What are AVCs and FSAVCs?

If you have a workplace pension, Additional Voluntary Contribution (AVC) and Free Standing Additional Voluntary Contribution (FSAVC) schemes allow you to pay higher contributions. This helps you build up extra benefits.

How AVC and FSAVC schemes work

Additional Voluntary Contributions (AVC)

An AVC pension allows members of workplace pension schemes to build up pension benefits in addition to the standard benefits provided by their scheme. Think of it as topping up your pension savings.

These are set up by an employer or the trustees of an employer’s pension scheme. They are designed to sit alongside the main workplace pension scheme.

With an AVC pension, the contributions are usually deducted from your salary and sent to the pension scheme by your employer. 

There are two main types of AVC schemes:

Defined contribution AVC scheme

With a defined contribution pension, you make contributions which are then invested to give you a pot of money for retirement.

You can begin taking money from this pot, potentially, from the age of 55, at the same time or after you begin taking income from the main scheme. The exact timings will depend on your scheme’s rules.

The value of your pension pot will depend on:

  • how much you’ve contributed to the AVC scheme
  • how long each contribution has been invested
  • how your investments perform over time.

Defined benefit AVC scheme (sometimes called ‘added years AVC’)

Defined benefit pensions pay a retirement income based on your salary and how long you have worked for your employer.

So, instead of contributing additional money to be invested as with a defined contribution scheme, the money you pay into a defined benefit AVC is used to buy extra time in the employer’s defined benefit pension scheme.

These ‘added years’ increase the pension benefits that you can get when you retire.

As an ‘added years AVC’ is tied to the main employer’s scheme, benefits can only be taken from the AVC at the same time that benefits are taken from the main scheme.

Speak to your employer for further details about the scheme and what you would get.

Free Standing Additional Voluntary Contributions (FSAVC)

FSAVCs are similar to additional voluntary contributions and are also designed to sit alongside your company pension.

The difference is that instead of the employer setting up the plan and deducting contributions from your salary, you set it up yourself through a pension provider and the FSAVCs are collected from you directly.

Your contributions are then invested to give you a pot of money for retirement.

As FSAVCs are separate from your main scheme, you can usually begin to take money from this pot at any time after age 55. This can vary depending on your scheme’s rules, so check with your provider.

The value of your pension pot will depend on:

  • how much you’ve contributed to the FSAVC scheme
  • how long each contribution has been invested
  • how your investments perform over time.

Are AVCs and FSAVCs a good investment?

That really depends on you. The arrangement and type of pension you have, where your scheme invests your payments, any charges and any other circumstances that affect your retirement will all be a factor in whether these payments will be the best use of your money.

Here are the benefits of saving into an AVC:

  • They can help you build up extra benefits for retirement.
  • They may be cheaper when compared to the costs of setting up a pension yourself.
  • They can offer you the flexibility to be able to stop or change the amounts you contribute over time.
  • You’ll receive tax relief on your contributions (up to certain limits). For more information see our guide Tax relief and your pension

There are lots of benefits to saving with AVCs and FSAVCs (as set out above), and putting extra aside for your retirement is always worth it, even if you decide to save in a way that does not involve AVCs and FSAVCs.

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Whatever your circumstances or plans, move forward with MoneyHelper.

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