Additional Voluntary Contributions (AVCs)
Saving enough to live comfortably in retirement is important, but most of us have no idea how much we’ll need when we get there.
A core component of what we do at My Money Matters is salary sacrifice Shared Cost Additional Voluntary Contributions (Shared Cost AVCs), a lesser-known benefit available to employees within the Local Government Pension Scheme (LGPS) that helps them save more for retirement.
Many employees assume their state pension will be enough to provide a substantial income for retirement, but that’s rarely the case.
What are Shared Cost AVCs?
Shared Cost AVCs enable the employee to build an additional pot of money alongside their pension with contributions exempt from Income Tax and National Insurance contributions (NICs), with the potential to take it all as a tax-free lump sum when they retire.
The AVC contributions are held with the pension provider (Standard Life, Prudential etc.) and taken from the employee’s net pay via salary sacrifice, on which the employer also makes savings by paying less employer NI.
“Introducing Shared Cost AVCs was the easiest benefits introduction decision I've ever made, they provide an excellent vehicle for colleagues wishing to enhance their retirement benefits and increase their options.”
James
“I think Shared Cost AVCs are the greatest benefit in Local Government, it has the potential to be the one scheme that keeps employees working in Local Government. It’s a ‘safe’ way to get more involved and have more of an active role in your finances.”
Andrew
Savings Example
With a Shared Cost AVC £100 only costs a basic rate taxpayer £72.08! That’s an immediate value increase of 42.65% before the money is even invested.
If an employee were to contribute the above in a Shared Cost AVC for 15 years, their pot could be worth £22,697.27 at a cost to them of only £12,974.40!
That’s a growth of over 74%*...
Standard AVCs
We understand that not all employees may be eligible or willing to transition to your Shared Cost AVC scheme. This means your organisation may have members on both your standard AVC and your Shared Cost AVC scheme.
Standard AVCs provide employees with a valuable opportunity to save for retirement while enjoying Income Tax savings. Although AVCs do not offer the National Insurance savings provided by our Shared Cost AVCs, they still present a compelling benefit option.
*Figures are for illustrative purposes only. The figures shown are only estimates based on limited assumptions. The figures shown assume a net assumed growth rate of 3%. They do not include the impact of inflation and are not guaranteed or a personal recommendation. Basic rate savings are displayed as a guide only. Basic rate assumes an individual paying 20% Income Tax and 10% National Insurance contributions. The actual savings will depend on your personal circumstances and investment fund performance, which is invested by your Shared Cost AVC provider.
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