Stay up to date with notifications from The Independent

Notifications can be managed in browser preferences.

a to z of finance

Clifford German
Wednesday 31 January 1996 00:02 GMT
Comments

A is for additional voluntary contributions:

Company pensions are much prized these days because they are a function of length of service and final salary and do not depend on how well or badly pension contributions have been invested.

Most company schemes assume that you and your employer will contribute something like 4-6 per cent of your salary.

In fact, you can contribute up to 15 per cent of gross income to a pension scheme, which gives plenty of scope for AVCs. You can pay a percentage of salary or a lump sum, deducted from your taxable pay, and invested by your employers in a building society or unit trust.

Pensions are linked to investment performance, not final salary, and contributions cannot be withdrawn before retirement. But they are not liable to tax, and AVCs are a useful way of increasing pensions, especially for employees getting close to retirement, whose other financial burdens are diminishing, and those paying top-rate tax.

If your employer does not have an AVC facility, you can contribute to an outside plan run by a life assurance company known as a free-standing AVC (FSAVC). Management charges, especially for small sums, can be high, however.

CG

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in