Additional voluntary contributions (AVCs) meaning

THIS PRACTICE NOTE APPLIES IN RELATION TO OCCUPATIONAL PENSION SCHEMES What are additional voluntary contributions? Additional Voluntary Contributions (AVCs) are contributions that members of occupational pension schemes choose to pay, beyond those required by the scheme rules, which therefore give the member extra benefits on top of the basic benefits of the relevant scheme. The nature of benefits funded by AVCs is determined by the scheme’s rules. They may provide extra defined benefits (often referred to as ‘added years’), but in most instances AVC entitlements build up on a money purchase basis. Why distinguish them from other contributions? For several purposes the contributions, and the benefits purchased with them, are treated as a distinct class separate from normal contributions and benefits. In some areas this produces more restrictive treatment than applies to other benefits; in others, more favourable rules apply. Notably, on a winding up of the pension scheme, funds arising from AVCs have been handled differently from other scheme assets. This reflects that not every...

A-day 'A-day' is the widely used term for the broad pension tax 'simplification' reforms that began on 6 April 2006. The changes covered: how much pension contribution was allowed, the kinds of schemes an individual could invest in, the sums that could be taken (and when), and the choices available for any remaining fund. A-day also introduced the annual allowance and the (now abolished) lifetime allowance. See: Annual allowance and Lifetime allowance. AFPS AFPS: Armed forces pension scheme; see Practice Note: Public sector pensions and family proceedings. Accrual rate The speed at which pension benefits build as pensionable service is completed in a final salary scheme, eg 1/60 for each year of pensionable service. Accrued benefits The benefits earned in respect of service up to a specified date. Added years Extra pension provided by adding further years of pensionable service in a salary-related scheme. Such additional years are secured via transfer payments or through additional voluntary contributions/augmentation...

FORTHCOMING DEVELOPMENT : Section 10 of the Finance Act 2022 is set to raise the normal minimum pension age (NMPA) from 55 to 57 on 6 April 2028, excluding members of the firefighters, police and armed forces public service pension schemes. This change takes effect on the stated date and will not apply to specified uniformed services. The Act will also permit members of registered pension schemes to access benefits before 57 where, on or before 4 November 2021, they either already held an 'unqualified right' to take benefits or were undertaking a substantive transfer to a scheme that, on or before 4 November 2021, offered an unqualified right to a protected pension age below 57. To rely on this new 2028 protection, the scheme’s rules must, as at 11 February 2021, have contained an unqualified right to draw scheme benefits before age 57. For additional detail, see Practice Note: Increasing the normal minimum pension age (NMPA) to 57—pensions impact...