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About additional voluntary contributions (AVCs)

Payments into your workplace pension are normally made up of:

Additional voluntary contributions (AVCs) are extra pension contributions that you can make to top up your pension.

Advantages of AVCs

You benefit from:

• Pension rules from April 2006

Topping up an existing workplace pension

If you want to top up an existing pension, you should check with your scheme to see if:

• you can pay additional voluntary contributions
• your partner or another person can make third party contributions, some defined contribution schemes allow this

Up until April 2006, there were restrictions on how much you could put into a workplace and personal pension at the same time. This meant that AVCs sometimes were the only option for topping up your pension.

However, in April 2006, those restrictions were removed and you can now save as much as you like into any number of pensions schemes. This includes workplace, personal and stakeholder pensions.

You'll get tax relief on your contributions of up to 100 per cent of your earnings each year, subject to an upper 'annual allowance'. Savings above the annual allowance and a separate 'lifetime allowance' of total pensions savings will be subject to tax charges. See the link 'Pension rules from 2006' for more information on 'annual allowance'.

• Pension rules from April 2006

How AVCs are used by your workplace pension provider

The benefits you'll receive from your AVCs will depend on the type of workplace pension scheme you're in, and the rules of the scheme.

Defined contribution pension schemes (including all personal and stakeholder pension schemes)

The value of your pension pot is based on the amount of money paid in and how well it has been invested. The whole pension pot, including your AVCs or any third party contributions, will be used to provide for your pension income.

Defined benefit pension schemes (final salary schemes)

The amount you get is based on your salary and the number of years you've been in the scheme. Sometimes AVCs increase the number of years your benefits are based on; sometimes they build up a separate fund to buy extra benefits.

To find out more you'll need to talk to whoever runs your pension scheme about your scheme's rules.

• Types of workplace pension schemes

• Guide to different types of pensions - Money Advice Service Opens new window

• Additional Voluntary Contributions (AVCs) on The Pensions Advisory Service website Opens new window

AVC refunds

If you die, your AVCs are usually repaid - together with any interest earned. However, this depends on the rules of your scheme, so you'll need to check with whoever runs your pension scheme.

• What happens to your company pension when you die

Free-standing AVCs

Free-standing AVCs (FSAVCs) differ from ordinary AVCs because they're:

The advantages of FSAVCs are:

However, the administration costs will usually be higher.

Where to get help and advice

A number of organisations offer free information on the different ways you can save for your pension. But they can't give you financial advice tailored to your needs. To understand the best options for you it's a good idea to get financial advice.

• Pensions and financial advisers: who to contact

More useful links

• Contact details for the Pension Advisory Service

• Choosing and using a pensions adviser

• Pension scheme information from the HM Revenue and Customs Opens new window

• Use the Money Advice Service stakeholder pensions decision trees Opens new window

Useful contacts

• Money, tax and benefits contacts