What are Additional Voluntary Contributions?

Additional Voluntary Contributions (AVCs) are extra payments you can make on top of your regular workplace pension contributions to boost your retirement income. They're made through your employer's pension scheme and attract the same tax relief as your normal contributions. AVCs are available in most public sector schemes (NHS, teachers, LGPS, civil service) and many private sector schemes. They're a simple way to build a bigger pension pot, especially if you're not contributing the maximum allowed.

AVCs can be very worthwhile because they attract tax relief at your marginal rate (20%, 40%, or 45%), are often taken from your salary before tax (salary sacrifice), which saves National Insurance too, build up tax-free within the pension fund, and can often be taken as a tax-free lump sum at retirement (up to 25% of the AVC pot). For higher-rate taxpayers, the effective cost of a £100 AVC contribution is only £58 (after 40% tax relief + 2% NI saving). The main alternative is a standalone personal pension or SIPP, which offers similar tax relief but may have different fund choices and charges.

Can I take my AVCs as a tax-free lump sum?

In most defined benefit schemes (NHS, LGPS, teachers), you can take your entire AVC pot as a tax-free lump sum at retirement — as long as the total tax-free cash from your main pension plus AVCs doesn't exceed 25% of your total pension value (or the lifetime lump sum allowance). This is a significant advantage — you build up a pot with tax-relieved contributions and potentially take it all back tax-free. Rules vary by scheme, so check your specific pension scheme booklet.

How much can I pay into AVCs?

You can pay up to 100% of your UK earnings into pensions in total (including your regular contributions and AVCs), up to the annual allowance of £60,000 (2025/26). Most people can also use unused annual allowance from the previous three tax years (carry forward). In practice, scheme rules may set a minimum contribution (often £10–£50 per month) and you choose how much to pay above that. You can usually start, stop, increase, or decrease AVCs at any time.

Additional Voluntary Contributions (AVCs) Guide — Boost Your Pension | PocketWise

If your workplace pension isn’t going to give you enough in retirement, Additional Voluntary Contributions are one of the simplest ways to top up.

What Are AVCs?

Feature	Detail
Definition	Extra contributions on top of your regular workplace pension
Made through	Your employer’s pension scheme
Tax relief	Same as regular contributions — at your marginal rate
Annual limit	Up to £60,000 total pension contributions (including regular + AVCs)
Minimum contribution	Typically £10–£50/month
Can I stop/change?	Yes — usually at any time

How AVCs Work

Step	Detail
1	You choose how much extra to contribute (monthly or lump sum)
2	Money is taken from your salary before tax (if salary sacrifice) or with tax relief added
3	Contributions go into an AVC fund — separate from your main pension
4	The fund grows tax-free
5	At retirement, you use the AVC pot to boost your benefits

Types of AVC

Type	How it works	Where available
In-house AVC	Extra contributions into your employer’s pension scheme	Most public and private sector schemes
Shared Cost AVC (SCAVC)	Employer makes the contribution via salary sacrifice — saves NI for both you and employer	Some public sector schemes (NHS, LGPS in some areas)
Free-Standing AVC (FSAVC)	Separate AVC scheme with a different provider	Less common now — usually a standalone personal pension is better

Shared Cost AVCs — The Best Deal

Feature	Standard AVC	Shared Cost AVC (salary sacrifice)
Tax relief at 20%	Yes	Yes
Tax relief at 40/45%	Yes (via Self Assessment if needed)	Yes (automatic — salary reduced before tax)
NI saving (employee)	No	Yes — save 8% or 2% NI
NI saving (employer)	No	Yes — employer saves 13.8% NI
Employer may pass on NI saving	N/A	Some schemes add the employer NI saving to your AVC pot

Tax Relief on AVCs

Tax band	Your cost of a £100 AVC
Basic rate (20%)	£80 net cost (£20 tax relief)
Higher rate (40%)	£60 net cost (£40 tax relief)
Additional rate (45%)	£55 net cost (£45 tax relief)
Shared cost AVC (higher rate, salary sacrifice)	~£52 net cost (40% tax + ~8% NI)

What Happens at Retirement

Option	Detail
Tax-free lump sum	Take up to 25% of your total pension value as tax-free cash (AVCs can provide all or part of this)
Buy additional pension	Use AVCs to purchase extra annual pension income
Drawdown	In some schemes, access AVCs via flexible drawdown
Annuity	Use the AVC pot to buy an annuity
Transfer out	Transfer AVCs to a personal pension or SIPP for more flexibility

The Tax-Free Lump Sum Advantage

In defined benefit schemes, you can often take your entire AVC pot as a tax-free lump sum — as long as:

Condition	Detail
Total tax-free cash ≤ 25% of total pension value	Combined main pension lump sum + AVCs must not exceed 25%
Lump sum allowance (LSA)	Must not exceed £268,275 (standard)
Scheme rules allow it	Check your specific scheme

Example:

Main pension value: £400,000
25% tax-free cash: £100,000
Main scheme lump sum: £70,000
AVC pot: £30,000
Result: Take entire £30,000 AVC tax-free (total £100,000 = 25%)

AVCs by Public Sector Scheme

Scheme	AVC provider	Shared cost available?
NHS Pension	Prudential	Yes (in some areas)
Teachers’ Pension	Prudential	Varies by employer
LGPS	Prudential (most funds)	Yes (in many funds)
Civil Service	Various (scheme-dependent)	Varies
Armed Forces	Not typically — but can use standalone pension	N/A

AVCs vs Personal Pension/SIPP

Factor	AVCs	Personal pension/SIPP
Tax relief	Same	Same
NI saving (salary sacrifice)	Yes (if shared cost)	No (unless employer offers salary sacrifice into SIPP)
Fund choices	Limited — scheme’s AVC funds	Wide — thousands of funds available
Charges	Often low (0.3–0.75%)	Varies (0.1–1.5%)
Tax-free lump sum	Can take entire AVC pot tax-free (DB schemes)	Up to 25% of pot
Flexibility at retirement	Limited by scheme rules	Full flexibility (drawdown, UFPLS, annuity)
Ease of setup	Very easy — tell your employer	Open an account, set up contributions

Summary: AVCs are best if you want simplicity, NI savings (shared cost), and the tax-free lump sum advantage. A SIPP is better if you want maximum fund choice and withdrawal flexibility.

How to Start AVCs

Step	Action
1	Check your pension scheme’s AVC options (scheme booklet or HR department)
2	Decide how much to contribute (check the annual allowance)
3	Choose your AVC fund(s) — consider your risk tolerance and time to retirement
4	Complete the AVC application form (from HR or the AVC provider)
5	Contributions start from your next pay date