You can make extra pension contributions, through an additional voluntary contribution (AVC) arrangement.
When you take your benefits from SHPS, the value of your AVC fund is also converted into a pension.
Your AVCs can be invested in one of three funds provided by The Pensions Trust: the Growth Plan, the Unitised Ethical Plan or (if your employer has signed up to participate in it) the Flexible Retirement Plan.
Alternatively you may pay AVCs privately as Free Standing AVCs (FSAVCs) to another pensions provider.
Should I pay AVCs?
Firstly, remember that AVCs are for the provision of extra pension benefits only. Therefore, consider your needs and the savings options, including the option of a concurrent personal pension scheme or an additional Stakeholder pension plan, best suited to your own circumstances. You may wish to discuss all the options available with your financial adviser. The Pensions Trust can not give financial advice.
You may choose to pay AVCs if you want to get more pension because:
- you may want your pension to start before normal pension age; or
- you may not have enough pensionable service; for example, you may have had a gap in your employment or previous employers may not have provided a pension scheme.
Full tax relief is given on AVCs and to take advantage of this please consider what you can afford to pay.
The Pensions Trust cannot give financial planning advice and the decision to pay AVCs is the member’s responsibility.
How much can I pay?
You can now pay up to 100% of your taxable pay/benefits in any tax year, up to an 'Annual Allowance' (see below). This limit includes:
Your ‘normal’ Scheme contributions + any AVCs you pay to the Scheme + any Free Standing AVCs (FSAVCs) or contributions to other pension arrangements.
Are there any restrictions?
As long as the total increase in benefits in any one year does not exceed the annual allowance, you will receive tax relief on up to 100% of your earnings. For example, if your normal contribution rate (to the scheme) is 7%, you will have scope to pay up to a further 93% of your earnings as tax-free AVCs.
If your contributions exceed 100% of earnings in any tax year, tax on the excess, at your marginal rate, is payable through self-assessment.
The annual allowance is set as follows:
2006/07 £215,000
2007/08 £225,000
2008/09 £235,000
2009/10 £245,000
2010/11 £255,000
It is expected that the annual allowance will eventually increase in line with inflation.
If you would like to pay monthly AVCs to the Pensions Trust complete an AVC Application Form and hand it in to your payroll department.
AVCs paid monthly to The Pensions Trust will be deducted from your salary in the same way as your ‘normal’ contributions, gaining tax relief immediately. They are usually a percentage of your salary and can be stopped, started, increased and decreased on request.
If you prefer, you can pay your AVCs direct to The Pensions Trust as one lump sum instead of regular monthly payments, subject to contribution limits. Lump sums also have to be deducted via your payroll. The Trust cannot accept personal cheques now due to money laundering regulations.
The SHPS literature is now available to download in the Document Library.