More detailed guidance on additional regular contributions
- What are ARCs?
- What will they cost me?
- How do I make ARCs?
- What if I go on sick leave or am away for other reasons?
- What if I work part time?
- Can I stop paying ARCs?
- What if I leave my current employment?
- Will the cost of ARCs change?
- Will the extra pension increase in value?
- What benefits will I get from paying ARCs?
- If I pay ARCs to buy extra pension for me and my dependants, what will they get?
- Will the benefits from my extra pension or AVCs be included in the calculation of my Lifetime Allowance (LTA)?
- What are the alternatives to paying ARCs?
You can pay additional regular contributions (ARCs) to be credited with extra pension in the LGPS. You can buy up to a maximum of £5,000 extra pension a year, in multiples of £250.
You can choose to buy extra pension for yourself, or for both yourself and your dependants (spouse, civil partner, nominated co-habiting partner or eligible children).
How much you pay will depend on:
- your age when you start paying the additional contributions
- the amount of extra pension you wish to buy
- the period over which you wish to pay ARCS
- whether you are buying extra pension for yourself or you also want to increase your dependant’s benefits.
Our ARC calculator shows the monthly contributions required to pay for the multiples of £250 that you require.
Contributions to buy extra pension are deducted directly from your pay and tax relief (at your highest rate) is automatically given through your payroll system. This means that tax is calculated on your pay after your pension contributions have been deducted.
The ARCs will start from the next pay period after we send you details of your contract.
ARCs can be paid over any period of whole years (i.e. not less than one year) but need to end before age 65. This means that you cannot start paying ARCs on or after your 64th birthday.
You cannot buy extra pension any faster by making lump sum payments or backdating the start date. You cannot pay more than 100% of your salary in pension contributions.
What if I go on sick leave or am away for other reasons?
You will be required to continue paying the additional contributions in full during any period of maternity or adoption leave, parental leave or leave of absence.
If you go on sick leave with reduced or nil pay, your contract will be treated as if full contributions have been made during that period.
There is no difference in the amount of the contributions for full time or part time employees.
You can stop paying ARCs at any time by giving written notice to the Wiltshire Pension Fund and to your employer. If you do this you will be credited with the proportion of extra pension bought at the date you stop paying.
What if I leave my current employment?
If you leave (other than on the grounds of permanent ill health or death in service) before completion of the contract to buy extra pension, you will be credited with the proportion of extra pension bought at the leaving date.
However, if you are retired on grounds of permanent ill health (both tier 1 and 2) or you die in service while paying additional contributions, the contributions will be deemed to have been paid in full. This means that the full amount of the extra pension being bought will be included in the benefits due.
If you are made redundant or retire on grounds of efficiency, you will be credited with the proportion of extra pension bought at the date of leaving.
The contributions to buy extra pension are determined by the Government’s Actuary and could be revised. Any changes will be applied to existing contracts from 1 April following the revision.
Will the extra pension increase in value?
The extra pension is linked to the retail price index so will increase in line with inflation. This means that the value of the extra pension you receive when you come to retire will be the equivalent of today’s value. Once in payment, the extra pension will receive the same inflation increases as your main benefits.
What benefits will I get from paying ARCs?
Your total pension will be increased by the amount of extra pension you buy. If you stop paying ARCs before the end of the contract, your benefits will be increased with the proportion of extra pension you bought at the date you stopped.
If you take your pension before your eligible retirement date, the extra pension will be subject to reductions, even if your main benefits are protected in full or part. If you retire after age 65, the extra pension will receive the same increases as your main benefits.
You can use the extra pension in the same way as your main pension to take a tax free lump sum on retirement.
If I pay ARCs to buy extra pension for me and my dependants, what will they get?
If you are paying ARCs to include extra pension for your dependants, there will be a pension payable to your spouse, civil partner or nominated cohabiting partner as well as to any eligible children if you die in service, deferment or on pension. This amount is in addition to the normal dependant’s benefits payable from your main benefits.
The pension payable to your spouse, civil partner or nominated cohabiting partner will be 37.5% of the extra pension you purchased. For example, if you purchase £1,000 extra pension, in the event of your death your dependant would receive £375 a year, in addition to the normal dependant’s pension payable.
If you have one eligible child, they will receive 18.75% of your extra pension. If you have two or more eligible children, they will receive a total of 37.5% of your extra pension, shared equally between them.
If you have one eligible child but no spouse, civil partner or nominated cohabiting partner, they will receive 25% of your extra pension. If you have two or more eligible children but no spouse, civil partner or nominated cohabiting partner, they will receive a total of 50% of your extra pension, shared equally between them.
Will the benefits from my extra pension or AVCs be included in the calculation of my Lifetime Allowance (LTA)?
HM Revenue and Customs regulations now provide that an individual’s pension rights will be tested against a single life time allowance (LTA) each time they take benefits from a pension scheme.
The LTA is £1.65 million for 2008/09 rising to £1.8 million for 2010/11 and reviewed thereafter. Should the total value of benefits a person receives exceed the LTA, an additional tax will be levied on the excess.
The LTA is the capital value of your total pension rights, not just those with the Wiltshire Pension Fund. Most scheme members’ pension rights will be significantly less than the LTA.
The additional benefits from buying added years and any fund value from paying in-house AVCs will count toward your LTA.
What are the alternatives to paying ARCs?
As an alternative to paying ARCs, you can pay additional voluntary contributions (AVCs) by deduction from your pay. These are invested in a fund with an insurance company.
This fund then grows with your contributions and the return on your investment, to provide either an annuity on retirement, a lump sum or a combination of these two. Details of the in-house AVC plan are available on request from Wiltshire Pension Fund.
In addition, under current HM Revenue & Customs rules there are a range of options available outside the LGPS:
- You can contribute to a ‘Free Standing Additional Voluntary Contribution’ scheme. These are administered by banks, building societies and insurance companies and you must make your own arrangements direct with them.
- You can contribute to a stakeholder or personal pension. Again these are administered by banks, building societies and insurance companies and you must make your own arrangements direct with them.
