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Wednesday, October 29, 2008

AVC Pensions

What is an AVC Pension?

AVC stands for 'additional voluntary contribution' and allows you to make supplementary contributions to your employers pension scheme. The scheme rules will stipulate how much you are able to contribute to the main scheme for example 6% of your earnings you may need to increase the amount you save towards your pension to do this you use a AVC Pension Fund.
Broadly most AVC funds are administered by a pension provider for example the Teachers Pension Scheme use Prudential to administer its AVC contributions.

Advantages of AVC Funds.

The main advantages of using AVC's are cost. All AVC schemes are group arrangements so the costs of running and administering the AVC scheme are shared and reduced for each individual member. You can also change your contributions to suit your circumstances and select a range of funds that the provider allows you to invest in and of course your receive tax relief on your contributions.

Tax Relief and AVC Funds.

AVC's are taken from your pay before tax and qualify for tax relief in the same way as your main pension scheme. In terms of contributions your are only limited by the 'Annual Allowance' in 2008/09 235,000 it should be noted you will only receive tax relief on 100% of your earnings.

Taking Benefits form your AVC Fund.

You can convert your AVC pension fund between the ages of 50 and 75 and take the benefits without taking your main scheme. Post A Day pension changes allows you to release 25% tax free cash lump sum and purchase an annuity (pension income) however you do have the option of deferring the annuity and using an income draw down plan.

As always please take financial advice before making decisions about your AVC fund and review the fund on regular basis (at least once a year).

Always contact your main pension scheme administrator to check your scheme rules.

Richard Bishop is a regulated independent financial advisor. If you need advice on your AVC fund Please contact me direct: 0845 4675982 or email: richard.bishop@lighthousetemple.co.uk For more information please visit: pension credit calculator

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