AVC – Additional Voluntary Contributions – Maximise your pension income
If you are paying pension fund contributions into a company pension scheme, additional voluntary contributions are a cost-effective way to increase your pension fund by paying extra funds into your pension scheme.
Contributions to your defined contribution pension scheme consist of two elements: your own regular monthly pension contributions, and a monthly amount from your employer. Both of these together are then topped up by tax relief at your top rate of tax, either 20% or 40%, depending on your earnings.
Principle First can provide pension advice on the benefits and prospective income from your pension, both as it stands at the moment and as it would rise, were you to opt for additional voluntary contributions.
Let us tell you about the benefits of additional voluntary contributions. Click here now for Pensions Advice or call 0800 678 5929
The most obvious benefit to making an AVC into your AVCs pension is that you increase your pension fund, achieve greater compound growth on your cash moving forward, and of course increase the amount of tax relief that you receive back. If you are a 20% taxpayer, additional voluntary contributions of £80 would be topped up by £20 in government tax relief, so that your AVC actually boosts your pension fund by £100.
It is important to note than some companies no longer accept additional voluntary contributions to their company pension scheme.
AVC – Additional Voluntary Contributions to a Final Salary Pension Scheme
In a final salary pension scheme, your pension is fixed in relation to your years of service and your salary upon retirement. Additional voluntary contributions to a final salary pension scheme still make sense, however, as AVC contributions can increase the number of years used to calculate your final benefits from the scheme. In some instances, making AVC contributions can build up a separate fund to buy extra benefits.
AVC refunds are possible with some schemes, and are paid with interest in the event of your death before taking your pension.
AVC – Free Standing Additional Voluntary Contributions
Additional voluntary contributions do not have to be made to your company pension scheme. They can also be paid to a separate scheme you arrange outside your company. These additional voluntary contributions would have nothing to do with your employer, but would still attract tax relief at your marginal rate. Because these additional voluntary contributions are arranged by you, they are known as free standing additional voluntary contributions.
