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For members of the Local Government Pension Scheme in Scotland

Taking your Additional Voluntary Contributions

You may have paid Additional Voluntary Contributions (AVCs) arranged through the LGPS. These are known as in-house AVCs. Your AVC contributions will stop when you stop paying into the LGPS, unless you elect to stop them earlier.

See Leaving before retirement to find out what happens to your AVC if you leave the LGPS but do not take your pension straight away.

This section covers the different ways that you can use your AVC when you take your LGPS pension. Some options are not available to all members. You can take a combination of the options that are open to you.

However, before you take your LGPS pension, you may be able to withdraw multiple cash lump sums from your AVC fund. You can do this from age 55 (or earlier on ill health). The first 25 per cent of each withdrawal is usually tax free with the remaining 75 per cent taxed as ordinary income. Speak to your AVC provider for more information.

Getting guidance

Deciding how to use your AVC plan is one of the most important financial decisions you are likely to make, so we recommend you get guidance from Pension Wise to help you decide which option is best for you.

Pension Wise is a government service from MoneyHelper that offers free, impartial guidance about your defined contribution pension options. Your AVC is a defined contribution pension that is attached to your LGPS pension.

Because it is such an important decision, your local pension fund is not allowed to proceed with your application to take AVCs until you tell them you have with either received guidance from Pension Wise or you do not wish to take it. This is a legal requirement.

Your local pension fund will offer to book a Pension Wise appointment for you when you contact them about taking your AVC plan.

Tax-free cash

If you take your AVC plan at the same time as your main Scheme benefits, you can take up to 100% of it as tax-free cash. You can do this as long as your total lump sums from the LGPS are not more than:

A limit of £1,073,100 will also apply if you have received a serious ill health lump sum from a different pension scheme. This limit will be reduced by the serious ill health lump sum and any other tax-free lump sums that you have already received.

If you would like to take your AVC as a lump sum, use the Lump sum calculator to find out more about your options and whether you could also exchange part of your pension to provide a lump sum.

Use the Maximum AVC lump sum calculator to find out the maximum AVC fund you could take as a lump sum, based on your annual LGPS pension.

Annuities

You can use your AVC plan to buy one or more annuities from an insurance company, bank or building society of your choice. An annuity is a regular guaranteed income that is paid to you for life. Your chosen provider will take the AVC plan and pay you a pension in return. The amount of pension you are paid depends on:

Annuities offer different features which may be of interest to you, such as a guaranteed minimum payment period, improved terms if you are in poor health and annual increases to keep up with the cost of living. When you buy an annuity, you can usually take some of your AVC plan as a tax-free lump sum at the same time.

Buy a top-up LGPS pension

If you were a member of the LGPS after 31 March 2015, you can buy a top-up LGPS pension with your AVC plan. The top-up pension you buy will increase in line with inflation. You can decide whether the top-up pension will also increase any pensions payable to your survivors when you die.

If you left the LGPS before 1 April 2015 and did not take your pension immediately, you cannot use your AVC to buy a top-up pension.

Buy extra membership in the LGPS

If you elected to pay AVCs before 30 June 2005, you can use your AVC plan to buy extra membership in the LGPS. Contact your pension fund for more information if you think this option is open to you.

Defer taking your AVC plan

If you left the LGPS before 1 April 2015, you do not have to take your AVC when you take your main LGPS benefits. You can leave your AVC plan invested up to age 75 at the latest. If you do not take your AVC when you take your LGPS benefits, you will not be able to take 100% of the AVC plan as tax-free cash.

If you were a member of the LGPS after 31 March 2015, you must take your AVC at the same time as you fully retire. Different rules apply if you take flexible retirement. These are set out in the next section.

AVCs and flexible retirement

If you elected to pay AVCs before 30 June 2005, your AVC contract will end when you flexibly retire. You will have to use all of your AVC plan in one of the ways set out above when you take your flexible retirement benefits.

If you elected to pay AVCs on or after 30 June 2005, you can choose to take all or none of your AVC plan when you flexibly retire.

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