How to increase your retirement benefits
If you’re an active member of the Legal Aid (Scotland) Pension Scheme, you have a number of options available to help you increase your income in retirement.
Additional Pension is an amount of extra annual pension that can be bought when you’re in employment and contributing to the scheme. It’s then payable on retirement in addition to the other benefits you’ve accrued. To set up a contract to buy Additional Pension, you have to be below your normal pension age and you can’t be absent from work due to ill health.
Additional Pension can be bought in multiples of £250 up to a maximum of £5000. You can pay for it either as a single lump sum or through additional monthly contributions over a period of between one and 20 years.
Additional Pension is index linked (currently to the Consumer Price Index) both before it comes into payment and also when it is being paid.
The cost of purchasing additional pension will vary depending on many factors, including the amount purchased, your age at time of purchase and the length of repayment.
Your Additional Pension purchases can cover either:
- an increase in pension for yourself only or;
- an increase in pension for yourself AND the pension payable to your dependants (spouse, partner or dependent children) after your death.
Phased and partial retirement
There are circumstances which affect the amount of Additional Pension payable to you. For example, if you choose to retire on a phased or partial retirement (post 2010 section only) you will be given the option to take your Additional Pension either at that time or when you decide to fully retire. If you do retire early, the amounts paid will be actuarially reduced to reflect the fact that it would be being paid earlier than expected.
If you continue to work beyond your normal pension age, your Additional Pension will be increased to reflect the later than expected payment.
Leaving early or ceasing contributions
If you retire before your normal pension age and claim your pension, your Additional Pension will be reduced for early payment. If you were paying by monthly instalments, your benefits may be reduced further as you won’t have completed your expected contract.
If you leave Legal Aid (Scotland) employment but return within 12 months and haven’t received a refund of your contributions, you may be able to restart your Additional Pension payments on your original terms. If your break in service is more than 12 months, or you received a refund, the agreement will be terminated and you’ll be credited with the proportion of the Additional Pension you’ve paid for.
You can choose to withdraw from the Additional Pension contract at any time. If you do, you’ll receive a proportionate credit of the benefits paid for when you retire.
Ill health retirement
If you have to leave Legal Aid (Scotland) employment on ill-health grounds, your Additional Pension will be payable without reduction as long as you’ve paid into your contract for at least 12 months and you were in good health at the time your contract started. If you leave on ill-health grounds less than 12 months into your contract, your contributions will be refunded to you and your Additional Pension contract will be cancelled.
Benefits payable on death
In the event of your death, if you’ve been paying into your Additional Pension contract for at least 12 months and you’ve elected to buy benefits for your dependants, they’ll receive a pension equal to 37.5% of the additional pension you would have received.
The dependants’ pensions will be payable in full, even if you haven’t completed your agreed contract, as long as you were in good health when your election commenced. If you did not choose to include dependants’ cover on your Additional Pension contract, no pension will be payable to them.
How to pay for your Additional Pension contract
Lump sum: Payment must be made to SPPA within one month of your application being accepted.
Monthly contribution: Payment must be taken over whole years only. Payments are subject to tax relief through the PAYE system and will be reviewed after each scheme valuation. This may mean that your monthly repayment costs increase or decrease depending on the outcome of the valuation.
Additional Pension and the Annual Allowance
If the growth in your benefits exceeds the Annual Allowance limit, you may be subject to a tax charge. Given the potential tax implications, you should seek professional financial advice if you’re planning to make a lump sum payment to purchase Additional Pension. You’ll find more information on the Annual Allowance here.
Additional Pension does not provide an automatic lump sum, but can be included in the total amount of pension given up in exchange for a lump sum at retirement.
It may be possible to take out more than one contract to purchase Additional Pension, however SPPA will take into account any existing contracts you may have to ensure you don’t exceed the maximum allowed.
It’s your responsibility to ensure your employer deducts the correct amount from your salary. If you identify an error, you should contact them immediately.
Stakeholder Pensions, Additional Voluntary Contributions and Free Standing Additional Voluntary Contributions
As well as paying into your Legal Aid (Scotland) Pension Scheme, you can also contribute to a stakeholder pension and to pension arrangements known as Additional Voluntary Contributions (AVCs) and Free Standing Additional Voluntary Contributions (FSAVCs).
These options allow you to make tax-efficient contributions that allow you to build up a separate pension pot. These contracts are offered by a wide range of financial services providers and it makes sense to seek independent financial advice before proceeding with these types of arrangement.