Additional Voluntary Contributions (AVCs) & Free Standing Additional Voluntary Contributions (FSAVCs)
An Additional Voluntary Contribution (AVC) is an extra pension contribution you can make when a member of an employer Occupational Pension Scheme. AVCs offered by the employer scheme are sometimes referred to as In-House AVCs.
Q Which is best - AVC or Personal Pension?
A Provided AVCs are not matched by employer contributions then a PP is likeley to be more attractive due to the PP being more available from most providers. This is assuming that charges are similar on the AVC and PP.
A Relief is available against your highest rate.
If you make an In-House AVC your contribution is deducted from pay before your tax is calculated so that even if you are a higher rate taxpayer your tax relief is immediate.
With a Free Standing AVC you make contributions net of basic rate(currently 20%) tax.
The pension provider then reclaims the difference between the gross contribution and the amount you pay – in this case £20 – from the Inland Revenue and adds it to your plan.
A If you pay tax at 40% then you would reclaim the difference between 40% and basic rate of 20% -i.e. 20%(25% for 45% taxpayers) - from your local tax inspector who will adjust your tax coding to re-imburse you.
Q How many plans can I take out?
A AVCs - As many as your employer offers.
Q Can I have an AVC as well as a Free Standing AVC?
Q What happens if I leave my employer?
A If you have an AVC your contributions have to stop.
Q How much can I pay into an AVC/ FSAVC?
A As much as you like up to the annual allowance or 100% of earnings if less.
Q Can I take tax free cash from my AVC/FSAVC at retirement?
A From a FSAVC you can take up to 25% as a Pension Commencement Lump Sum which is currently tax free. An AVC linked to a company scheme is subject to the rules of the main pension.
Q How much do I need to pay into AVCs/FSAVCs?
A Whatever it takes to achieve your pension objective. Budget Checklist
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