Your AVC retirement options depend on the kind of AVC you hold: tax-free cash, extra pension, an annuity, drawdown or a transfer may all be on the table.

What are your AVC options when you retire?

What you can do with an additional voluntary contribution (AVC) pot at retirement depends on what type it is and on your scheme's own rules (what an AVC is covers the basics). Some AVCs buy extra guaranteed pension. Others build a separate invested pot that can be taken as cash, as an income for life, as flexible income, or as a mix. Free guidance on the pot-style options is available from Pension Wise, part of MoneyHelper. Prefer to see the AVC next to your other pensions with someone? Leaving a number lets an FCA-authorised adviser ring for a chat, at no cost; the form on this page is short.

The AVC itself is only one part of your retirement income, so the defined contribution options at retirement and final salary pension options guides cover the rest.

Which kind of AVC pot do you have?

MoneyHelper, in a copy of its AVC guide archived on 5 September 2025, separates two kinds. A defined benefit AVC scheme puts your extra money into your existing pension to give extra guaranteed benefits or income. A defined contribution AVC scheme grows a separate invested pot that can rise and fall until you take it. For the second kind, "you can usually choose how and when you want to take your pot of money", for example all at once, as several lump sums, as guaranteed income or a mixture.

The first kind comes with different perks. MoneyHelper says common perks might include added years, a better accrual rate, extra guaranteed income, a larger tax-free lump sum without reducing future regular income, or an earlier retirement date. The line between the two is blurrier in practice: HMRC's Pensions Tax Manual (PTM063220) points out that in many defined benefit schemes the AVC sits in its own money purchase arrangement, apart from the main pension. Your scheme's AVC booklet or administrator will say which applies. If the paperwork stays unclear, this page's call-back form brings an FCA-authorised adviser who can go over the booklet line by line, free.

Taking an AVC as tax-free cash

GOV.UK says: "You can usually take up to 25% of the amount built up in any pension as a tax-free lump sum. The most you can take is £268,275." People holding a protected allowance may get more. The limit is shared by all your pensions, so AVC cash and cash from your main scheme draw on the same allowance (see taking lump sums from several pensions).

How the AVC cash sits beside the main scheme's lump sum is set by the scheme's rules, and two public schemes show how far apart they can be:

  • AVC cash in place of cash from the main pension. HMRC's manual (PTM063220) says a scheme can let a member draw more, or all, of their tax-free cash from the AVC pot, so the defined benefit side pays a bigger scheme pension with no lump sum. Prudential's Local Government AVC follows this pattern: all or part of the plan can be taken as cash if you take it at the same time as your main scheme benefits, keep within 25% of the AVC and main benefits added together, and stay inside HMRC's maximum. The LGPS member site warns you may not be able to take your whole AVC fund as cash, and its maximum AVC lump sum calculator works out the most you could take.
  • AVC cash on top of the scheme lump sum. NHSBSA says: "In addition to a Scheme lump sum, you may be able to take up to 25% of the fund value as a tax-free lump sum."

Cash is not the only use of the pot, which could pay an income instead; the case for and against is weighed in whether AVCs are worth it. For how tax-free cash works on any pension, see how to claim the tax-free lump sum.

AVC annuity or drawdown: turning the pot into income

Where the AVC is a money purchase pot, the income choices mirror any defined contribution pension. Prudential's Local Government AVC key features (LAVK0846) set out its menu, which it says is subject to the rules of your scheme: flexible income through drawdown, a guaranteed income for life (an annuity), cashing in the whole plan, taking cash in stages, or a combination. With drawdown it says you can take up to 25% as tax-free cash at the start and dip into the rest when you like, and with an annuity you can in most cases take up to 25% in cash at the start and take the rest as income. It adds that "Depending on your choices, you might need to move your pot to another pension to access some of these options or to access them when you prefer."

The trade-off is the usual one. MoneyHelper describes an annuity as converting some or all of a pension into guaranteed income, either for life or a fixed period, with the rate depending on factors such as your age, your health, how long the income lasts and the options you choose. Drawdown keeps the money invested, so as Prudential warns, "The value of your investment can go down as well as up so you might not get back the amount you put in." The two are compared in annuity or drawdown, with detail in how a pension annuity works and how pension drawdown works.

One tax trap concerns later saving. HMRC's manual says the money purchase annual allowance test applies when you first flexibly access a money purchase pot in certain circumstances; among the listed triggers are being paid an uncrystallised funds pension lump sum for the first time, or the opening payment out of flexi-access drawdown. A lifetime annuity can also trigger it, if its terms allow the payments to fall, "the terms of the annuity contract allow actual, or possible, decreases in the amount of annuity payable other than in prescribed circumstances". Whether that affects a given AVC is covered in the money purchase annual allowance explained.

Which income route suits an AVC pot turns on your other pensions, your health and your tax position. With your whole income in view the choice is clearer, and an FCA-authorised adviser will weigh the two with you on a free call; this page's short form sets that up.

Can I take my AVC before I retire?

Sometimes, but not always, and the rules differ by scheme. MoneyHelper says that the earliest you can usually take pension money is 55 (57 from April 2028) and that defined benefit AVC schemes often will not pay out until your scheme's normal retirement age. Prudential's key features say the same age rise, from 55 to 57 on 6 April 2028, unless you have a protected pension.

Examples show the spread. NHSBSA says an NHS money purchase AVC member aged 55 or over can access those benefits separately from their NHS Pension Scheme benefits, from any point that wider tax and pensions law permits, and "This could be before the date of retirement from the NHS Pension Scheme." Prudential's Local Government AVC says the opposite: "You’re unable to take your AVC benefits before your main LGPS scheme benefits." Your scheme's AVC guide has the answer for your own pot; for the general rules see taking your pension at 55 and penalties for taking a pension early.

Is an AVC pension taxable when I take it?

Yes, the part above any tax-free cash is usually taxable. You will not usually pay tax if your total income for the year stays under the Personal Allowance, which GOV.UK gives as usually £12,570. Tax-free cash leaves that allowance untouched, and most providers deduct the tax under PAYE before paying you.

Size matters. GOV.UK warns: "You might have to pay Income Tax at a higher rate if you take a large amount from your pension. You could also owe extra tax at the end of the tax year." Prudential gives a rough sense of the stakes when cashing in a whole plan: normally the first 25% is tax-free, but on the remainder you could lose 20%, 40% or even 45% to income tax if it pushes you into a higher tax bracket. Scottish residents pay Scottish Income Tax on pension income, GOV.UK notes, and its bands and rates are set separately. If you send in a Self Assessment tax return, GOV.UK says you must include income from private pensions on it, and your provider's P60 shows the tax already paid.

Moving an AVC pot to another provider

Some AVC holders can move the pot. Prudential's Local Government AVC lets you transfer to another registered pension scheme at any time up to age 75, as long as you have stopped paying in and have not already used any of the pot to buy an annuity or pension from the scheme, and a Market Value Reduction may apply to money leaving its With-Profits Fund. NHSBSA says an NHS MPAVC cannot be transferred into the NHS Pension Scheme, though it may be possible to move to one of the NHS MPAVC providers. Check charges and guarantees first, and watch for scams: see how to transfer a pension.

Cashing in, leaving and paying in: AVC queries at retirement

Can I take my AVC in several smaller lump sums?

Prudential's Local Government AVC allows it: you can leave the money in the plan and take cash when you need it, until it has all gone or you choose something else. Each time, the first 25% is usually tax-free and the rest may be subject to income tax. Other schemes may not offer this, so check your own scheme's AVC guide.

What if I retire and leave my AVC where it is?

Timing matters in Prudential's Local Government AVC: its tax-free cash route alongside the LGPS applies only if you take the AVC at the same time as your main scheme benefits. Under the terms of that contract you also need to take your benefits by age 75, and charges continue while the money stays invested. Other schemes have their own rules, so ask your AVC provider.

Does the cash count towards my lump sum allowance?

GOV.UK says a pension commencement lump sum counts towards your lump sum allowance, and that you must add up the allowance used across all the schemes you belong to. Ask each provider how much you have used.

Who can guide me through the choice for nothing?

A free Pension Wise appointment explains how to take money from a UK defined contribution pension if you are 50 or over, and MoneyHelper's pension specialists answer questions by phone or webchat. First check with your provider whether your AVC counts as defined contribution.

Before you decide what to do with your AVC

Your own AVC is governed by your scheme's rules, your other pensions and your tax position. Want the whole picture checked? Request a call through the enquiry form. Your AVC, scheme pension and tax can all be covered by an FCA-authorised adviser, with no charge to you.