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Additional Voluntary Contributions (AVC)

Also known as: AVC, Additional Pension Contributions

Definition

Additional Voluntary Contributions (AVCs) are extra pension payments you make beyond your standard contributions to increase your retirement income, typically taken from your salary before tax and invested separately.

Understanding AVCs is crucial for estate planning because they pass outside your will through nomination forms, affecting how retirement savings reach beneficiaries.

What Are Additional Voluntary Contributions (AVCs)?

Under the National Health Service Pension Scheme (Additional Voluntary Contributions) Regulations 2000, AVCs are voluntary extra payments to your pension scheme beyond mandatory contributions. These contributions receive automatic tax relief—basic-rate taxpayers get 20% relief at source, while higher-rate taxpayers can claim an additional 20% through Self Assessment. The money is invested separately from your main pension scheme, building a fund you access at retirement.

Public sector workers—particularly NHS staff, teachers, and civil servants—commonly use AVCs to supplement defined benefit pensions. Dr. Sarah Williams, a GP earning £85,000, contributes 5% of her salary (£4,250 annually) through salary sacrifice, receiving 40% higher-rate tax relief. Over 22 years with 5% growth, her AVC pot could reach £168,000. All contributions count toward the annual allowance of £60,000 for the 2024/25 tax year across all schemes.

AVCs work through fixed monthly payments or a percentage of salary, invested in funds from conservative to growth-focused. Access is tied to your main pension scheme—you can only withdraw AVCs when you start taking your main pension, typically from age 55 (rising to 57 from April 2028). At retirement, take up to 25% as a tax-free lump sum and use the remainder for income through an annuity or drawdown.

The critical estate planning issue is nomination forms. AVCs pass outside your will through "expression of wish" forms with your pension provider. Trustees have discretion to distribute death benefits, so nominations aren't legally binding. Without nomination, your AVC pot becomes part of your estate, potentially incurring inheritance tax. Emma Thompson, a nurse practitioner, discovered she needed a separate AVC nomination form naming her two children as beneficiaries—her will alone wasn't enough to ensure the funds passed directly outside probate.

Common Questions

"How do AVCs affect my estate planning and will?" AVCs are separate from your main pension and usually pass outside your will through nomination forms. You should name beneficiaries on your AVC provider's nomination form to ensure these funds go to your chosen recipients. If you don't nominate anyone, your AVC pot typically becomes part of your estate and may be subject to inheritance tax.

"Can I access my AVC pot before my main pension?" Generally, no—your AVC pot is usually tied to your main pension scheme and can only be accessed when you start taking your main pension benefits, typically from age 55 (rising to 57 from April 2028). Some schemes may offer limited flexibility, but most require you to take AVCs at the same time as your main scheme benefits.

"Do AVCs count toward the annual pension allowance?" Yes, AVC contributions count toward your annual allowance of £60,000 (2024/25 tax year). All pension contributions across all schemes—including AVCs, employer contributions, and personal pensions—must stay within this limit. Exceeding it triggers a tax charge, though tapered allowances may apply for high earners.

Common Misconceptions

Myth: AVCs automatically pass to my spouse through my will

Reality: AVCs pass outside your will through nomination forms with your pension provider. Without a valid nomination, the AVC pot may become part of your estate and pass according to intestacy rules, potentially incurring inheritance tax and delaying payment. Trustees have discretion over death benefits—nominations aren't legally binding.

Myth: I can take my AVC pot whenever I like after age 55

Reality: Most workplace AVC schemes tie access to your main pension scheme rules. You can only take your AVC pot when you retire and start drawing your main pension, not independently. Only FSAVCs (Free-Standing Additional Voluntary Contributions) offer independent access. The 2015 pension freedoms don't override individual scheme rules linking AVCs to main benefits.

  • NHS Pension Scheme: The defined benefit framework within which NHS workers make AVCs to supplement retirement income.
  • Pension Benefits: AVCs create additional pension benefits beyond main scheme entitlements, accessible at retirement.
  • Deferred Member: AVC pots continue growing for deferred members who leave the scheme before retirement.
  • Pensionable Pay: The salary base used to calculate AVC contribution amounts in salary sacrifice arrangements.

Need Help with Your Will?

Understanding AVCs is essential for coordinating pension planning with your estate. Ensure your AVC nomination forms align with your will to avoid inheritance tax complications and direct your retirement savings to chosen beneficiaries.

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Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.