AVCs Explained

You may be paying into your workplace pension every month but did you know that it’s possible to top up your pension savings beyond your monthly contributions? By making Additional Voluntary Contributions (AVCs), you can boost your pension pot beyond what it would otherwise be, helping you to achieve the lifestyle you want in retirement.

What is an AVC?

AVCs are exactly what they sound like; additional pension contributions made on a voluntary basis. These are additional payments made beyond what you contribute each month. An AVC can be made as a one-off payment or set up on a regular basis, paid as either a fixed amount or a percentage of your salary. You can pay as much as you like into an AVC, as long as it does not exceed 100% of your Salary. For example, if your normal monthly contribution is 6%, you will have the choice to pay a further 94% of your earnings as tax free AVCs.

Not all pension schemes provide AVCs but in the event that a scheme does not allow AVCs to be made, your employer must offer you the option to pay AVCs into a standard personal retirement savings account as an alternative.

Why would I want to pay extra into my pension?

If you are already contributing into your workplace pension every month, you may wonder why you would want to pay any more into your pension pot – especially if you have already raised your contribution level or are contributing at a higher rate than is matched by your employer.

Ultimately, the more you are able to pay into your pension pot, the more money you are likely to have in your pension when you retire. Not everyone will have the means to make additional contributions beyond what they make each month but AVCs can be a great way to help ensure you are as prepared for the future as possible. AVCs can be especially useful if you find yourself with money comfortably left over each month, or if you come into an additional sum of money beyond your usual monthly income (ie a bonus, inheritance, or large commission payment) and would like to invest more of this into your pension.

AVCs can also serve as a good way of enabling you to retire before your scheme’s normal pension age.

Crucially, any contributions you make via AVCs are taken from your pay before tax, so the money you’d normally pay as income tax automatically goes into your AVC pot instead. Please note that an annual pension allowance is set at £60,000, and this is the total value that can be paid into all your pensions each tax year before triggering a tax charge. This, combined with the potential returns of pension investments, mean that AVCs can be an effective way invest for your future.

How do I make an AVC with TPT?

If you want to set up an AVC, either as a one-off lump sum payment or as a regular deduction from your salary on top of your normal pension contribution, you can arrange this by completing an Application to Pay Additional Voluntary Contributions form and then giving this to your employer.

Please note that not all schemes support AVCs so please check this with your employer.