Website of the UK government

Please note that this website has a UK government accesskeys system.

Public services all in one place

Main menu

Sunday, 30 October 2011

Making Additional Voluntary Contributions (AVCs) to your company pension

AVCs offer a cost-effective way to increase your pension fund if you have a company pension scheme. Following changes effective from April 2006, there are now more ways to pay extra funds into your pension.

Topping up your pension with AVCs

Company ('occupational') pension scheme contributions are normally made up of:

  • your own regular contributions
  • an amount from your employer

You might want to increase the value of your pension fund to provide additional benefits for yourself or your family. Or because you started saving for a pension later in life.

One option is to make 'top up' payments from your salary, so you'll receive a larger pension when you retire. These payments are known as AVCs and were offered by all company pension schemes up until April 2006.

Advantages of AVCs

You benefit from:

  • lower administration charges in most cases than if you invested into a separate pension scheme
  • the opportunity to stop or vary the amount you pay
  • tax relief on your contributions (up to certain limits – read 'Pension rules from April 2006')

Some companies may no longer offer AVCs following changes to pension rules in April 2006. There are now more options for topping up your company pension through other means.

How AVCs are used by your pension fund

The benefits you'll receive from your AVCs will depend on the type of company scheme you're in, and the rules of the scheme.

Money purchase scheme

With a money purchase scheme, your contributions (and those of your employer) are invested by an insurance company or a professional manager. The amount of pension you get depends on how much you've contributed and how well the investment has performed.

When you retire, the whole fund – including your AVCs – is used to buy your pension.

Final salary (defined-benefit) scheme

With a final salary scheme, the amount you get is based on your salary and the number of years you've been in the scheme. Sometimes AVCs increase the number of years your benefits are based on; sometimes they build up a separate fund to buy extra benefits.

You'll need to talk to your pension scheme administrator to find out about your schemes rules.

AVC refunds

If you die, your AVCs are usually repaid - together with any interest earned. However, this depends on the rules of your scheme, so you'll need to check with your pension scheme administrator.

Free-standing AVCs

Free-standing AVCs (FSAVCs) differ from ordinary AVCs because they're:

  • arranged by you, not through an employer
  • paid into a pension scheme run by a financial institution such as an insurance company or bank

The advantages of FSAVCs are:

  • you can continue to pay into a scheme even if you change employer
  • they may give you more investment options

However, the administration costs will usually be higher.

Pension rules from April 2006

Up until April 2006, there were restrictions on how much you could put into a company and personal pension at the same time. This meant that AVCs sometimes offered the only option for topping up your pension.

However, following the April 2006 changes, you can now save as much as you like into any number of pensions schemes. This includes company, personal and stakeholder pensions, including through AVCs and FSAVCs. You will get tax relief on your contributions of up to 100 per cent of your earnings each year, subject to an upper 'annual allowance'. Savings above the annual allowance and a separate 'lifetime allowance' of total pensions savings will be subject to tax charges.

Where to get help and advice

A number of organisations offer free information on the different ways you can save for your pension. But they can't give you financial advice tailored to your needs. To understand the best options for you it's a good idea to get financial advice.

Was this information useful?

How useful did you find this information?

500 character limit
Your Privacy Opens new window

Why are we asking for this information?

  • we want to hear what you think about the quality and usefulness of our pages
  • your comments will help us improve our pages
  • your comments will also help with the future development of Directgov
  • telling us what you think will help make sure we give you the very best service

Access keys

If you would like to take part in our website visitor survey, please visit the site and then come back and select this link to take part in the survey.