Increasing your pension benefits

There are a couple of ways you can increase your retirement benefits within the LGPS.

Additional Regular Contributions (ARCs)	Regular contributions to buy extra amounts of pension (in multiples of £250 per year up to a maximum of £5000.)
Additional Voluntary Contributions (AVCs)	Pay additional contributions to buy an annuity, increase your tax-free lump sum or both

 

Additional survivor benefit contributions (ASBC)

If you have nominated your cohabiting partner to receive a survivor’s pension in the event of your death, only membership you have built up since 6 April 1988 will count towards your partner’s pension. You may be able to pay extra to increase the pension for your partner if

• You have pre 6 April 1988 membership in your current employment or
• You built up LGPS membership before 6 April 1988 that you have combined with membership in your current employment
• All elections are made within 12 months of the nomination or by 31 March 2013 for existing nominations

And:

• You continue to contribute to the LGPS and earn enough to make ASBCs from your pay
• The ASBCs begin before your 64^th birthday

 

What are the costs?

The contract to pay ASBC document explains these benefits in more detail and shows you how to calculate the cost.

To work out how much it will cost you please refer to the contract to pay ASBC document and factors for purchase of Additional Survivor Benefits

ASBC payments are deducted from your pay in the same way as your normal LGPS contributions.

If you have any queries, please email Pensions Services.

 

Added years contract

Before 1 April 2008, members could also pay extra contributions in the LGPS to buy additional years of membership (called ‘added years’). This option is no longer available but existing ‘added years’ contracts at 1 April 2008 continue, subject to the terms of each contract, unless the member chooses to stop paying them. ‘Added years’ contributions qualify for tax-relief in the same way as ARCs and AVCs.

Equitable Life AVCs

The Equitable Life AVC scheme is closed to new contributors. However, some existing AVC members still invest in Equitable Life funds.

If you have AVCs invested in Equitable Life funds and need more information about them please email Pensions Services.

To find out about the Equitable Life payment scheme,

Annual Allowance (AA)

The Annual Allowance is set by HM Revenue and Customs. It limits how much your pensions savings can increase in a year before you have to pay tax on them.  

In the LGPS, the year is 1 April to 31 March and is called the pension input period. Increases in pension benefits are called deemed contributions.

If your total deemed contributions exceed the annual allowance you must pay an Annual Allowance charge on the excess.

For tax years 2011/12 onwards, the annual allowance has been reduced to £50,000

 

You are more likely to exceed the annual allowance if:

• You’re on a high salary
• A pay rise increases your pension savings
• You retire due to ill health with an enhanced pension
• You use redundancy pay towards your pension
• You leave and your employer increases your pension

   

How will I know how much LGPS benefits have increased?

Increases in the value of pension benefits are called deemed contributions. Your annual benefit statement will show your LGPS deemed contributions, including any contributions to an in-house AVC scheme.

For information about LGPS membership from before April 2011, please contact us.

       

How is the increase in my pension worked out?

This table shows how the increase in your benefits over the year (deemed contributions) are worked out in the LGPS and other schemes.

Type of scheme	What the deemed contributions will be
LGPS and other defined benefit schemes	The amount by which your yearly pension has increased in a year is multiplied by 16. This number is added to the increase in any automatic retirement lump sum, and to any in-house AVCs made in the year. Pension and lump sum from the start of the year are re-valued to reflect inflation. To carry forward unused allowances from before April 2011 use an allowance of £50,000 and multiply increases in pension by 16.
Defined contribution schemes	The actual amount of contributions made

 

How will I know if I have exceeded the Annual Allowance?

• Add together your deemed contributions for all pension schemes to which you have contributed in the year to see if the total exceeds the Annual Allowance.
• You can carry forward unused allowances from the previous three years to include with the annual allowance for the year you are checking.
• Only increases in benefits from pensions to which you have contributed during the year count towards your annual allowance.

 

What happens if I exceed the Annual Allowance?

If you exceed your Annual Allowance, even after carrying forward unused Annual Allowance from the previous three years, you will have to pay income tax on the excess.

• You should report it on your self assessment tax return and pay the charge by the payment deadline. HMRC can tell you how to do this.
• You may elect for The Hampshire Pension Fund to pay some or all of the charge in and in return your pension benefits would be reduced.

Are there any exemptions to the Annual Allowance?

• The Annual Allowance does not apply in the year of death.
• The Government is considering exempting some ill-health retirement benefits from the Annual Allowance, but has not decided yet.

Enhanced Protection

Enhanced Protection no longer protects you against having to pay tax if you exceed the Annual Allowance.

Lifetime Allowance (LA)

The lifetime allowance is set by HM Revenue and Customs. The capital value of your pension rights (not only those in the Hampshire Pension Fund) will be tested against the lifetime allowance whenever benefits first come into payment.

• If the total is more than the LTA tax will be due on the excess.
• The lifetime allowance does not include state retirement pension, state pension credit or any surviving spouse’s, civil partner’s or dependant’s pension.

 

How is the value of pension benefits worked out?

How the value of a pension is worked out to compare it to the Lifetime Allowance depends on when it was first paid, as shown below:

Date pension was first paid	Value of pension to compare to LTA =
after 5 April 2006	(yearly pension x 20) + retirement lump sum
before 6 April 2006	yearly pension x 25

 

Lifetime Allowance protections

There is fixed protection for people who had pension pots of between £1.5 million and £1.8 million before 6 April 2011.

What happens if I want to carry on working after age 65?

If you start (or continue) working in Local Government after your 65^th birthday you are still entitled to pay into the Pension Scheme and will earn pension rights in the usual way.

However you must leave the Pension Scheme no later than 2 days before your 75^th birthday.

You can draw your pension when

• You retire or
• You reach the eve of your 75^th birthday or
• You have your employer’s consent for flexible retirement

At the date that you draw your pension, it will be increased by 0.014% for every day since your 65^th birthday (or your date of joining the Pension Scheme, if later).

The tax-free lump sum in respect of any pre-April 2008 service will be increased by 0.007% per day over the same period.

This means that for every year that you defer payment after reaching age 65

• The value of your pension before you exchange any of it for a tax-free lump sum will increase by approximately 5.11% and
• The value of any pre-April 2008 lump sum will increase by approximately 2.56%

However you must draw your pension and lump sum no later than the day before your 75^th birthday.