Summary

Additional Voluntary Contributions (AVCs) are extra payments a UK employee makes into their occupational pension scheme on top of their main contributions. They are designed to boost retirement income and, in many cases, the tax-free cash that can be taken at retirement.

In-scheme AVCs sit alongside the main workplace scheme (commonly run by Prudential, Standard Life, Legal &Amp; General or Scottish Widows for public sector employers). Free-Standing AVCs (FSAVCs) are separate contracts with an insurer, now less common since stakeholder pensions and SIPPs grew.

AVCs typically attract income tax relief through net pay or salary sacrifice. The Annual Allowance for most savers in 2025/26 is 60,000 pounds, and the Money Purchase Annual Allowance (MPAA) is 10,000 pounds once flexible benefits have been accessed.

This article is informational only and not financial advice.

Key Takeaways

• AVCs are extra pension contributions made through your employer's workplace scheme.
• They generally receive income tax relief at your marginal rate via net pay or salary sacrifice.
• There are two main types: in-scheme AVCs and Free-Standing AVCs (FSAVCs).
• Public sector schemes such as the LGPS, NHS, Teachers' Pensions and Civil Service all offer AVC Options.
• The 2025/26 standard Annual Allowance is 60,000 pounds; MPAA is 10,000 pounds once flexible access is triggered.
• Normal Minimum Pension Age is 55, rising to 57 from 6 April 2028.
• Up to 25% of the total benefit value can usually be taken as a tax-free lump sum, subject to the Lump Sum Allowance of 268,275 pounds.

AVCs Explained: How UK Workers Can Top Up Their Workplace Pension

Additional Voluntary Contributions, almost always shortened to AVCs, are one of the longest-established ways for UK employees to top up a workplace pension. They allow a worker to pay more than the standard employee contribution into a savings pot that is run alongside the main occupational scheme, with the aim of producing a larger retirement income, a bigger tax-free lump sum, or earlier retirement.

For the 2025/26 tax year, AVCs remain particularly relevant to members of defined benefit schemes - including the Local Government Pension Scheme (LGPS), the NHS Pension Scheme, the Teachers' Pension Scheme and the Civil Service pension arrangements - because they are the main way these members can build a flexible, money purchase pot inside the workplace.

AVCs are also used by employees of large private sector employers whose trust-based schemes still offer a bolt-on AVC Facility. Understanding how contributions are taxed, how the pot is invested, when it can be accessed and how it interacts with the main scheme is essential before signing up. This explainer sets out the framework as published by GOV.UK, HMRC and MoneyHelper, and points to the scheme-specific rules savers should check.

What an AVC actually is

An AVC is an extra payment made into your employer's occupational pension scheme over and above the standard employee contribution. The money is invested in a separate, defined contribution (money purchase) pot in your name, while your main scheme benefits continue to build up under their own rules - for example, on a career-average revalued Earnings (CARE) basis in most public sector schemes.

Crucially, an AVC is not a separate personal pension. It is part of the workplace arrangement and is governed by the trust deed and rules of that scheme, by HMRC's registered pension scheme rules and by The Pensions Regulator's oversight where applicable. The Investment options and charges are negotiated by the scheme on behalf of members, which often produces lower charges than a retail product.

AVCs were introduced in their modern form by the Finance Act 1970 and have been refined by every major pensions act since. They predate the personal pension regime (1988) and the stakeholder pension regime (2001), and although fewer private employers offer them today, they remain central to the UK public sector pensions landscape.

In-scheme AVCs versus Free-Standing AVCs (FSAVCs)

There are two distinct legal flavours. An in-scheme AVC is offered by your own employer's scheme and is administered alongside it. A Free-Standing AVC, or FSAVC, is a contract you take out personally with an insurer - historically Prudential, Standard Life, Aviva, Royal London or similar - that is independent of your employer but still classed as an AVC for HMRC purposes.

In-scheme AVCs are generally the more attractive option today because the employer or scheme has selected the provider, negotiated charges, and the contributions flow through Payroll. FSAVCs are now largely a legacy product; new contracts are rare and most savers seeking a separate plan now use a Self-Invested Personal Pension (SIPP) or a stakeholder pension instead.

Both routes attract income tax relief, but the mechanics differ. In-scheme AVCs in public sector schemes usually use the net pay arrangement, where contributions are deducted before income tax is calculated. FSAVCs typically use relief at source, where basic-rate relief is added by the provider and higher-rate taxpayers claim the rest through Self Assessment.

How tax relief works on AVCs in 2025/26

Tax relief is the headline reason most people consider an AVC. A 100-pound AVC costs a basic-rate taxpayer 80 pounds in net pay terms, a higher-rate taxpayer 60 pounds and an additional-rate taxpayer 55 pounds, before any National Insurance considerations. Where an employer offers salary sacrifice (sometimes called Shared Cost AVC in the LGPS), both income tax and National Insurance are saved on the sacrificed amount.

Tax relief is limited by two HMRC measures. First, you can only obtain relief on personal contributions up to 100% of your UK relevant earnings (or 3,600 pounds gross if you earn less). Second, total pension input across all schemes is tested against the Annual Allowance, which is 60,000 pounds for most savers in 2025/26.

The Annual Allowance is tapered for very high earners (adjusted income above 260,000 pounds) down to a minimum of 10,000 pounds, and is reduced to the 10,000-pound Money Purchase Annual Allowance once an individual has flexibly accessed a defined contribution pot. Both tapering and MPAA need to be checked carefully before paying large AVCs late in a career.

How AVC contributions are invested

Once deducted from pay, AVCs are passed to the scheme's chosen AVC provider and invested in funds selected by the member. Most public sector AVC arrangements offer a default lifestyle strategy plus a range of self-select funds covering global equities, UK equities, corporate bonds, gilts, property, multi-asset, ethical/ESG and a cash fund.

Charges are typically expressed as a fund management charge (FMC) within an annual management charge (AMC). LGPS Shared Cost AVCs run by Prudential, Standard Life or Scottish Widows often have charges in the region of 0.30% to 0.65% a year depending on the fund. Members should always check the latest fund factsheets and key features document.

As with any defined contribution pot, the eventual value depends on contributions, investment returns, charges and the length of time invested. The pot is not guaranteed to grow and can fall in value, particularly in the short term when held in equities.

Accessing your AVC pot at retirement

AVCs can normally be accessed from the Normal Minimum Pension Age (NMPA), which is 55 in 2025/26 and rises to 57 from 6 April 2028 under the Finance Act 2022. Some long-standing scheme members may retain a protected pension age below 57 - the scheme administrator will confirm.

At retirement, the AVC pot can usually be: taken as a tax-free cash lump sum (up to 25% of the combined benefit value, subject to the Lump Sum Allowance of 268,275 pounds); used to buy an Annuity inside or outside the scheme; transferred to a personal pension or SIPP for flexi-access drawdown; or, in defined benefit schemes, used to buy extra annual pension under scheme rules.

In the LGPS, in particular, the rules allow members to take up to 100% of their AVC pot as tax-free cash, provided the total tax-free cash does not exceed 25% of the combined value of the main scheme benefits and AVC pot. This AVC lump sum option is a key reason LGPS members use Shared Cost AVCs.

Who an AVC might suit - and the trade-offs

AVCs typically appeal to employees who already pay the standard scheme contribution but have additional capacity to save, particularly those who are higher or additional-rate taxpayers, those approaching retirement who want a bigger tax-free cash sum, and members of defined benefit schemes seeking a flexible pot to complement guaranteed income.

The trade-offs are familiar. Money paid into an AVC is normally locked away until at least age 55 (57 from April 2028). The investment value is not guaranteed; the eventual retirement income depends on markets and on annuity rates if an annuity is bought. AVCs do not buy added DB pension automatically - that is a separate option called Added Pension (NHS) or Additional Pension Contributions (LGPS APC).

As with any pension decision, the right level of AVC depends on personal circumstances: emergency savings, other debts, the State Pension forecast, expected retirement age and household income. Most savers benefit from a free Pension Wise appointment from age 50, or from regulated advice.