Additional Voluntary Contributions (AVCs)

The total amount you can pay into all your pension arrangements each year, including any AVC scheme, is limited to either of 100% your earnings or £50,000, whichever is lower.  The £50,000 limit (known as the Annual Allowance) includes the value of any contributions paid by your employer.

The pension scheme may allow members to take a tax-free lump sum from their AVC fund.  You should check with your pension scheme administrators.

'In-house' AVC schemes frequently benefit from no cost or low cost administration charges as the trustees can negotiate these with the provider of the AVC arrangement. Contributions payable to AVCs enjoy the same tax concessions as the main scheme contributions.

Many people choose to contribute to an AVC scheme because it gives them an opportunity to make good any shortfall in future pension benefits brought about by breaks in service, early retirement etc. However, because AVCs are an investment, there is no guarantee that your contributions will exactly make up for any years of membership you will fall short of building up.

With an FSAVC, you have the choice of the insurance company, the choice of investment medium, and the opportunity to carry on contributing even if there is a change of the main scheme or change of employer.

Like an 'in-house' AVC scheme, contributions to an FSAVC scheme can only be made while you are a member of an occupational pension scheme. In the past if you left an occupational pension scheme and did not join a new one HMRC required FSAVC payments to stop. Since April 2006, a member can make contributions to a scheme of a former employer (so long as the rules of the relevant scheme permit it). HMRC has no objections to this. Also some FSAVC were "converted" to personal pension plans and these plans can get around the restrictions as well, assuming that the individual meets the requirements for paying into a personal pension plan.

FSAVCs inevitably, in most cases, are expensive to set up compared with an 'in house'; AVC arrangement. This is because the employer sponsors the 'in house' arrangement whereas the FSAVC is not sponsored. In addition, the contributor may also see that the annual charges are higher than an 'in house' AVC arrangement.

This will depend on the rules of your employer's pension scheme. Since 30th June 1999, HM Revenue & Customs has permitted AVCs and FSAVCs to come into payment at a different time from the main scheme benefits. Benefits from both these types of arrangements can now be taken at any time after age 55, subject to any restrictions in the scheme's rules.

However, this will only be available if the pension scheme rules have been altered to facilitate this - it is not an automatic right. You should also note that benefits could be taken before age 55 if the contributor leaves employment because of incapacity.

Yes. It is possible to contribute to an occupational pension scheme and a stakeholder or personal pension at the same time. There is no limit on the number of schemes that you can contribute to but there is a limit on the amount of tax relieved savings that can be made each year. An overview of these rules can be found here: Pension Contribution Rules