% (of the rate of additional pension you were purchasing) if there is one eligible child and 37.5% if there are two or more eligible children shared equally between them. If there is no eligible spouse, civil partner or nominated cohabiting partner, then the additional child’s pension is 25% of your extra pension and if there is more than one eligible child then 50% of the your pension is split equally between the eligible children.

Can I give up some extra pension at retirement to buy additional lump sum?

Yes, it is possible to give up additional pension at retirement to provide extra lump sum subject to tax limits.

Will purchase of additional pension change my 85-year-rule date?

No.  Purchase of additional pension has no effect on your 85-year-rule date.

Purchase of Additional Years

If you were a member of the Scheme before 1^st April 2009 you may have elected to purchase additional years.  You were able to buy a maximum of 6 2/3 added years to increase your lump sum and pension benefits by paying additional contributions until your normal retirement age.  The purchase of additional years is a final salary type arrangement and each year that you purchase increases your pension by 1/80^th and your lump sum by 3/80^ths.  The final amount payable is calculated on your pensionable pay at retirement or date of leaving.

 
In the event of ill-health retirement or death before normal retirement age the additional years are deemed to have been bought.

 
Further information is available from NILGOSC on request.

Additional Voluntary Contributions (AVCs)

You may also pay AVCs to top up your own pension, or your dependant’s pension or to provide additional life cover.  In this case you can invest money, deducted directly from your pay, with an AVC provider.  Any AVCs which you pay are invested separately in funds managed by the AVC provider.  You have your own personal account which, over time, builds up with your contributions and the returns on your investment.  At retirement you may use this AVC fund to buy an additional pension or to increase your lump sum, subject to both Scheme and tax limits.  Prudential is the current in-house AVC provider for new contributors.  Equitable Life is also an in-house AVC provider but is no longer available for new contributors.

 
It should be noted that these AVC investments depend on the contributions paid, the performance of the investments and on interest rates at retirement.  There is no guarantee that any particular level of benefit will be available at retirement.

 
You can contribute 50% of your pensionable pay to the in-house AVC arrangement.  AVCs are deducted directly from your pay and tax relief (at your highest rate) is automatically given through payroll.  This means that tax is calculated on your pay after your Scheme and AVC contributions have been deducted.

When you reach retirement you may use your in-house AVC fund in the following ways:

• buy an annuity
• buy a top-up Scheme pension
• take your AVC as cash

Buying an annuity

This is where an insurance company, bank or building society of your choice takes your AVC fund and pays you a pension in return.

You can do this at the same time as you draw your Scheme benefits or you can delay payment up until the day before your 75^th birthday.  An annuity is paid completely separately from your Scheme benefits.

The amount of an annuity depends on several factors such as your age and interest rates.  You can also choose the type of annuity which you want e.g. a flat rate pension or one that increases each year, and whether you want to provide for dependants’ benefits on your death.

Buying a top-up Scheme Pension

If you retire with immediate payment of your benefits you maybe able to use some or all of your AVC fund to buy a top-up pension from the Scheme.  You can choose whether you wish this pension to provide benefits only for yourself or for yourself plus any dependants.

Taking your AVCs as cash

Current Scheme regulations allow you to take your AVC fund at retirement, subject to tax limits, in whole or in part as tax free cash.  If you decide to defer drawing your AVC until after retirement you can normally only have up to 25% of your AVC fund as a lump sum.

Leaving the Scheme before retirement

If you leave before retirement, your AVC contributions will cease.  The value of your AVC fund will continue to be invested until it is paid out.  Your in-house AVC scheme is similar to your main Scheme benefits: it can be transferred to another arrangement along with your main Scheme benefits, drawn at the same time as your Scheme benefits or deferred until the eve of your 75^th birthday.

How do I contribute to an AVC?

If you wish to contribute to the in-house AVC Scheme you should contact Prudential.  Prudential provide the in-house AVC scheme which is open to new members.

Contacting Prudential – more information, including application forms and quotations are available directly from Prudential at The Pension Connection on 0845 607 0077.  You may also wish to refer to Prudential’s website at www.pru.co.uk/localgov

Equitable Life – information on existing contracts is available directly from NILGOSC on 0845 308 7346.

Free Standing Additional Voluntary Contributions (FSAVCs)

FSAVCs work in much the same way as AVCs, however, there are some important differences.  Some of these are:

• You must choose the financial institution to invest your FSAVCs in and you may want to consider their different charges, alternative investments and past performance.
• You must make the necessary arrangements – contributions will not be deducted from your pay.  The FSAVC provider will reclaim the tax you have paid on your contributions.  If you are a higher rate tax payer you will need to complete a tax return to reclaim higher rate tax relief.
• AVCs cease on leaving the Scheme but FSAVCs can carry on being paid into the same contract.

Contributing to a concurrent Personal Pension Plan or Stakeholder Pension Scheme

You may be able to make your own arrangements to pay into a personal pension plan or stakeholder pension scheme at the same time as paying into the Scheme.  You choose the provider which is usually an insurance company.  You may also want to consider their charges, alternative investments and past performance.

You choose how much to pay into the arrangement.  You can pay up to 100% of your total taxable earnings in any one tax year (or £3,600 if greater) into any number of concurrent arrangements and be eligible for tax relief on those contributions.

The contributions which you pay into a personal pension plan or stakeholder scheme are invested in funds managed by an insurance company.  You have your own personal account that, over time, builds up with your contributions and investment returns, and will be available at retirement to convert into additional benefits.

When the benefits are paid, you will be able to take 25% of your fund as a tax-free lump sum (provided that the lump sum does not exceed £437,500 (2009/2010 figures)) and the remainder is used to buy an annuity from an insurance company, bank or building society.

The amount of an annuity depends on factors such as interest rates and your age.  You also have choice over the type of annuity e.g. whether you want annual increases and/or dependant’s benefits.

Annuities are subject to annuity rates which are affected by interest rates.  When interest rates rise, annuity rates rise.  Conversely a fall in interest rates reduces the annuity rates and the pension which can be purchased.

Can my employer award me additional pension benefits?

Your employer, at its discretion, can

• award you up to 10 years extra membership to improve your retirement benefits – this is known as augmentation.
• grant you up to £5,000 extra annual pension.
• pay into your in-house AVC scheme.  This is known as a shared cost AVC arrangement.

These are discretions your employer can use if it wishes.  You can ask your employer what its policies are on these discretions.

Tax Rules on Pension Savings

There are HM Revenue and Customs (HMRC) controls on the total amount of contributions you can make into all pension arrangements and receive tax relief. These controls are known as the lifetime allowance and the annual allowance. If you exceed these limits, you could become subject to a tax charge.

You can if you wish pay up to 100% of your taxable earnings in any tax year (or £3600 if greater) into any number of concurrent pension arrangements and receive tax relief on your contributions.

The lifetime allowance is the total capital value of all your pension arrangements which you can build up without paying extra tax.  If the value of your benefits when you draw them (excluding any state retirement pension, state pension credit or any spouse’s, civil partner’s or dependant’s pension) exceeds your lifetime allowance a tax charge will be made on the excess.  The lifetime allowance for 2009/2010 is £1.75 million.

The annual allowance is the amount your pension savings can increase by in any one year (apart from the year that all your benefits from the Scheme become payable) without paying extra tax.  The annual allowance for 2009/2010 is £245,000.

The majority of Scheme members’ have pension savings below the level of the allowances.