Pensions explained
AVC Pensions: How Additional Contributions Work
An additional voluntary contribution is an extra pension payment. It may build an invested pot or buy extra scheme benefits. Start with which arrangement your employer offers, then compare what the payments buy.
UK overview · scheme rules differ
2 min read · By Pension Bible editorial team · Sources checked
LGPS AVC versus APC comparison →
In this guide
An investment pot or extra scheme pension?
A defined contribution AVC builds invested savings whose value can rise or fall. A defined benefit arrangement can provide extra benefits under the scheme’s rules. A free-standing AVC is a separate pension arrangement rather than the employer-linked AVC.
Voluntary National Insurance contributions are different again: those concern the State Pension record, not an AVC investment pot.
Source: MoneyHelper — AVCs and FSAVCs.
Does every AVC get the same tax saving?
No. The contribution method matters. Payroll contributions, relief at source and employer salary-sacrifice arrangements do not work identically. Ask how the payment will appear on your payslip and what is actually credited to the pension.
An AVC is not an extra tax-relief allowance on top of your other pensions. Relevant earnings, total pension input and any applicable allowance restrictions still need checking.
Source: HMRC — contribution relief.
The LGPS example: AVC and APC are distinct
In the England and Wales LGPS, an AVC builds a separate invested pot. An Additional Pension Contribution (APC) buys extra scheme pension. A shared-cost AVC depends on what the employer offers; it is not a universal arrangement.
Our LGPS comparison below explains the different outputs and directs quotation questions to the scheme. A generic growth calculation cannot price an APC entitlement.
Source: LGPS — paying more.
Questions to take to the employer or scheme
Use this list to obtain comparable information before interpreting a projection. Keep the employer’s response with the current scheme booklet and latest statement.
- What is the exact name and type of my additional-contribution arrangement?
- Does the payment buy invested units, additional annual pension or another benefit?
- Which charges apply, and does my employer contribute anything extra?
- When can benefits be taken, and what happens if I leave employment or stop paying?
- Which protections, guarantees or payment options could be lost on a transfer?
- Which statement or official quotation will show the actual terms?
Do AVCs become tax-free cash?
Do not assume an AVC can always be taken entirely tax free. The outcome depends on scheme rules, how benefits are taken and remaining allowances. A favourable illustration for one public-sector scheme is not a general promise for all AVCs.
For example, LGPS AVC treatment can depend on taking it with the main benefits. Confirm the fund’s calculation rather than treating the entire AVC balance as automatically available cash.
Source: LGPS — taking AVC benefits.