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Additional Voluntary Contributions (AVC's) Additional Voluntary Contributions These are contributions over and above normal contributions, if any, which the member of an occupational pension scheme elects to pay to the scheme in order to secure additional benefits. For some schemes, in particular government employee's schemes, it may be possible to pay an extra amount or AVC that will buy added years of pension. More commonly AVC's will go in to some form of money purchase contract which will build up into a sum of money that will be used to purchase an extra pension at retirement age. This can be the case even if the main scheme is not a money purchase scheme. AVC funds have to be used to purchase extra pension at retirement and cannot be taken in the form of tax free cash. AVC payments can also be used for life insurance if the scheme benefits are inadequate. All Occupational Schemes have to allow scheme members to pay into an AVC scheme but many large company schemes have appointed Equitable Life or other insurance company to run their in house AVC pension schemes. Occasionally an employer will pay an extra sum into a scheme on behalf of a member if the member chooses to pay AVC's. Paying Extra Stakeholders came in on the 6th April, 2001. Many commentators have suggested that they are an attractive alternative to AVC's for many occupational pension scheme members. (Earnings must be under £30,000 p.a. for both to be used). Free Standing AVC's These are an alternative to 'in house' AVC's which are paid to an insurance company of the individual members choice rather than to the main pension scheme provider. They are more flexible in that if you change pension scheme you can maintain the FSAVC. However, the costs on FSAVC's are sometimes higher than main scheme AVC's which may to some extent be subsidised by the employer. Limits The maximum that can be paid into an AVC or FSAVC is 15% of a members total earnings from that occupation in any tax year. The 15% must include any amount that is the "normal" contribution into the scheme. So if the scheme requires 5% of basic salary as a normal contribution the maximum AVC is 15 - 5 = 10% of normal salary plus 15% of any bonuses overtime etc. If this is not paid in any tax year there is no facility to carry the unused contributions forward to another year. |