You may choose to increase your pension provision, particularly if you are unable to build up 30 years’ pensionable service before your intended retirement age. You have the option to purchase increased benefits in PPS through ‘added years’ or to pay additional contributions to the PPS Additional Voluntary Contribution (AVC) scheme to buy additional benefits for yourself and/or your spouse through Standard Life.
You are also free to take out an entirely separate personal pension plan at the same time as you contribute to PPS. You are strongly recommended to seek independent financial advice before taking any action. Your police authority is not empowered to give financial advice to you. HM Revenue and Customs place overall limits on pension contributions which are tax deductible, but these are very generous. The current position is that, unless you are a very high earner you are normally able to pay up to the whole of your taxable earnings in a tax year in pension contributions and have the whole amount allowable against tax – although there may be limitations in any year in which your PPS benefit entitlement has increased substantially (for example, if you have been promoted or have taken up a more senior appointment).
Purchase of increased benefits through ‘added years’
If you do not qualify for a maximum pension because you are unable to complete 30 years’ pensionable service by the age of compulsory retirement, you may be able to purchase extra service to increase your PPS benefits on retirement. This will be more expensive than the normal contribution rate because your police authority, which pays towards your basic PPS benefits, does not contribute to added years purchases. You will have to pay the full cost of the additional benefits, currently assessed as 37.1% of salary. Accrued service in PPS, plus increased benefits purchased within the scheme, cannot exceed 40/60ths. You cannot purchase added years to cover career breaks if, on your return, you are able to accrue 30 years’ service by age 55. The purchase of ‘added years’ normally entails a long-term commitment to pay contributions until you retire or leave PPS. Your contributions for increased benefits are calculated as a percentage of your pay and, accordingly, increase every time your pay increases as do the benefits provided by the purchase. Your contributions for increased benefits will be deducted from pay before tax.
If you decide to purchase ‘added years’ within 12 months of joining or re-joining the force you have the choice of paying additional contributions by deduction from pay or by making a lump sum payment. The option to pay regular contributions can be taken up at any time while there are at least two years between the next birthday and compulsory retirement age.
If you pay by lump sum, you will only obtain tax relief up to the total of your taxable earnings in the tax year.
If you serve part-time you have a choice of purchasing ‘added years’ on either a full-time basis or a part-time basis (which will cost less as a percentage of your pay but will buy you less additional service). LPPA will be able to give you more details. You cannot buy added years if you could build up 30 years’ service by compulsory retirement age assuming full-time service throughout the rest of your career.
Any increased benefits you purchase will count when determining the level of your PPS pension, whether payable to you or your survivors, but they will not enable you to qualify for any type of award or enhancement to which you would not otherwise be entitled.
If you retire before your planned date of retirement, or cease to serve with a deferred pension or with a transfer value, you will be credited with an appropriate proportion of the increased benefits that you were purchasing.
If you die or retire on ill-health grounds and have bought or are buying added years by lump sum or periodical contributions, which have been continuous, you will be credited with the total added years you elected to buy.
LPPA will be able to give you more details and estimated costs of buying “added years”.
PPS Additional Voluntary Contributions (AVC) scheme
You have the option to contribute to a pension investment plan for yourself or for your dependants, and/or to provide you with additional life cover for the benefit of your dependants, by making Additional Voluntary Contributions (AVCs) through Standard Life (some officers may still have arrangements through Equitable Life, but any new arrangement will be with Standard Life). AVCs are deducted from pay before tax.
Information about the AVC scheme is available in booklets produced by Standard Life, which accompany the relevant application forms. You can ask your pensions administrator for a copy and for basic information about AVCs and life cover, but the pensions administrator cannot provide you with pensions advice. Before you enter into any AVC arrangement, it is essential that you consider your financial position carefully and obtain independent financial advice if necessary.
Money purchase AVCs
With a money purchase, your AVCs build up in an individual fund with Standard Life. You can choose how much to pay (within certain limits) and you can amend or suspend your contributions at any time. You have a wide choice for the investment of your AVCs and you can change the method of your investment. At retirement, your AVC fund is converted to pension through the purchase of an annuity – i.e. a pension for life. You can also take up to 25% of your AVC fund as a lump sum.
When you retire, Standard Life will ask you whether you want to purchase an annuity for yourself alone or if you want to elect to set aside some of your pension for the benefit of your spouse or other dependants. You may also be able to choose whether, or to what extent, you can protect the pension(s) from the effects of inflation.
You will not benefit from AVCs before retirement. If you die before retirement, your AVCs cannot be used to provide a pension but the AVC fund will be paid to the police authority as administrators of the PPS. At their discretion, the fund will be paid to your surviving spouse or civil partner or, in the absence of such a person, to your estate.
Additional life cover
You may also elect to pay death benefit contributions to provide life cover above the level of that provided by the PPS for death in service other than death as a result of an injury on duty. HM Revenue and Customs currently allows death benefit payments of up to four times final remuneration. PPS already provides for twice annual pensionable pay, so this leaves scope for members to increase death benefit to up to 4 times annual gross earnings.
The cost of the life cover will depend on your age and the amount of cover that you wish to have. You can ask for Standard Life’s current rates either direct or through LPPA.
You can stop paying your death benefit contributions at any time, in which case your cover will cease. As with any insurance, you will not receive a refund of the contributions already made.