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.

Some AVC plans attract 'matched' contributions from the employer and you should check if your employer offers this benefit before looking any further. You can take out an AVC independent of an employer - called Free Standing AVCs - but these are virtually obsolete since A-Day, from when, members of Occupational Schemes can now have a Personal/Stakeholder Pension as well.

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 availability of a Tax Free Lump Sum of 25%. This is assuming that charges are similar on the AVC and PP.

Q What tax relief is available?

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.

Eg.

Gross contribution	£100
Amount you pay to pension provider	£80

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.

Q What about higher rate tax relief for Free Standing AVCs?

A If you pay tax at 40% then you would reclaim the difference between 40% and basic rate of 20% -i.e. 20% - from your local tax inspector who will adjust your tax coding to compensate you.

Q How many plans can I take out?

A AVCs - As many as your employer offers.
FreeStanding AVCs – Only one in any tax year in respect of each employment.

Q Can I have an AVC as well as a Free Standing AVC?

A Yes.

Q Can I have an AVC and a Personal Pension?

A Yes.

Q What happens if I leave my employer?

A If you have an AVC your contributions have to stop.
If you have a FSAVC and you join a new employers Occupational Pension you may continue with your plan. You will have to notify the pension provider if you change employer.

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.