What are additional voluntary contributions (AVCs) and how do they work?

Full answer

Additional voluntary contributions (AVCs) are optional extra pension payments made alongside your main occupational scheme, most often linked to a defined-benefit (final-salary) or workplace scheme. They let you build a separate pot to increase your retirement income, take extra tax-free cash, or buy added pension. Some employers also offer in-house AVCs through a chosen provider. The main attraction is tax relief. Contributions get relief at your marginal Income Tax rate -- 20% for a basic-rate taxpayer, 40% for higher-rate, or 45% for additional-rate. If your scheme uses 'net pay' or salary sacrifice, relief (and sometimes NI savings) is given automatically through payroll; if it uses 'relief at source', basic-rate relief is added by the provider and higher-rate relief is claimed via Self Assessment. Worked example: a higher-rate taxpayer pays GBP 200 a month into an AVC. Through tax relief the real cost is GBP 120 -- the 40% relief covers GBP 80 -- so GBP 200 lands in the pot each month for an GBP 120 outlay. AVCs count towards the GBP 60,000 annual allowance (2026/27), which includes all pension inputs across employer and personal contributions. High earners may have a tapered allowance, and anyone who has flexibly accessed a pension is limited to the GBP 10,000 Money Purchase Annual Allowance. Exceeding the allowance triggers a tax charge, though unused allowance from the previous three years can sometimes be carried forward. Free-standing AVCs (FSAVCs) are a similar product run by a separate provider rather than your employer. AVCs suit people who want to pay more in efficiently, especially higher-rate taxpayers and those approaching retirement. Always check scheme rules on charges, investment choice and how the pot can be drawn. Use a pension calculator to model contributions and the tax relief boost.

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