AVC pension
Additional voluntary contribution pensions run alongside your workplace pension to boost your retirement income.
What is an AVCÂ pension?
An additional voluntary contribution (AVC) pension is an additional scheme set up alongside your workplace pension.
Usually, AVC pensions are money purchase (defined contribution) schemes which are separate from your workplace pension. You can build up your AVC by making contributions in the same way as other pensions. The money can be accessed when you are 55 (57 from 2028) – even if you are still in full or part-time work.
If you have a defined benefit pension (such as a final salary pension), you may have an ‘added years’ AVC. Instead of building up an additional pot of money, this could allow you to buy additional retirement income or extra years of retirement. However, that is likely to be expensive and there are few schemes that will offer this level of benefit.
How do AVC pensions work?
Most AVC pensions are effectively an additional money purchase scheme provided by your employer.
An AVC is similar to having a personal pension (such as a SIPP). Your contributions are boosted by tax relief and invested. Any contributions you make count towards your annual allowance.
When you are 55, you can choose how to take your benefits. You have the option to take 25% as tax-free cash (subject to a maximum of £268,275) and any further withdrawals are taxed as income.
Following pension reforms in 2006, AVCs have become less common. Since then, it has been possible to have a personal pension with a different provider alongside a workplace pension.
If you have an AVC pension, you can transfer it to a new provider without transferring your main workplace pension. However, as an AVC is administered alongside your workplace pension, it might have some additional fees. Your employer may also be willing to contribute to your AVC as well as your workplace pension.
What are free standing AVCs?
A free-standing additional voluntary contribution (FSAVC) scheme is not run by your employer’s pension scheme. It is similar to an AVC scheme as it is separate from your workplace pension. The difference is that it is administered by a different provider.