Additional Voluntary Contributions (AVCs)
Free Standing Additional Voluntary Contributions (FSAVCs)
This term is now redundant in its technical pre-April 2006 sense, although it is expected to continue as a marketing/descriptive term.
What you need to know post April 2006 if you have an existing AVC or FSAVC contract.
It will continue as a Money Purchase Arrangement, (possibly a Defined Benefit Arrangement in some “extra years” cases), and you can invest as much as you like, subject to the Annual and Lifetime Allowance rules.
The information below relates to pre-April 2006.
Additional Voluntary Contributions and Free Standing Additional Voluntary Contributions.
Key word: Voluntary.
These are ways by which you can enhance your pension if you belong to certain types of employer-run pension schemes. (Your adviser will tell you if they apply in your case).
In most cases it is a simple matter of building up a fund, which is then used to buy a pension (i.e. an ).
AVCs are contributions to the scheme itself (or to funds managed by the scheme manager). An FSAVC means that you are opting to put your money with another investment company independent of the employer's scheme.
FSAVCs are often more expensive (because the managers don’t have the economies of scale) but can spread the risk, or, in some cases, give you more investment strategy control. They have also, for those earning less than £30,000 a year, been largely superseded by , which are normally cheaper.
However one important type of AVC of particular interest to members of good , (especially index-linked public sector) , is that of “buying extra years” in which, instead of simply building up a fund, you can have your pension calculated as if you had worked for your employer for longer than you actually did. Depending on the maths, this may be a very good value option and should be explored if available.
Contributions to both AVCs and FSAVCs attract tax relief provided they do not breach the overall limit for pension contributions of 15% of salary.
Last updated on November 14, 2007