Are AVC pensions worth it? They can be: tax relief and possible tax-free cash, set against investment risk, charges and money locked in until retirement.

Are AVC pensions worth it? The short answer

An additional voluntary contribution (AVC) is extra money you choose to pay into a workplace pension on top of what the scheme requires (what an AVC is covers the mechanics). Whether that is worth doing turns on the tax relief going in, how you can take the money out, and what the pot costs and risks in between. Those three can be weighed against your own pensions by an FCA-authorised adviser, without charge: leave your number on this page's form. The Local Government Pension Scheme (LGPS) and the NHS Pension Scheme serve as examples below.

Invested AVC pot or extra scheme pension?

Defined benefit schemes such as these two offer two quite different ways to pay extra. HMRC's Pensions Tax Manual (PTM063220, updated 24 August 2026) notes that many defined benefit schemes hold members' AVCs in a money purchase arrangement, separate from the main scheme benefits. The alternative buys extra guaranteed pension from the scheme itself.

  • LGPS: every local government pension fund has an in-house AVC with a provider, often an insurance company or building society, and you choose how your own account is invested. Alternatively, additional pension contributions buy extra yearly pension: up to £9,054, according to the LGPS member site as captured in June 2026. The cost "depends on your age, how much yearly pension you buy and how you choose to spread the payments."
  • NHS Pension Scheme: money purchase AVCs (MPAVCs) are held with one of the scheme's two providers, Standard Life or Prudential, and do not increase the benefits the NHS scheme pays. Additional pension (AP) instead buys index-linked pension, by lump sum or monthly instalments over one to 20 years. NHSBSA puts the maximum at £9,053 from 1 April 2026 in the 2015 Scheme, adding that the limit may change.

Bought pension has catches of its own. The LGPS says of its extra pension: "It will generally be reduced if you take your pension early, or increased if you take it later." NHSBSA notes: "AP does not automatically increase your standard lump sum on retirement." For the main schemes themselves, see the LGPS explained and whether the NHS pension is worth it.

Tax relief on AVCs, and where salary sacrifice fits

Tax relief is the main draw. The LGPS says AVCs "are taken directly from your pay before your tax is worked out, so if you pay tax, you receive tax relief automatically." Relief stops at contributions equal to 100% of your UK taxable earnings, and the annual allowance caps tax-relieved saving across all your pensions each year.

Salary sacrifice depends on the scheme. An LGPS employer can choose to pay towards your AVC, known as a Shared Cost AVC, and may offer it through salary sacrifice, in which case you pay no tax or National Insurance on those contributions; ask your employer. NHSBSA, by contrast, says MPAVCs cannot be paid by salary sacrifice. The two routes are compared in salary sacrifice versus AVCs, and relief in general in pension tax relief.

Using an AVC for tax-free cash at retirement

Then there is cash at retirement. PTM063220 explains that, rather than paying two separate lump sums, "the scheme can give the member the option of drawing more (or all) of their total lump sum entitlement under the scheme from the money purchase arrangement(s) holding their AVC benefits." The main benefits then provide "a higher scheme pension and no lump sum." This is an option a scheme may offer, so its own rules decide. In practice:

  • LGPS: the member site (April 2026 capture) says that from 6 April 2024 the maximum tax-free lump sum is the lowest of 25% of the capital value of your benefits, £268,275, or £268,275 less lump sums you have already taken. Prudential's Local Government AVC key features (LAVK0846 06/2026) allow all or part of the AVC as tax-free cash if it is taken at the same time as the main scheme benefits and does not exceed 25% of the combined value of the AVC and the main benefits, within HMRC's maximum.
  • NHS: NHSBSA says that, in addition to a Scheme lump sum, you may be able to take up to 25% of the MPAVC fund value tax-free. Since 1 April 2015, members aged 55 or over can take MPAVC benefits separately from their NHS pension, whenever wider tax and pensions law permits.

Cash is not the only use. The LGPS calculator page says: "Taking your AVC as tax-free cash may not be the right choice for you." The fund could provide regular income instead, and you may not be able to take all of it as cash. Pension Wise, MoneyHelper's free and impartial government guidance service for people over 50, covers these choices; the main pension's own lump sum is in final salary pension options. How an AVC lump sum fits your scheme pension and savings is personal, so it suits a conversation: the enquiry form here leads to a free call, and the FCA-authorised adviser on it can work through your figures.

AVC charges and investment risk

An in-house AVC is invested, so its value is not guaranteed. Prudential's key features for the Local Government AVC warn: "The value of your investment can go down as well as up so you might not get back the amount you put in." The same document says charges depend on the funds you choose and may be higher than for a stakeholder pension, that they continue if you stop paying in, and that they may rise in future. If total charges outstrip growth, the plan falls in value.

The June 2026 key features give one specific figure, for the With-Profits Fund only: "The charge is currently expected to be approximately 0.76% a year if the investment return in the With-Profits Fund is 5% a year (gross of tax)." It moves with that fund's returns. For charges more widely, see pension charges.

AVC pension pros and cons

In favour

  • Tax relief through pay for taxpayers, and in some LGPS employers a Shared Cost AVC through salary sacrifice.
  • Flexible payments: Prudential's plan lets you increase, reduce or stop them at any time.
  • Your own choice of funds in an in-house AVC.
  • Possible tax-free cash from the AVC, leaving the scheme pension higher, where the scheme allows.
  • Optional extra life cover in the LGPS, though not every AVC provider offers it.

Against

  • Investment value can drop, possibly below what you contributed.
  • No refund: Prudential says once money is paid in, you can only take it as pension benefits.
  • Charges continue if you stop paying, and may rise.
  • In Prudential's LGPS AVC, benefits cannot be taken before the main pension.
  • Tax-free cash is capped, and may not cover the whole fund.
  • Taking money out of a defined contribution pension will sometimes lower how much you can later pay in with tax relief, under the money purchase annual allowance.

More on AVCs: personal pensions, FSAVCs and leaving

Is an AVC better than a personal pension?

Neither is better in every case. LGPS members can pay into a personal or stakeholder pension at the same time, choosing the provider and comparing its charges and investments; Prudential itself says a stakeholder pension "may meet your needs as well as this plan". See personal pension vs SIPP and what a SIPP is.

What is a free-standing AVC?

An FSAVC is a plan you arrange yourself, usually with an insurance company. The LGPS describes FSAVCs as similar to in-house AVCs but not linked to the scheme in any way.

What happens to my AVC if I leave my job?

In Prudential's Local Government AVC, payments stop and the plan stays invested, with charges taken until you take your benefits. The LGPS lets you transfer an AVC only if you have stopped paying AVCs in all LGPS employments, are not receiving an annuity or top-up pension bought with an LGPS AVC, and move all your LGPS AVC plans together. It also warns that scammers operate in this market; see how to transfer a pension.

Before you start paying in

Your scheme's AVC guide and administrator can say what your own scheme allows. If you would like an AVC checked beside your scheme pension, savings and tax, post your details through this page's short enquiry form; the follow-up call, from an FCA-authorised adviser, is free.

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