Can I exchange part of my pension as a lump sum?
What if I want to take AVCs as cash?Your pension when you retire is calculated as
1/60th of your career average pay for each year of membership of the Scheme,
i.e.
Annual Pension = Membership x Career Average Pay x 1/60.
Membership in the Scheme is calculated in years and days and includes any extra
membership awarded if you retire from being a Councillor due to permanent
ill-health as certified by the Committee's doctor.
To calculate Career Average Pay, each year’s pensionable pay, ending on a 31
March, is up-rated in line with the Consumer Price Index (CPI). The total of
each year’s uprated pay is divided by the total membership in the scheme. Basic
Allowance and Special Responsibility Allowance are the only elements of your
councillor’s pay that are classed as pensionable.
Examples of Career Average Pay and Pension
calculations
If a councillor
has been in the Scheme for three years, from 1 May 2011 to 30 April 2014, the
average pay calculation, with assumed increases, would be as follows:
Pay from 1 May 2011 to 31 March
2012:
£8,250 plus inflation from 1 April 2012 to 30 April 2014
(5%) = £8,663
Pay from 1 April 2012 to 31 March
2013:
£9,300 plus inflation from 1 April 2013 to 30 April 2014
(3%) = £9,579
Pay from 1 April 2013 to 31 March
2014:
£9,500 plus inflation from 1 April 2014 to 30 April 2014
(1%) = £9,595
Pay from 1 April 2014 to 30 April
2014:
£800 = £800
Career
average pay:
£8,663 + £9,579 + £9,595 + £800 = £9,546
3
Annual Pension = Membership x
Career Average Pay x 1/60
= 3 years x £9,546 x
1/60
= £472.80 per annum
You can exchange part of your annual
pension for a one off tax-free cash payment. You can take up to 25% of the
overall capital value of your pension benefits as a lump sum and you will
receive £12 lump sum for each £1 of pension given up, providing the total lump
sum does not exceed £450,000 (2011/12 figure) less the value of any other
pension rights you have in payment. The overall capital value of your pension
benefits is calculated as:
(Pension x 20) + lump sum + value of AVC
fund (if any).
However, it should be noted that this calculation is not as simple as it appears as it is the benefits after pension has been exchanged for lump sum which must be taken into account, i.e. the calculation must be repeated for the new lump sum and new reduced pension to ensure that the 25% limit is not exceeded. As the capital value of accrued rights and pension to lump sum conversion are interdependent, a reiterative calculation ensues.
In the current climate of long life expectancies and low interest rates, members are reminded that the cash sum may not be sufficient to replace the pension surrendered. If you are considering this option, you are strongly recommended to contact an Independent Financial Advisor for advice.
If you pay additional voluntary contributions (AVCs) via the Scheme you may elect to take up to 100% of the accumulated fund in your AVC account as a tax-free lump sum if you draw it at the same time as your Scheme pension benefits, provided when added to the Scheme lump sum it does not exceed 25% of the overall value of your Scheme benefits (including your AVC fund).
The Scheme provides statutory pension increases. This means that if you retire on or after age 55, your pension will be increased each year in line with inflation. If you retire before age 55, the accumulated effect of inflation since you retired will be added to your pension when you reach age 55. Ill-health pensions are increased each year in line with inflation regardless of age, with the exception of some deferred members who have their pension brought into payment due to ill-health. These members will only receive pension increases before age 55 if an independent registered medical practitioner approved by NILGOSC certifies that the deferred member is permanently incapable of all work.