Local government pension scheme additional voluntary contributions let LGPS members pay extra into an invested pot, with tax relief, on top of their pension.
How do LGPS additional voluntary contributions work?
An LGPS additional voluntary contribution (AVC) is a separate pot that sits beside your scheme pension. Every local government pension fund has an arrangement with an AVC provider, often an insurance company or building society, and this is called an in-house AVC. According to the LGPS member website, "You have your own personal account and you decide how the money in your pot is invested." Main-section and 50/50 members can both pay in, up to 100% of pensionable pay.
Payments come out of pay before tax, so a taxpayer gets relief automatically. Choosing between an AVC, extra scheme pension or nothing extra depends on your finances. Pot, extra pension or neither: an FCA-authorised adviser can set those side by side with you. That call is free, and this page's short form sets it up.
The pot differs in kind from the pension the scheme itself pays. The LGPS describes it as "a defined contribution pension that is attached to your LGPS pension", so what it is worth depends on what is paid in, what the investments do and what the provider charges, rather than on your salary or years of service. Your fund can tell you which provider it uses and how to start a contract; Prudential, for example, runs a Local Government AVC Scheme for England and Wales.
Shared cost AVCs: when your employer pays in as well
Employers can pay towards a member's AVC if they choose to, which is called a shared cost AVC. The LGPS says an employer "may offer a Shared Cost AVC through a salary sacrifice arrangement", and that contributions paid that way attract no income tax or National Insurance.
Prudential's version of the arrangement shows the shape. You agree to give up pay, your employer pays the same amount into your AVC, and you must still pay at least £1.00 per pay period as an ordinary AVC contribution. The sacrifice cannot take pay below the National Minimum Wage or National Living Wage. Prudential warns that giving up salary can affect "salary related benefits, such as death benefits, redundancy, mortgage applications or statutory payments". See salary sacrifice and AVCs compared and how salary sacrifice is taxed.
AVCs or additional pension contributions (APCs): which kind of extra?
The LGPS offers two ways to pay extra, and members can use both. APCs buy a fixed amount of extra yearly pension from the scheme; AVCs build a pot.
| Additional pension contributions | Additional voluntary contributions | |
|---|---|---|
| What you get | Extra yearly pension, paid with your main pension | A pot invested in funds you choose |
| Who can pay | Main section only, not 50/50 | Main or 50/50 section |
| Limit | Up to £9,054 a year of extra pension (the member website's current maximum; no tax year given) | Up to 100% of pensionable pay |
| If you retire early | Extra pension is generally reduced for early payment and increased for late payment | Taken under the AVC options below |
APC costs depend on your age, the pension bought and how you spread payments, and are reviewed every few years. For added years and the other ways to buy extra scheme pension, see topping up your LGPS pension. Which route fits depends on your health, your other pensions and how much investment risk a pot would carry,.
What can you do with an LGPS AVC when you retire?
You can take a combination of the options open to you. First, a legal step: your fund "is not allowed to proceed with your application to take AVCs until you tell them you have either received guidance from Pension Wise or you do not wish to take it". See what Pension Wise is.
- Tax-free cash. "If you take your AVC plan at the same time as your main Scheme benefits, you can take up to 100% of it as tax-free cash", provided your total LGPS lump sums stay within the 25% and lump sum allowance limits the member website sets out.
- An annuity from an insurance company, bank or building society of your choice.
- A top-up LGPS pension, if you were a member after 31 March 2014. It rises in line with inflation.
- Leaving it invested. Those who left before 1 April 2014 may defer the AVC up to age 75, but then cannot take all of it as tax-free cash. Anyone who was a member after 31 March 2014 must take it when they fully retire. Flexible retirement has its own rules.
Moving the pot elsewhere can open up options the LGPS does not offer. The detail of each route, including tax on what is not tax-free, is in your AVC retirement options. Since the choice is hard to undo, an adviser can weigh the AVC pot against your State Pension and other savings during a call-back requested here.
Charges, risks and tax limits on LGPS AVCs
Prudential's key features give the risks plainly: "The value of your investment can go down as well as up so you might not get back the amount you put in." Its charges depend on the funds chosen and continue if payments stop, and it adds, "Charges for the plan may be higher than for a stakeholder pension." Your own fund's provider may set different terms, so read its documents.
Money paid in is also hard to reach. The same document says "You can’t cancel your plan and receive a refund", and "You’re unable to take your AVC benefits before your main LGPS scheme benefits." From 6 April 2028 the minimum age for taking a pension goes up from 55 to 57, except where a protected pension age applies.
On tax, relief is available on contributions up to 100% of UK taxable earnings, or up to £3,600 if earnings are lower. The annual allowance is £60,000 for most people, and the LGPS counts AVCs paid by you or your employer when it measures your pension savings that year. Having taken flexible benefits from a defined contribution pot can bring in a lower cap, the money purchase annual allowance: £10,000 from 2023/24. See the annual allowance and the money purchase annual allowance.
Extra life cover bought through an AVC stops when you retire or leave. For the bigger question of whether to pay in at all, are AVC pensions worth it sets out the weighing.
Is the LGPS AVC the same in Scotland and Northern Ireland?
Wales is covered with England by the same member website. Scotland has its own scheme and member site, LGPS Scotland, whose Paying more page describes in-house and shared cost AVCs in much the same terms but prints its own figures: an extra pension limit of £8,713 at the rate it labels 26/27. Northern Ireland's scheme is run separately by NILGOSC, so ask it how AVCs work there.
AVC questions from LGPS members
Can I pay into the Prudential AVC alongside my local government pension?
Prudential's Local Government AVC Scheme is built for LGPS members in England and Wales. Whether your fund uses it is something the fund can tell you. The Prudential AVC for teachers belongs to a different scheme, covered in Teachers' Pension AVCs.
Can I change or stop my AVC payments?
Prudential says you can increase, reduce or stop payments at any time and restart. Contributions also end when you stop paying into the LGPS, unless you end them earlier.
What happens to my AVC if I leave the LGPS?
The AVC fund stays invested until it is paid out, and you cannot add more. You can transfer it, take it with your deferred pension, or move it to the new fund's AVC if you rejoin. A refund of contributions after a short stay includes AVCs, except those paid for life cover. Prudential gives the statutory tax deduction on a refund as currently 20% up to £20,000 and 50% on any excess. The wider picture is in leaving the LGPS.
Can I move my AVC to another pension?
You have the right to transfer it, even while still a member, once AVC payments have stopped in every LGPS job and you have not used it for an annuity or top-up pension. All your LGPS AVC plans must go together. Scammers target transfers, so check the destination with the FCA's pension scams guidance.
Getting help with an LGPS AVC decision
Your fund and employer can say which options you have, and Pension Wise and MoneyHelper are free. Prefer a conversation first? Ask for a call-back on this page and an adviser phones you, with no fee.