Increasing Your Retirement Benefits

Transcription

1 Increasing Your Retirement Benefits

2 This guide describes how you can increase your retirement benefits and applies to individuals who were contributing members of the Scheme on 1st April 2009 or who have since joined. The leaflet was up to date at the time of its publication in June It is for general use and cannot cover every personal circumstance, nor does it cover specific protected rights that apply to a very limited number of employees. In the event of any dispute as to benefits due under the Scheme the appropriate legislation will prevail. This Guide does not confer any contractual or statutory rights and is provided for information purposes only.

3 Increasing Your Retirement Benefits 3 Contents Introduction... 5 Additional Regular Contributions... 7 Purchase of Additional Years Additional Voluntary Contributions (AVCs) Free Standing Additional Voluntary Contributions (FSAVCs) Contributing to a concurrent Personal Pension Plan or Stakeholder Pension Scheme Can my employer award me additional pension benefits? 21 Tax Rules on Pension Savings Data Protection Act Further Information & Contact Details...27

4 1. Introduction

5 Increasing Your Retirement Benefits 5 Introduction This leaflet explains how, as a member of the Local Government Pension Scheme (Northern Ireland), hereafter known as the Scheme, you can pay extra to increase your pension benefits. You can increase your retirement benefits by any of the methods listed below: Additional Regular Contributions (ARCs) to buy additional Scheme pension Purchase of Added Years this option is only available if you made an election to purchase before 1 April 2009 Additional Voluntary Contributions (AVCs) to the in-house AVC scheme You can combine any of these options and each option is described in this booklet. However, there are also tax rules on pension savings which are described in more detail in the Tax rules on pension savings section. NOTE* For the tax year 2014/15 the annual allowance for pension tax relieved savings has reduced from 50,000 to 40,000 and the standard lifetime allowance for pension tax relieved savings has reduced from 1.5 million to 1.25 million. If you are close to the annual or lifetime allowance limits it is recommended that you seek specialist tax advice. Free Standing Additional Voluntary contributions (FSAVCs) to a scheme of your choice Contributing to a concurrent Stakeholder or Personal Pension Plan

6 2. Additional Regular Contributions You can buy annual pension, either for yourself or for yourself plus any dependants, in multiples of 250 up to a maximum of 5,000 per annum in aggregate.

7 Increasing Your Retirement Benefits 7 Additional Regular Contributions You can pay additional regular contributions to purchase additional pension either for yourself only or for yourself plus any dependants, providing you pass a Good Health medical. How much can I buy? You can buy annual pension, either for yourself or for yourself plus any dependants, in multiples of 250 up to a maximum of 5,000 per annum in aggregate. What period do I pay over? Contracts should commence from the next payment period after NILGOSC notifies a member that their request to buy additional pension has been accepted. You must pay over a whole number of years not exceeding the period to normal retirement age (age 65). You may not commence buying additional pension on or after your 64th birthday. When is the additional pension payable? The additional pension is payable at retirement. How much will my additional pension cost? The cost is calculated using tables provided by the Government Actuary s Department (GAD). The cost depends on the following factors: your age at the date the contributions start; the period you wish to pay over; the amount you are buying in multiples of 250; whether you are buying additional pension for yourself or yourself plus any dependants; and whether you are male or female. You can calculate the cost using the ARC calculator on the members' section of our website at Alternatively, you may complete and return an Increasing your Benefits Query Form which is available to download from our website at or on request from the Pensions Administration team. We are happy to provide a quotation; however, you may find the calculator on the website more useful as it allows you to consider the costs over various payment periods. How do I apply to buy additional pension? You should complete the ARC application form, (LGS26) and forward this to NILGOSC along with a cheque for your Good Health Medical. The current fees for a Good Health Medical and the ARC application form are available on our website at or by telephoning NILGOSC on

8 8 Northern Ireland Local Government Officers Superannuation Committee (NILGOSC) When we receive your application form and payment for the medical we will advise you of the medical appointment. If you pass the Good Health medical we will write to both you and your employer confirming the additional monthly deductions which should be made from your pay and the period you will be paying over. What if I stop contributing before the end of the payment period? If you stop contributing, leave or retire before the end of your payment period you will receive a pension based on the contributions made up until the date they ceased. If you retire early on ill-health grounds the contract is deemed to have been paid in full. What if I am on unpaid leave? If you are on unpaid leave or child related leave you must continue to make the contributions to buy additional pension. Can I make a lump sum payment? No. The minimum period which you can contribute over is one year. What happens if I draw my pension before age 65? If you draw your pension before age 65 (and not on ill-health grounds) then your additional pension will be reduced to take account of the early payment. The reduction for early payment does not apply to any dependant s cover which you have chosen to buy. What happens if I draw my pension after age 65? If you draw your pension after age 65, your extra pension will be increased to take account of late payment. The increase for payment after age 65 does not apply to any dependant s cover which you have chosen to buy. Why do I have to have a medical and do I have to pay for it? If you retire on grounds of permanent illhealth your extra pension will be deemed to have been paid for in full. Therefore, NILGOSC needs to know that you are in reasonably good health and unlikely to retire on ill-health grounds before age 65 before it will agree to your purchase of additional pension. You must pay the cost of the Good Health medical. Could the monthly payments change? It is possible that the monthly payments could change in future. The actuary may change the rates from time to time or the government could change the method of increase. These changes could affect both new applicants and members who are already buying additional pension. These changes would normally apply from 1 April following the change and we will let you know the change beforehand.

9 Increasing Your Retirement Benefits 9 Will the extra pension go up in value? Yes. Contracts that commenced before 1 April 2012 increase in accordance with the Retail Prices Index from the date of the first contribution until the date the benefits come into payment. Contracts that commenced on or after 1 April 2012 increase in accordance with the Consumer Price Index from the date of the first contribution until the date the benefits come into payment. Once in payment the additional pension is increased by inflation. If I choose to buy extra pension now, can I buy more at a later date? Yes, as long as the total amount does not exceed 5,000. It should be remembered that the cost of any later purchases of additional pension will depend on your age at that date. What are the additional dependants benefits that are provided if I choose to buy additional pension for myself plus dependants? If you die in service an additional dependant s pension of 37.5% of the rate of additional pension you were purchasing is payable to an eligible spouse, civil partner or nominated cohabiting partner. A pension is also payable to eligible children at the rate of 18.75% (of the rate of additional pension you were purchasing) if there is one eligible child and 37.5% if there are two or more eligible children shared equally between them. If there is no eligible spouse, civil partner or nominated cohabiting partner, then the additional child s pension is 25% of your extra pension and if there is more than one eligible child then 50% of your pension is split equally between the eligible children. Can I give up some extra pension at retirement to buy additional lump sum? Yes, it is possible to give up additional pension at retirement to provide extra lump sum subject to tax limits. Will purchase of additional pension change my 85- year-rule date? No. Purchase of additional pension has no effect on your 85-year-rule date.

10 3. Purchase of Additional Years Additional Years could only be purchased if you made an election to do so before 1 April 2009.

11 Increasing Your Retirement Benefits 11 Purchase of Additional Years If you were a member of the Scheme before 1 April 2009 you may have elected to purchase additional years. You were able to buy a maximum of 6 2 /3 added years to increase your lump sum and pension benefits by paying additional contributions until your normal retirement age. The purchase of additional years is a final salary type arrangement and each year that you purchase increases your pension by 1 /80th and your lump sum by 3 /80ths. The final amount payable is calculated on your pensionable pay at retirement or date of leaving. In the event of ill-health retirement or death before normal retirement age the additional years are deemed to have been bought. Further information is available from NILGOSC on request.

12 4. Additional Voluntary Contributions When you retire, you can use an AVC fund to: buy an annuity buy a top up Scheme pension take a tax free cash lump sum

13 Increasing Your Retirement Benefits 13 Additional Voluntary Contributions (AVCs) You may also pay AVCs to top up your own pension, or your dependant s pension or to provide additional life cover. In this case you can invest money, deducted directly from your pay, with an AVC provider. Any AVCs which you pay are invested separately in funds managed by the AVC provider. You have your own personal account which, over time, builds up with your contributions and the returns on your investment. At retirement you may use this AVC fund to buy an additional pension or to increase your lump sum, subject to both Scheme and tax limits. Prudential is the current inhouse AVC provider for new contributors. Equitable Life is also an in-house AVC provider but is no longer available for new contributors. It should be noted that these AVC investments depend on the contributions paid, the performance of the investments and on interest rates at retirement. There is no guarantee that any particular level of benefit will be available at retirement. You can contribute up to 50% of your pensionable pay per pay period into the in-house AVC arrangement. AVCs are deducted directly from your pay and tax relief (at your highest rate) is automatically given through payroll. This means that tax is calculated on your pay after your Scheme and AVC contributions have been deducted. When you reach retirement you may use your in-house AVC fund in the following ways: buy an annuity buy a top-up Scheme pension take your AVC as cash Buying an annuity This is where an insurance company, bank or building society of your choice takes your AVC fund and pays you a pension in return. You can do this at the same time as you draw your Scheme benefits or you can delay payment up until the day before your 75th birthday. An annuity is paid completely separately from your Scheme benefits. The amount of an annuity depends on several factors such as your age and interest rates. You can also choose the type of annuity which you want e.g. a flat rate pension or one that increases each year, and whether you want to provide for dependants benefits on your death.

14 14 Northern Ireland Local Government Officers Superannuation Committee (NILGOSC) Buying a top-up Scheme Pension If you retire with immediate payment of your benefits you may be able to use some or all of your AVC fund to buy a top-up pension from the Scheme. You can choose whether you wish this pension to provide benefits only for yourself or for yourself plus any dependants. Taking your AVCs as cash Current Scheme regulations allow you to take your AVC fund at retirement, subject to tax limits, in whole or in part as tax free cash. If you decide to defer drawing your AVC until after retirement you can normally only have up to 25% of your AVC fund as a lump sum. Leaving the Scheme before retirement If you leave before retirement, your AVC contributions will cease. The value of your AVC fund will continue to be invested until it is paid out. Your in-house AVC scheme is similar to your main Scheme benefits: it can be transferred to another arrangement along with your main Scheme benefits, drawn at the same time as your Scheme benefits or deferred until the eve of your 75th birthday. Is there an Exit Charge? Prudential has introduced an exit charge on a sliding scale for any new members of the Prudential Local Government AVC arrangement who withdraw their AVC benefits within three years of their initial contribution. Members should be thinking about whether to start paying AVCs well before their retirement so that a fund can be built up gradually and avoid an early exit charge. How do I contribute to an AVC? If you wish to contribute to the in-house AVC Scheme you should contact Prudential. Prudential provide the inhouse AVC scheme which is open to new members. Contacting Prudential - more information, including application forms and quotations are available directly from Prudential at The Prudential Retirement Specialist Team on You may also wish to refer to Prudential s website at localgov. Equitable Life - information on existing contracts is available directly from NILGOSC on

15 Increasing Your Retirement Benefits 15

16 5. Free Standing Additional Voluntary Contributions (FSAVCs) You can pay AVCs to an insurance company of your choice - this is known as FSAVCs.

17 Increasing Your Retirement Benefits 17 Free Standing Additional Voluntary Contributions (FSAVCs) FSAVCs work in much the same way as AVCs, however, there are some important differences. Some of these are: You must choose the financial institution to invest your FSAVCs in and you may want to consider their different charges, alternative investments and past performance. You must make the necessary arrangements contributions will not be deducted from your pay. The FSAVC provider will reclaim the tax you have paid on your contributions. If you are a higher rate tax payer you will need to complete a tax return to reclaim higher rate tax relief. AVCs cease on leaving the Scheme but FSAVCs can carry on being paid into the same contract.

18 6. Contributing to a concurrent Personal Pension Plan or Stakeholder Pension Scheme You may be able to make your own arrangements to pay into a personal pension plan or stakeholder pension scheme at the same time as paying into the Scheme.

19 Increasing Your Retirement Benefits 19 Contributing to a concurrent Personal Pension Plan or Stakeholder Pension Scheme You may be able to make your own arrangements to pay into a personal pension plan or stakeholder pension scheme at the same time as paying into the Scheme. You choose the provider which is usually an insurance company. You may also want to consider their charges, alternative investments and past performance. You choose how much to pay into the arrangement. You can pay up to 100% of your total taxable earnings in any one tax year (or 3,600 if greater) into any number of concurrent arrangements and be eligible for tax relief on those contributions. The contributions which you pay into a personal pension plan or stakeholder scheme are invested in funds managed by an insurance company. You have your own personal account that, over time, builds up with your contributions and investment returns, and will be available at retirement to convert into additional benefits. 312,500 ( figure)) and the remainder is used to buy an annuity from an insurance company, bank or building society. The amount of an annuity depends on factors such as interest rates and your age. You also have choice over the type of annuity e.g. whether you want annual increases and/or dependant s benefits. Annuities are subject to annuity rates which are affected by interest rates. When interest rates rise, annuity rates rise. Conversely a fall in interest rates reduces the annuity rates and the pension which can be purchased. When the benefits are paid, you will be able to take 25% of your fund as a tax-free lump sum (provided the lump sum does not exceed

20 7. Can my employer award me additional pension benefits?

21 Increasing Your Retirement Benefits 21 Can my employer award me additional pension benefits? Your employer, at its discretion, can award you up to 10 years extra membership to improve your retirement benefits this is known as augmentation. grant you up to 5,000 extra annual pension. pay into your in-house AVC scheme. This is known as a shared cost AVC arrangement. These are discretions your employer can use if it wishes. You can ask your employer what its policies are on these discretions. NOTE* For the tax year 2014/15 the annual allowance for pension tax relieved savings has reduced from 50,000 to 40,000 and the standard lifetime allowance for pension tax relieved savings has reduced from 1.5 million to 1.25 million. If you are close to the annual or lifetime allowance limits it is recommended that you seek specialist tax advice.

22 8. Tax Rules on Pension Savings There are limits on the pension savings you can make with tax relief.

23 Increasing Your Retirement Benefits 23 Tax Rules on Pension Savings There are limits on the pension savings you can make before you become subject to a tax charge (over and above any tax due under the PAYE system). These limits are known as the annual allowance and the lifetime allowance. The annual allowance is the amount by which your pension savings can increase in one year without becoming subject to a tax charge. The annual allowance from 1 April 2014 is 40,000. The formula for calculating any increase in pension savings in the Local Government Pension Scheme is [Pension Value at Year End (Pension Value at Start of Year x Pensions Increase)] x 16 Plus Lump sum at Year End (Lump sum at Start of Year x Pensions Increase) Plus The amount of any AVC contributions made over the year NILGOSC has a duty to notify you by 6th October of each year if you exceed the annual allowance for the previous tax year. A pensions savings statement will be issued to you if you exceed the annual allowance. If your pension savings exceed the annual allowance, you may carry forward any unused allowance from three previous tax years. If you still exceed the allowances after carried forward allowances are taken into account, a tax charge must be applied. If the tax charge exceeds 2,000, you may elect for the tax charge to be paid from your pension benefits and your benefits will be adjusted accordingly. The lifetime allowance is the total capital value of all your pension arrangements which you can build up during your lifetime without paying extra tax. The capital value of your pension benefits is generally calculated as: (Pension x 20) + lump sum + value of AVC fund (if any) If the value of your benefits when you draw them (not including any state retirement pension, state pension credit or any spouse s, civil partner s or dependant s pension you may be entitled to) exceeds your lifetime allowance a tax charge will be made against the excess. The lifetime allowance for is 1.25 million. Most Scheme members pension benefits will be significantly less than the lifetime allowance. If you are close to the annual or lifetime allowance limits it is recommended that you seek specialist tax advice.

24 9. Data Protection Act 1998

25 Increasing Your Retirement Benefits 25 Data Protection Act 1998 NILGOSC is registered with the Information Commissioner under the Data Protection Act 1998 to hold personal information for the purpose of administration of the pension Scheme. Essentially the data is used to determine eligibility for, and to calculate any pension or other benefits from, the Scheme. This information is held and processed by NILGOSC strictly in accordance with the Data Protection Act In order to carry out its purpose NILGOSC may receive information about members from others, such as employers, but can only do so in accordance with the law. NILGOSC is required to protect the public funds it administers. It may share information provided to it with other bodies responsible for auditing or administering public funds, in order to prevent and detect fraud. As individuals, members have a right under the Data Protection Act 1998 to obtain information from NILGOSC, including a description of the personal data which is held. Any member who wishes to access their data on Data Protection Act grounds should write to the Data Protection Officer at NILGOSC. NILGOSC may, if it chooses, pass certain details to a third party, if the third party is carrying out an administrative function of the Scheme, for example the Scheme s AVC providers and actuary. NILGOSC may also transfer information to organisations which carry out processing operations on its behalf, such as printers. Any third parties to whom NILGOSC passes personal data are also required to comply with the Data Protection Act.

26 10. Further Information & How to Contact Us

27 Increasing Your Retirement Benefits 27 Further Information You can find more detailed information in other Scheme literature which can be requested from your employer, directly from NILGOSC, or viewed on our website at If you have any questions on the content of this leaflet or on any aspect of the Local Government Pension Scheme (NI), please contact the Pension Administration Team by any of the methods below. Contact Details Postal address: NILGOSC Templeton House 411 Holywood Road Belfast BT4 2LP Telephone: Typetalk (for Minicom users): Fax: Website: Personal callers: You are welcome to visit us from Monday to Friday, from 9am to 5pm. You do not need to make an appointment. We are happy to deal with enquiries made in person, by telephone, in writing or by . Alternatively, you may find the information you require by visiting our website at Information produced by NILGOSC can be made available in several formats (such as large print, in Braille, on audio cassette, or on computer disk) and languages. We will be pleased to consider your request in this respect.

28 NILGOSC Templeton House 411 Holywood Road Belfast BT4 2LP Tel: Fax: Website: June 2014