Additional voluntary contributions

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Advice from the Pension Service
New State retirement ages

If you belong to a company pension scheme you can boost your pension prospects by making extra savings, called additional voluntary contributions (AVCs). These days, every company that runs a pension scheme has to offer an AVC scheme as well, by law.

Employees are allowed to save up to 15 percent of their earnings into a pension plan. Most company main schemes ask for contributions from employees of between 4 percent and 6 percent of their basic salary, leaving a lot of leeway. Some lucky employees have non-contributory pension schemes, which means they can put the full 15 percent into an AVC.

Perks

The precise rule is that you can save 15 percent of taxable earnings: that can include overtime, bonuses and the value of taxable perks such as a company car. Your pensions or personnel department will advise.

Most company AVCs offer at least a couple of investment choices: an equity fund, and a cash or deposit fund. Choose the equity fund if you have got at least five years to go before retirement - there is a good chance it will produce higher growth, but there could be some ups and downs along the way. If you are very cautious, or have only a few years to go, choose the safer deposit or cash fund.

If you do not like the company plan, you can buy a "freestanding" AVC plan from an insurance company instead. This will have higher charges, but a bigger range of investment funds to choose from.

When you retire, you have to take your AVC fund in the form of an extra pension: the company is not allowed to pay out a cash lump sum.