APC vs Shared Cost AVC: the pension powerhouses.
When people think about paying extra into their pension, they usually assume there’s only one option.
There isn’t.
If you’re a member of the LGPS, you actually have two ways to save more for retirement. Both sit alongside your main pension and both can help you retire with more money.
But that’s where the similarities end. Choosing the right one isn’t about which is better. It’s about understanding what each one is designed to do. Let’s get started.
Option 1: Buy yourself a bigger guaranteed pension.
Think of this as upgrading your future payslip.
With Additional Pension Contributions (APCs), you’re buying extra guaranteed income from the LGPS itself. That means:
– Every extra pound you buy increases the amount you’re paid each year in retirement.
– It’s inflation-linked.
– It keeps paying you for the rest of your life.
– There’s no investment risk or stock market ups and downs.
If certainty helps you sleep at night, APCs could be a great option.
The trade-off?
Rather than building a flexible pot to draw from, you’re increasing the guaranteed income your pension will pay you every year in retirement. It’s retirement income with the edges smoothed off.
Option 2: Build yourself a retirement pot with more flexibility.
Now imagine the opposite.
Instead of buying more guaranteed income, you’re building a pot that’s invested for you over time.
That’s what a Shared Cost AVC does.
And thanks to salary sacrifice, every contribution is made before Income Tax and National Insurance are deducted, making it one of the most tax-efficient ways to save. That pot can then give you choices later.
Depending on your circumstances and the rules that apply when you retire, you could use it to:
- Take tax-free cash.*
- Help bridge the gap if you retire before your State Pension starts.
- Draw money more flexibly throughout retirement.
- Leave money to your family if you don’t end up needing it yourself.
Where APCs are about certainty, Shared Cost AVCs are about options.
So… which one should you choose?
Well, you don’t necessarily have to. Many people use APCs because they like the security of guaranteed income. Many choose Shared Cost AVCs because they value flexibility and the tax savings.
Some use both.
The important thing is understanding what each one is designed to achieve, rather than assuming they’re interchangeable.
Don’t have a Shared Cost AVC yet?
This could be the easiest retirement decision you make this year.
Starting small is completely fine. Whether it’s £2, £50 or £100 a month, salary sacrifice means your contribution goes much further than you might expect.
In fact, every £100 from your salary becomes £138.75 in your Shared Cost AVC if you’re a basic rate taxpayer. It’s even more if you pay higher rate tax! That’s the power of Income Tax and National Insurance savings working in your favour.
And unlike many savings goals, you could be giving your money years to grow before retirement. Future you will probably be quite pleased you got started.
Already have one? When was the last time you looked at it?
Setting up a Shared Cost AVC is brilliant. Then… life happens. Your salary changes. You get a pay rise. Your mortgage gets smaller. Any kids become less expensive (eventually).
Yet your contribution often stays exactly where it started. A contribution that felt ambitious five years ago might barely make a dent today.
Taking two minutes to review what you’re paying in could have a surprisingly big impact on the size of your retirement pot. Even increasing it by a small amount now can make a meaningful difference over the years ahead.
Manage your Shared Cost AVC here.
The takeaway.
APCs buy you more guaranteed pension income but they can be expensive and die with you.
Shared Cost AVCs build you more flexibility.
They’re different tools for different jobs.
If you don’t have a Shared Cost AVC, it could be worth exploring whether now is the right time to start. And if you already have one, ask yourself one simple question:
Is it still working as hard as you are?
*Tax treatment depends on your individual circumstances and may change. Investments can go down as well as up. Tax-free cash from a Shared Cost AVC is subject to HMRC limits and is generally available when taken alongside your LGPS benefits.