REWARD
Amanda Venables, senior manager employee benefits, at PSTAX, reveals the rise in popularity of SCAVCs in local government Shared cost AVCs
T he Local Government Pension Scheme (LGPS) is a valuable part of the pay and reward package for individuals working for employers participating in the scheme. A key feature of the scheme for an employee who joins is the option to boost their retirement savings by paying additional voluntary contributions (AVCs). However, there is an opportunity available to LGPS members which provides a more cost-efficient way to boost their retirement benefits. Where a member opts to pay AVCs, the employer can also contribute to their AVC fund through what is known as a shared cost AVC (SCAVC), which LGPS rules allow to be provided through a salary sacrifice arrangement. This results in the employer and the member saving on class 1 National Insurance contributions (NICs), in addition to the tax savings already available to the member. It means potentially significant amounts of money saved for LGPS organisations at what is a financially difficult time for local government. There is no change from the existing AVC provider which still receives the monies and invests these according to the member’s personal investment choices. Readers will be aware that the use of salary sacrifice is an effective and popular method used by employers to provide benefits to employees. It involves an employee’s agreement to sacrifice part of their gross income in return for an employer’s agreement to provide a benefit. As a result of the optional remuneration arrangements legislation introduced in April 2017, certain benefits provided through salary sacrifice that were previously exempt from a tax/NICs charge are now treated as taxable benefits in kind. However, pensions – including AVCs – are not affected by the legislation, which makes SCAVCs an attractive proposition for employees and
employers alike. Employers of all sizes will enjoy both NICs (13.8%) and apprenticeship levy (0.5%, if applicable) savings on the total amount of salary sacrifice. For employees, a contribution of £100 into a standard AVC costs a basic rate taxpayer £80, but with the NICs saving available via a SCAVC, that £100 has a net cost of just £68.12. ...makes SCAVCs an attractive proposition for employees and employers alike. The setup, administration, and employee communication of a SCAVC scheme can be time-consuming, which can often prevent organisations from introducing them. There are also many considerations when setting up the scheme, including discretions policy, compliance, and more. For this reason, PSTAX started AVC Wise Ltd a company dedicated to the provision of a fully-managed solution to LGPS organisations, making the launch and on-going management of such schemes easy and hassle-free for employers. The service includes comprehensive project management, monthly employee communications to maximise awareness and engagement (including educational webinars), and a bespoke online platform for application management. Founded in 2018, AVC Wise is currently working with over 100 LGPS organisations to facilitate their SCAVC schemes. The growing popularity of this arrangement is enabling local authorities and other public bodies within the LGPS to achieve
significant savings and for their employees to boost their pension pots in an extremely cost-efficient way. There has been a substantial increase in scheme take-up in the last year, particularly within the Covid-19 period. Over 5,500 SCAVC plans have been created by LGPS members since 16 March 2020, with a total of over £2,000,000 in salary sacrifice. A West Yorkshire council with 9,000 LGPS members introduced a SCAVC scheme with AVC Wise’s in June 2020, and is saving over £25,000 per month, £300,000 per year before fees. An university with 1,250 LGPS members introduced a SCAVC scheme in April 2020, and is saving almost £2,800 per month, £33,600 per year before fees. With traditional savings interest rates being as low as they are, LGPS members are increasingly realising the benefits of saving in this way, and this trend is expected to continue. The recent 2021 budget announcement concerning the freezing of personal allowances for years to come, will help to make the benefits of the tax/NICs savings become apparent for members too. There is also an increase of knowledge and awareness of members around the main LGPS, with a dedicated webinar focussing on that very subject, replacing and improving upon the educational service previously provided by AVC providers. The investment market is recognising the value of local government AVCs too, with a new AVC provider recently entering the space and offering their services to pension funds across the country. With the right care, attention and member communication, a SCAVC scheme will prove to be a success for all concerned. However, any salary sacrifice arrangement must be properly implemented, and employers should seek professional advice. n
| Professional in Payroll, Pensions and Reward | May 2021 | Issue 70 28
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