AVCs are a flexible way to build additional retirement savings alongside your LGPS benefits. Contributions are deducted directly from your salary and invested through Gwynedd Pension Fund's AVC provider, Legal & General (L&G). As contributions are deducted from your pay before tax is applied, you benefit from tax relief on the amount invested.
Salary Sacrifice Scheme
Your employer participates in a Salary Sacrifice Shared Cost Additional Voluntary Contribution Scheme (Shared Cost AVC).
Under Shared Cost AVCs, you contractually agree to reduce your salary, and your employer then pays the gross salary that you have sacrificed into the Shared Cost AVC arrangement on your behalf. To qualify as a "shared cost" arrangement, you must also contribute £1 yourself towards the total Shared Cost AVC contribution, which does not form part of the salary sacrifice arrangement.
Although you and your employer can contribute up to 100% of your salary into an AVC fund in any tax year, you cannot contribute an amount through Shared Cost AVCs that would reduce your salary below the National Minimum Wage. However, you can sacrifice an amount that reduces your salary to the National Minimum Wage level and then pay any additional amount you wish through a standard AVC arrangement. In this situation, your AVC contribution would be greater than £1.
As contributions are deducted from your pay before tax is calculated, they qualify for tax relief. For example, a contribution of £100 per month would cost a basic-rate taxpayer only £80 per month after 20% tax relief. The contributions paid from the salary you sacrifice under the Shared Cost AVC arrangement will also benefit from National Insurance savings. However, you will not receive National Insurance savings on the £1 AVC contribution, as this element qualifies only for tax relief.
Due to the contractual nature of salary sacrifice agreements, you must commit to reducing your gross salary for a minimum period of 12 months. This means that when you start a Shared Cost AVC arrangement, your contract of employment must have more than 12 months remaining from the arrangement's start date. You can change the amount you contribute at any time.
A Shared Cost AVC Frequently Asked Questions leaflet is enclosed. You should read this leaflet before completing an application form to pay Shared Cost AVCs.
Alternatively, you may choose to join a standard AVC arrangement (not Shared Cost AVCs). If you choose this option, you will not receive National Insurance savings on your AVC contributions; the contributions will benefit from tax relief only.
Investment Options
The default investment option is the Legal & General Target Date Fund range. Unless you choose an alternative option, your contributions will be invested in the Target Date Fund that is closest to your expected retirement date.
These funds are designed to automatically reduce the level of investment risk as you approach retirement.
Once your Shared Cost AVC account has been established, you can:
- View and monitor your account online.
- Review all available investment funds.
- Change your investments at any time.
- Change your Target Retirement Age.
- Review your investment choices as your circumstances change.
As with any investment, the value of your Shared Cost AVC fund can rise or fall, and the benefits available at retirement will depend on the value of your fund.
Your Shared Cost AVC Fund at Retirement
At retirement, the options available in respect of your Shared Cost AVC fund, based on current regulations, are:
- Take your Shared Cost AVC fund as part of your tax-free retirement lump sum, provided that when added to any lump sum taken from your main LGPS benefits, the total tax-free lump sum does not exceed the lesser of £268,275 or 25% of the capital value of the LGPS benefits being taken at that time, including the value of your Shared Cost AVC fund.
- Purchase additional pension within the LGPS.
- Purchase a regular income (annuity) payable for the rest of your life from Legal & General or another provider.
Managing Your Shared Cost AVC Account
It is important that you provide a personal email address when completing the application form. Legal & General will use this address to provide access to their online Member Portal, where you can view your account, monitor your investments and make changes to your investment choices.
Members who do not have internet access can manage their Shared Cost AVC account by contacting Legal & General by telephone.
How to Get Started
If you would like to start paying Shared Cost AVCs:
- Read the Shared Cost AVC application form and accompanying guidance notes carefully, including the Shared Cost AVC Frequently Asked Questions document, before completing the application.
- Decide how much you would like to contribute each month.
- Complete the application form, including your personal email address.
- Return the completed form to your employer's Payroll Department, which will arrange for the deductions to be made from your salary.
Once your employer has processed the application, the Shared Cost AVC contributions will begin to be deducted through payroll.
If you wish to pay standard AVCs only, please contact us to obtain a standard AVC application form.
Important Information
Neither Gwynedd Pension Fund nor your employer is authorised to provide financial advice. If you are unsure whether Shared Cost AVCs are suitable for your circumstances, you should consider seeking independent financial advice.
Completed AVC application forms must be returned to your employer's Payroll Department and not to Gwynedd Pension Fund. Your employer will arrange the deductions and notify the Pension Fund and Legal & General accordingly.