If you’re part of a workplace pension, you can boost your retirement benefits through Additional Voluntary Contributions (AVCs) or Free Standing Additional Voluntary Contributions (FSAVCs). These are simply ways to pay extra money on top of your regular pension contributions, helping you increase the amount you receive when you retire.
There’s more than one way to make these additional contributions, and each method can offer different types of benefits. It’s also worth noting that not all pension schemes are the same the options available and the benefits they provide can vary depending on your specific pension plan.
How AVCs and FSAVCs Actually Work
AVCs: Topping Up Through Your Workplace Pension
An AVC pension gives you the opportunity to build up extra pension benefits on top of what you’re already getting from your workplace scheme essentially a way to top up your retirement savings.
These schemes are usually set up by your employer or by the trustees of your employer’s main pension scheme. They’re designed to work alongside your existing workplace pension, not replace it.
With an AVC, contributions are typically taken straight from your salary and paid into the scheme by your employer making it a simple and regular way to boost your pension pot.
There are two main types of AVC schemes:
Defined Contribution AVCs: Building a Separate Retirement Pot
With a Defined Contribution (DC) AVC scheme, the extra money you contribute is invested to build up a separate pot for your retirement. It’s an additional savings pot that sits alongside your main pension.
You can usually start accessing this money from age 55 (rising to 57 from April 2028), either at the same time as your main pension or later depending on the rules of your specific scheme.
The value of your AVC pot will depend on a few key factors:
- how much you’ve paid in
- how long your money has been invested
- and how well those investments have performed over time.
In some cases, your employer might also contribute to your AVC scheme — either by topping up or even matching your contributions, which can help your pot grow even faster.
Defined Benefit AVCs (or ‘Added Years’): Boosting Your Pension
A Defined Benefit AVC scheme often referred to as an ‘added years AVC’ works a bit differently. Instead of building a separate pot of money, this type of AVC is designed to increase the guaranteed income you receive in retirement.
Defined benefit pensions provide a retirement income based on your salary and how long you’ve been part of the scheme, with contributions paid in throughout your membership.
To understand exactly how an added years AVC might work for you and what additional benefits it could offer, it’s best to speak directly with your employer or pension scheme provider. They’ll be able to give you the full details based on your specific plan.
FSAVCs: Taking Control with a Standalone Pension Top-Up
FSAVCs work in a similar way to regular Additional Voluntary Contributions, they’re designed to sit alongside your company pension and help you build up extra savings for retirement.
The key difference is that, unlike AVCs which are arranged by your employer and deducted from your salary, FSAVCs are set up by you directly through a pension provider. Your contributions are paid straight from you to the provider, rather than going through your employer.
Just like with other defined contribution schemes, the money you put in is invested to build a separate retirement pot.
Because FSAVCs are independent from your main workplace scheme, you usually have more flexibility in how and when you access the funds. You can typically start taking money from this pot any time after age 55 (rising to 57 from April 2028). However, the exact timing can vary depending on your provider’s rules, so it’s worth checking with them.
The final value of your FSAVC pot will depend on:
- how much you’ve paid in
- how long your money has been invested
- and how well your investments have performed over time.
Are AVCs and FSAVCs Worth It for You?
That really comes down to your individual circumstances. Whether these options are right for you depends on a range of factors including the type of pension you have, how your contributions are invested, the fees involved, and any other elements that could impact your retirement plans.
That said, there are some clear benefits to saving into an AVC:
- They help you build up extra pension benefits for the future.
- They’re often more cost-effective compared to setting up a separate pension on your own.
- They offer flexibility you can usually start, stop, or adjust your contributions whenever you need to.
- You’ll get tax relief on your contributions (within certain limits). For more details, take a look at our guide: How tax relief boosts your pension contributions.
AVCs and FSAVCs come with several advantages, as outlined above. And while they may not be the right fit for everyone, putting a little extra aside for retirement is almost always a smart move even if you choose to do it in a different way.
Exploring Your Pension Top-Up Options: What You Might Be Able to Do
When it comes to boosting your pension, different schemes offer different ways to do it. Here’s a look at some of the more common options you might come across:
Buying ‘Added Years’ to Boost Your Pension Income
Rather than contributing extra money to be invested (as you would in a Defined Contribution scheme), with a Defined Benefit AVC, your additional payments are used to buy extra time in your employer’s pension scheme. These “added years” increase the pension benefits you’ll receive when you retire.
Added Pension: Buying Extra Income for Life
In this option, you pay in extra contributions to buy a specific amount of guaranteed pension income. For example, you might pay £15,000 to receive an extra £1,000 a year for life. This doesn’t change how your main scheme calculates your pension, it simply adds a bit more to what you’ll receive once your pension starts.
Buying a Tax-Free Lump Sum for Retirement
This works in a similar way, you make extra contributions, but instead of buying more annual income, you use them to buy a tax-free lump sum for when you retire. The goal here is to avoid giving up as much of your regular pension to take a lump sum later.
Enhanced Build-Up: Accelerating How Fast Your Pension Grows
The amount of pension you earn each year is based on a ‘build-up’ or ‘accrual’ rate often shown as a fraction of your salary.
By making higher contributions, you can speed up how much pension you earn each year.
For instance, your scheme might build up at 1/57 of your earnings per year, meaning if you earn £28,000, you’d get £491 for that year (£28,000 ÷ 57). But if you opt to contribute more, you might be able to improve that to 1/55 or even 1/50, giving you £509 or £560, respectively, for the same year’s earnings.
Offsetting Reductions for Early Retirement
Most defined benefit schemes have a set retirement age when they begin paying out your pension. If you want to retire earlier than that, your income is usually reduced, since it’ll be paid out for longer.
With this option, you can make extra contributions now to offset that reduction, so you can take your pension earlier without your income being cut.
Other Options
This list isn’t exhaustive, there may be other choices depending on your pension scheme. It’s always a good idea to speak to your pension provider or scheme administrator. They can walk you through all the options available and help you understand what each one could mean for your retirement.
If you’re unsure what options your pension scheme offers, it’s always worth speaking to your provider or a regulated financial adviser to make the most of what’s available.
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