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Additional voluntary contributions (AVCs)

3 November 2005

By making AVCs members can increase their pension benefits, often substantially.

Potentially an individual can accrue pension to the HM Revenue and Customs defined lifetime allowance (£1 million as at 2016-7). The majority of people will have a pension fund far lower than the allowance so by making AVCs members can increase their pension benefits, often substantially, subject to an overall contribution limit (including the ordinary contributions) of 100% of salary provided the deductions can be made from the salary you would ordinarily receive. The contributions paid are net of income tax relief is given at the employee's highest marginal rate.

Buying scheme added years

In USS if you have a contract to purchase Added years normally in monthly instalments up to a maximum of 15% you will be able to continue the contract after 1 April 2016.  However they will be tied to whatever the members' final average salary was on 31 March 2016 ( increased by CPI with caps).

If a member retires before the contribution period is complete, that person will be credited with the proportion of extra years being brought which corresponds to the proportion of the contracted AVCs paid; where retirement is on ill-health grounds, all AVCs due before the scheme's normal retirement age will be treated as having been made.

There will be no further provision for 'Added Years' AVC after 1 April 2016.

Money purchase AVCs

The Prudential Assurance Company  has been chosen to provide group money purchase schemes for members of both TPS and USS; details of the available options must be obtained from any Pru office, not from UCU. Investment choices in the TPS Pru AVCs include a 'lifestyle' option. Initial and administration charges for the Pru Teachers' AVCs are lower than most competitors and are lower than those available from Pru as a member of the public. USS will cease this provision for new contracts after 1st October 2016.

Money purchase AVCs provide a fund that can be used:

  • to purchase an annuity which is effectively an increase in pension and, depending on the type of annuity purchased, spouse's or dependants' benefits can also be provided
  • to draw out in total with 25% of the fund as a cash free lump sum
  • as flexible draw down, taking part of the fund out at different times with 25% as a cash free lump sum with rest taxed at the individual's marginal rate of tax
  • funds built before 31 March 2016 in USS can also be draw with their final salary fund and be used for tax free cash or purchase of service. Funds after cannot be combined with USS pensions. USS will allow members with money purchases AVCs (MPAVC's) to continue only the 'with profit funds' until 30 September 2019. These funds will then cease but remain with prudential to ensure that members are not disadvantaged. Other MPAVC's fund will be moved into equivalent defined contribution funds or 'Investment Income' funds and members can continue to contribute there. Some of the funds with market adjustments will not be moved over until the penalties have been exhausted again so members are not disadvantaged.

Members are strongly advised to seek independent financial advice on the purchase of AVCs and on the options available for dealing with the money purchase fund at and after retirement, including the possibility of purchasing scheme added-years.

Further information

Free-standing AVCs

An alternative to the schemes offered by Pru AVC is a contract for freestanding additional voluntary contributions (FsAVCs) purchased from any company, but advice should be taken on its advisability given the scheme options provided and the selection of the provider. Initial and administration charges can vary between providers and should be very carefully considered.

Financial advice

The choice of AVC, or other investments has to remain one of individual preference, taking account of a wide range of different circumstances. UCU's role is to monitor the main agencies providing services and to assist with problems; under the financial services regulations we are not allowed to provide financial advice. You may wish to seek independent financial advice.

Last updated: 4 April 2019