AVCs and tax savings

One of the reasons you might choose to save for your retirement with AVCs, alongside your main scheme pension, is the tax savings they offer.

Regular AVCs are taken from your pay before tax, so the money you'd normally pay as income tax automatically goes into your AVC pot instead, as you can see below. If you pay tax at a higher rate, your tax savings will be higher. If you don't pay tax, you won't benefit from tax savings.

Income tax on pension savings

The total amount of tax relief you get on your pension savings is limited so make sure you're aware of the 'Important information about pensions allowances'. The UK Government may change these allowances from time to time so check their website to see any changes which may impact you. If you think you might be affected, you can get more information from the HM Revenue & Customs website.

If you're a member of a salary sacrifice arrangement, please speak to your employer about how this may affect you.

Tax savings will depend on your individual circumstances and rules can also change.

Your rate of income tax

As your contributions, including any paid by salary sacrifice, are deducted from your earnings before your tax bill is worked out, the amount of income tax you pay will be based on what's left.

If you're a Scottish taxpayer, you'll pay tax based on the Scottish rate of income tax and tax bands. For more information on Scottish income tax, visit www.gov.uk/scottish-rate-income-tax.

If you're a Welsh taxpayer, you'll pay tax based on the Welsh rate of income tax and tax bands. For more information on Welsh income tax, visit www.gov.uk/welsh-income-tax.

More information

What's an AVC?

Additional Voluntary Contributions, or AVCs, are a separate pot of money you can build up alongside your employer’s pension scheme to give you extra retirement benefits.

How AVCs could help you

It’s important to plan for your future. You may need more money than you think when you retire as.

Flexible paying in, flexible paying out

Life isn't always as simple as we'd like it to be. Some things take us by surprise and those surprises.

Investment choices

It's up to you to decide which investment option is right for your needs. Watch our 'Understanding your investment options' video for more information.

Existing customers

It’s important to regularly review your AVC pot to make sure you’re on track to achieve the lifestyle you want when you stop working.