A New AVC option is now available
While normal AVC’s are subject to tax relief, the new “AVC Wise” will also allow you to make savings on your National Insurance via a Shared Cost AVC which is done through salary sacrifice.
How does AVC Wise work?
The council will pay all but £1 of the amount you wish to contribute, in return you agree to a reduction in your salary equal to the contribution from the council. You would then contribute £1 per month as per the shared cost arrangement. This would result in an increase in your take home pay compared to normal AVC’s, while AVC’s always get tax relief, if you contribute through salary sacrifice then both you and your employer will save on National Insurance contributions.
For example Jenny is on an annual salary of £30,000 and want to pay £250 AVC’s per month, before deductions her salary is £2,500 a month. Without paying into the scheme she would pay £162.50 pension, £259.00 tax and £213.72 NI, giving her a take home pay of £1,864.78.
With AVC’s she pays £162.50 pension, £250 AVC’s and £209.00 tax leaving her with £1,878.50. In the normal AVC scheme she has to pay £213.72 NI leaving Jenny with a take home pay of £1,664.78. In the AVC Wise scheme Jenny would pay £183.84 NI meaning her take home pay would be £1,694.66, this means she would be saving an extra £29.88 a month or £358.56 a year compared to the normal AVC. (please note this is an example for illustrative purposes only)
Conditions an considerations
AVC Wise is almost the same as the normal AVC scheme however as it is done through salary sacrifice it is subject to National Minimum checks, you cannot take out a salary sacrifice if doing so would put your salary under the minimum wage. This is because salary sacrifice is a contractual change in your salary.
If you have an existing AVC and wish to start a new AVC wise, you would need to think about if you would like to aggregate your current AVC with your new plan
If you do not currently have an AVC and are thinking or starting, would should consider if you are at risk of exceeding the LGPS Annual Allowance or if you are thinking of leaving the pension scheme or changing jobs.
What to do next?
If you are interested in the new AVC Wise and would like more information about how to sign up please contact the pensions section on 0121 569 3593