Purchasing Additional Pension Paying Additional Regular Contributions (ARCs)

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1 Purchasing Additional Pension Paying Additional Regular Contributions (ARCs) Introduction This ARC pack supplements the information in the Cheshire Pension Fund scheme booklet and that on the Pension Fund s website ( both of which provide details on ways of increasing your pension benefits. The Local Government Pension Scheme (LGPS) is a defined benefit final salary pension scheme which provides a wide range of benefits. Few members though can expect to receive the maximum benefits and may want to consider paying extra contributions to top up their income in retirement. How can I increase my Local Government Pension? You can buy additional pension in multiples of 250 up to a maximum of 5,000 per annum. You can also convert some of the additional pension you buy into a lump sum, subject to the usual tax limits that apply to your benefits at retirement. The additional pension you buy is added to your standard retirement pension. Can I increase the benefits my dependents would receive? You can choose to pay an additional percentage to provide a supplementary pension for your dependants. If you take this option, your married partner, civil partner or nominated co-habiting partner would receive a pension equal to 37.5% of your own additional pension. There would also be pensions payable to dependent children summarised in the table below: Dependants Benefits Survivor s pension IS payable Survivor s pension IS NOT payable % of member s additional pension for one child 18.75% 25% % or member s additional pension payable, if there are two or more children (pension is shared equally) 37.50% 50% How much does it cost? The cost is calculated using a number of factors including your age, your gender, the amount of time you want to pay it over and the amount of additional pension you want to buy. Unlike your standard pension contributions, which are a percentage of your pay, you will buy extra pension by paying a set amount each month and you can start paying ARCs at any time. The must pay the additional contributions over a complete number of years and you must finish the contract by age 65. You cannot therefore, start an ARC contract after your 64 th birthday. 1 Additional Regular Contributions (ARCs) Issue date Dec 12

2 There are many cost options on how you can buy additional pension. At the end of this factsheet we ve included some examples of how much it will cost. If the period you want to pay over and the pension amount you wish to buy is not shown, you can use the online calculator on our website (follow the Increasing Your Benefits link) or contact us directly for a personal quote. How do I pay the contributions? Your employer will deduct them from your pay and if you are a tax payer you will automatically receive the tax relief on your contributions. Contributions start on the next available pay day following the date of your election and you will be asked to certify that you are in good health with no pre-existing medical conditions. If your pay reduces below the level of your chosen contribution amount, the contract will automatically cease. Please remember to check your pay details once the contract has started to make sure that the contributions are being deducted. You will need to contact your Payroll Department if you notice that your ARC deductions are not being taken from your pay for any reason. What happens if I go on approved leave of absence? You must continue to pay the additional contributions during your leave of absence regardless of whether it is paid or unpaid leave. What happens if I reduce my hours? You will continue to pay the same monthly contribution as you did when your contract started. Can I stop paying? Yes, you can stop the additional contributions at any time; however the additional pension you agreed to buy will be reduced from the original contract amount. If you do want to stop paying for any reason you must notify both your employer and Cheshire Pension Fund in writing. What if I leave or retire before the contract ends? If you retire on ill health grounds with a Tier 1 or 2 pension you will receive the additional pension you agreed to purchase in full, but if you leave or retire for any other reason and you have not finished the contract, you will be credited with the additional pension you have actually paid for at the date you leave. This will be less than the original contract amount. Please note the cost factors used to buy an additional pension assume you will retire at age 65. If you retire at an earlier age your additional pension is reduced to take the earlier payment date into account. This will apply even if your main scheme benefits are not reduced because you have retired on redundancy/efficiency grounds or you are a protected member who meets the 85 year rule. If a reduction is applied to your main scheme benefits, this will not affect your dependants benefits. Is the additional pension Increase linked? When you retire and receive your additional pension, it is increased by Pensions Increase (PI) from the date your contract started. Your additional pension is added to your standard pension and once it is in payment is subject to the annual pensions increase applied each April. 2 Additional Regular Contributions (ARCs) Issue date Dec 12

3 Other points to note Generally, Additional Regular Contributions are deducted at the same amount each month, but they can, under certain circumstances, be changed (see below*). Any additional pension you buy will count towards your death grant and is calculated as follows: If you die having left the scheme with a deferred benefit a death grant of 5 times the value of the additional pension you paid for is payable. If you die after retirement and before age 75, a death grant of 10 times the rate of additional pension you are receiving at the date of your death is payable (less the amount of the additional pension already paid to you). If you die as an active member in the Scheme, a death grant of three times your actual pay is payable. If you would like a quote for the cost of buying additional pension, please visit our website and use the online calculator or contact us on to discuss cost to suit your individual requirements. *Contribution rates quoted in the tables are subject to change by the Government Actuary s Department (GAD) in the future. Any future changes to the rates will apply to all additional pension contracts that still have contributions outstanding at the time of the change. Examples of purchasing additional pension Below are example costs for purchase of additional pension for members only and for member and dependant benefits. Please note costs are different depending on whether you are male or female, this is because current life expectancy for females is greater and therefore the pension will be paid for longer. To calculate multiples of 250 extra pension please see the following examples below each table. Male Members Purchase of 250 Additional Pension for self only (monthly amount) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 3 Additional Regular Contributions (ARCs) Issue date Dec 12

4 Example 1: Male member age 30 wishing to purchase an extra 1500 pension over a 15 year period: 1,500/ 250 = 6 6 x = per month for 15 years 15 years x 12 months x = 13, total contributions payable Male Members Purchase of 250 Additional Pension for self and dependants (monthly amount) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Example 2: Male member age 25 wishing to purchase an extra 3000 pension over a 30 year period for self and dependants: 3,000/ 250 = x 8.54 = per month for 30 years 30 years x 12 months x = 36, total contributions payable FEMALE MEMBERS Purchase of 250 Additional Pension for self only (monthly amount) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Example 3: Female member age 50 wishing to purchase an extra 1000 pension over A 10 year period for self: 1,000/ 250 = 4 4 x = per month for 10 years 10 years x 12 months x = 15, total contributions payable. 4 Additional Regular Contributions (ARCs) Issue date Dec 12

5 FEMALE MEMBERS Purchase of 250 Additional Pension for self and dependants (monthly amount) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Example 4: Female member age 35 wishing to purchase an extra 5000 for self and dependants over a 25 year period: 5,000/ 250 = x = per month for 25 years 25 years x 12 months x = 74,100 total contributions payable Online Calculator The online calculator can be used for various scenarios that best suit your financial circumstances. For example by amending the number of years you take the contract over and or the amount you wish to buy. Contact Us If you require any further information, please contact us using the details below pensions@cheshirewestandchester.gov.uk Cheshire Pension Fund, Cheshire West and Chester Council, HQ, Nicholas Street, Chester, CH1 2NP. 5 Additional Regular Contributions (ARCs) Issue date Dec 12