Questions & Answers
Why pay Additional Voluntary Contributions?
As a member of the Willis Pension Scheme, you will build up a pension during your membership based on your final pensionable salary at your date of leaving or retirement from the Group. However, you may not have enough time to build up the pension you would like if you leave or retire early, or if you have joined the Scheme in your later working years. You may also have other benefits in your remuneration from the Group which are not covered by the Scheme.
The Scheme therefore provides a facility for members to make extra contributions, in a tax efficient way, to enhance your pension subject to limits imposed by the Inland Revenue. These contributions are known as Additional Voluntary Contributions or "AVCs" for short.
What are the main advantages of AVCs?
The principal advantages of making AVCs to the Scheme are:
- the Inland Revenue allows the tax you would have paid on the amount you save to be invested as well
- the fund in which your money is invested enjoys substantial tax advantages.
- the amount you chose to pay is deducted from your salary and paid directly to the Provider for you.
- subject to the consent of the trustees, you can take your AVC fund as a cash sum provided that the amount of the cash sum does not exceed the maximum cash sum allowable from the scheme set out in Section 7 in the Scheme Booklet.
What are the main disadvantages?
Your AVCs can normally only be used to provide benefits for you or your dependants when your main benefits under the Scheme come into payment. AVCs should therefore be regarded as a long-term savings vehicle with no access to your funds until you retire (or if you die).
How would my contributions be invested?
For tax reasons, each investment has to be made on your behalf by the Trustees, who keep a separate account in your name. AVCs are invested separately from the main assets of the Scheme.
The Scheme offers four lifestyle strategies and a range of self-select funds through the group AVC arrangement with Prudential.
The latest fund guide is available here with more information about these investment options and the scheme's AVC provider which is currently the Prudential.
There are also some historic arrangements with other AVC providers; Friends Provident, Standard Life and Equitable Life. These can only be used to increase contributions to an account which has already been set up with one of these Providers.
What information will I receive about my investment?
Each year, you will normally receive a statement from the provider showing the contributions you have paid in the previous year and the value of your AVC fund. This will complement the annual Benefit Statement, which you receive about your scale benefits from the Scheme.
How much can I contribute?
HMRC will allow you to contribute 100% of your earnings to the pension scheme, but this includes the 10% of Pensionable Salary that you already pay as a member of the Scheme. In addition, the company will only be able to deduct AVCs equal to the balance of your salary after certain existing deductions have been made; for example National Insurance.
The HMRC may impose additional taxes on you if the total value of the pension you earn in each tax year exceeds the Annual Allowance. This would include the value of any AVCs you make. Detials of the current Annual Allowance can be found on the HMRC website: https://www.gov.uk/tax-on-your-private-pension. However people earning over £200,000 per annum may have a lower annual allowance, Please refer to the Taxation of Pension Accrual Page. The way that pension is assessed against the Annual Allowance is not straightforward and you should refer to Section 13 in the Scheme Booklet.
In addition, HMRC may impose additional taxes if the total value of all pensions you have exceeds the Life Time Allowance. Details of the current Life Time Allowance can be found on the HMRC website: https://www.gov.uk/tax-on-your-private-pension. Again, refer to Section 13 in the Scheme Booklet.
There is no minimum contribution but for administration purposes we suggest a minimum of £10.
Can I change my contributions once I have started?
Yes. You can stop, reduce or increase your AVCs at any time. Please notify the Group Pensions team in writing if you wish to do so. Changes in contributions will take effect from the next practical payroll date.
Do my AVCs qualify for tax relief?
Yes. With AVCs you currently receive two tax advantages:
- AVCs attract automatic tax relief through the payroll. They are deducted from your pay before tax is calculated. So, for example, if you pay tax at 20 per cent each £10 of AVC investment reduces your take-home pay by only £8.00.
- the fund in which your money is invested enjoys substantial tax advantages.
The pension provided by your AVC fund at retirement would, of course, be subject to income tax and if your total pension benefits are significant you may incur the additional taxes described in Section 13 in the Scheme Booklet.
What happens when I retire under the Scheme?
When you retire you will be able to take some of your benefits from the Scheme as a lump sum. The maximum size of this lump sum is set by the Inland Revenue and is calculated in a very complicated way, but roughly speaking it will be one quarter of the value of all your benefits, including your AVCs.
In order to take a lump sum in this way you can either:
- Within limits specified by the Trustees, give up some or all of your AVC fund, or
- Give up some of your ordinary pension, as described in section 7 in the Scheme Booklet, or
- A combination of the two
Currently the Trustees are not imposing any limits on the amount of your AVCs you can take as a lump sum, providing the total lump sum does not exceed the Inland Revenue maximum.
Any AVCs that you choose not to take as cash, or any excess of AVCs after you have taken the maximum possible amount as cash, will be used to purchase an annuity from the Schemes AVC provider.
Alternatively you have an "open market" option which allows you to use the AVC fund to purchase an annuity from any other pension company of your choice. Please note, however, that the total pension payable to you must remain within the benefit limits allowed by the Inland Revenue.
The type of annuity you purchase will determine the dependants benefits and pension increases attached to that annuity.
Can I take my AVCs as a tax-free lump sum at retirement?
Within the limits set out above under "What happens when I retire under the scheme? ", you may take your AVC's as a lump sum.
What happens if I die before retirement?
Your accumulated AVC fund at the date of your death would be paid as a lump sum to your dependants or beneficiaries at the discretion of the Trustees of the Scheme.
What happens if I leave the Willis Pension Scheme?
Your AVCs would have to stop and your options regarding your AVC fund will depend on the length of your membership of the Scheme.
If you have completed at least two years pensionable service, the fund built up by your contributions to your date of leaving would continue to be invested and would be used to provide extra benefits when you retire.
Alternatively, if you decide to transfer your main Scheme benefits to a new employer's scheme, a personal pension policy, or an insurance company buy-out policy, your AVC fund would be added to your transfer value in order to provide extra benefits under your new pension arrangement.
If you leave the Group having completed less than two years Pensionable Service, your accumulated AVCs would be refunded to you less tax at, currently, 20 per cent on the first £11,000 and 40 per cent thereafter.
Alternatively, and provided you have completed at least three months Pensionable Service, they can be transferred to another pension scheme providing this transfer takes place within a reasonable period.
Are there other ways of saving for retirement which I need to consider?
There are alternative ways of paying AVCs - Free-Standing AVCs and Stakeholder pensions. These are available from most banks, building societies and insurance companies. They qualify for tax-relief, but cannot be deducted direct from your pay. It is likely that you would have to pay higher administration costs compared with using the Scheme's AVC facility unless you are likely to change employers several times during your career.
The choice between AVCs, Free-Standing AVCs, Stakeholder and other types of saving is important and will depend on your personal circumstances and your investment aims. If you are at all uncertain as to the correct course of action it is recommended that you take independent financial advice.
