Additional Voluntary Contributions - Pension Save

vikashkumar23

Hi, 

Can I please know about Additional Voluntary Contributions and its advantages?

I am 33 now and how this will help me with my pension plan?

I can contribute from 1% to 95% of my salary. The plan says "I pay less NI so my take-home pay increases"

There are also two contributions , gross and salary sacrifice. 

Can any one explain what this plan is about with an example for 30K, 50K and 70K salary?

How will I be get advantage on this plan? 

If you require further information please let me know.

Thanks.

Marcon

vikashkumar23 said:

Hi, 

Can I please know about Additional Voluntary Contributions and its advantages?

I am 33 now and how this will help me with my pension plan?

I can contribute from 1% to 95% of my salary. The plan says "I pay less NI so my take-home pay increases"

There are also two contributions , gross and salary sacrifice. 

Can any one explain what this plan is about with an example for 30K, 50K and 70K salary?

How will I be get advantage on this plan? 

If you require further information please let me know.

Thanks.

AVCs are simply extra contributions paid by the member. The advantages to you are getting tax relief on your contributions, and having bigger pension benefits when it comes to retirement. Do you know what sort of pension scheme you are in: defined benefit (aka final salary/CARE) or defined contribution (aka money purchase)?

Plenty of easy to understand general info here: https://www.moneyhelper.org.uk/en/pensions-and-retirement/building-your-retirement-pot/what-are-avcs-and-fsavcs

Sounds as if you're reading an out of date scheme booklet, though. You don't pay less NI - 'contracting out' was abolished some years ago - unless you pay by salary sacrifice. Lots of thread on this forum explaining what this is and how it works. If you use the search box (just above/to the right of the red banner marked 'Create Post') that will help you find them e.g. https://forums.moneysavingexpert.com/discussion/comment/78760106#Comment_78760106

dunstonh

Can I please know about Additional Voluntary Contributions and its advantages?

Historically, occupational pensions had to offer an AVC to run along side their scheme.  However, the need to provide an AVC was abolished in 2006.   Some schemes got rid of their AVC.   Some schemes ceased to update their AVC after 2006 (so it looks very poor quality compared to modern individual plans).     The Government-backed schemes tended to maintain their AVC but also have hybrid additional pensions which are usually better value.

There are a small number of AVCs that link in with the main scheme in respect of paying the tax free lump sum.  But most do not and nowadays, most AVCs are not as good as individual schemes.

From what you are talking about, it doesn't appear to be an AVC but making extra contributions above the scheme default.    AVCs are not required with money purchase schemes as the extra payments can be handled within the scheme without the need of an AVC.

Salary sacrifice is a way to reduce both yours and your employer NI contributions.   The employer classes it is as a contribution they have made and they lower your salary by the amount.   The same gross amount goes into the pension but you pay less NI (as does the employer) and you get more in your net pay.    If you didnt use salary sacrifice, you salary would not be reduced and the amount of NI would not be reduced but the same amount would go into the pension.