Any employer that offers an occupational scheme must usually also offer staff the chance to save more if they wish through AVCs. (Sometimes an employer may make a contribution as well, though this is very rare.)
Your AVCs are normally used to buy an additional money purchase pension. It is like having an extra personal pension on top of your occupational scheme.
Because an AVC pension is arranged through your employer this may well have lower charges than an ordinary personal pension. AVCs may also top up the other benefits provided by your fund such as life insurance.
There used to be a limit on how much you could contribute each year to an AVC, but this was swept away in April 2006. Instead there is a now an effective lifetime limit on how much pension you can build up. If this exceeeds £1.5 million, then you will start to pay extremely high tax rates.
From 2006 you will be able to take 25% of your AVC pot as a lump sum, bringing them into line with stakeholder pensions.
You can have both a stakeholder pension and AVCs.
AVCs are usually a good way of topping up your pension.
