Understanding USS: Additional Voluntary Contributions
If you're a member of the USS pension scheme, you're already building a valuable retirement income. But did you know you can increase your retirement savings by making Additional Voluntary Contributions (AVCs)?
AVCs are an often-overlooked feature of the USS scheme that can offer significant advantages, including tax relief, investment growth and extra flexibility when you retire. Here's what you need to know.
What are Additional Voluntary Contributions (AVCs)?
AVCs are extra contributions you can choose to make into the Investment Builder section of USS. This is the defined contribution (DC) part of the scheme, separate from the defined benefit (DB) portion, and is a pot of money that you personally own. For more information about defined contribution and defined benefits, please visit our explanation of the two parts of this scheme
AVCs are entirely optional and flexible. They do not affect your main pension benefits and can be a useful way to increase your total retirement income or build a larger tax-free lump sum.
Why consider making AVCs?
Tax-efficient saving:
AVCs are deducted from your salary before tax. This means that for most people, every £100 paid in only costs £80 (as a basic-rate taxpayer). Higher-rate taxpayers benefit even more. This makes AVCs a very tax-efficient way to save more for retirement.
Flexibility and control:
You can:
- Start, stop, increase or decrease your AVCs at any time
- Choose how much you want to contribute
- Select how your AVC pot is invested
- Use the AVC pot in various ways when you retire.
More options at retirement:
You can use your AVC pot to:
- Take a tax-free lump sum (up to 25% of the value of your total USS benefits)
- Supplement your pension income
- Support early or phased retirement
- Leave as a legacy.
Important to know: employers do not match AVCs:
Some staff assume that AVCs attract employer contributions, but this is not the case.
While your employer does pay a significant contribution into USS (currently 14.5%), this does not increase if you pay AVCs. Your AVCs are entirely funded by you, although they still benefit from valuable tax relief and investment growth potential.
AVCs vs savings accounts: what’s the difference?
A common question is whether it’s better to put extra money into AVCs or simply into a regular savings account. Here’s a comparison to help you decide:
£100 into a USS AVC:
- Tax relief: You pay £100 from gross salary, so it only costs £80 (or less, if you’re a higher-rate taxpayer)
- Invested for growth: Your AVC pot is invested and may grow over time, though values can fluctuate
- Access: Locked in until retirement (usually age 55 or later)
- Retirement-focused: Designed to give flexible options when you retire, including tax-free lump sum or income drawdown.
£100 into a savings account:
- No tax relief: You save from post-tax income, so £100 costs you £100
- Lower growth: Typically offers lower interest rates, though it is low risk
- Access: Available any time for emergencies or short-term goals
- Not linked to retirement: No pension-specific advantages.
Summary table:
|
Feature |
£100 in AVC |
£100 in Savings Account |
|
Tax relief |
Yes – boosts your contribution |
No |
|
Growth potential |
Yes – invested (risk and return) |
Low – but safe |
|
Access |
Locked in until retirement |
Available anytime |
|
Risk |
Market risk |
Very low |
|
Best for |
Long-term retirement saving |
Short-term needs or flexibility |
Many people choose to do both – build an emergency cash buffer in a savings account, and use AVCs to enhance retirement income.
Frequently asked questions
Am I not already making AVCs?
No – the standard 6.1% employee contribution goes toward your core pension benefits. AVCs are extra contributions that you opt into separately.
Do AVCs affect my main pension?
No – AVCs do not change your defined benefit entitlement. They are invested separately in your individual Investment Builder pot.
What happens to the AVC pot?
Your AVCs are invested in USS-managed funds. You can stick with the default option or choose from a range of fund types, including ethical and lower-risk options. When you retire, the value of this pot is available for you to use however you choose – including as a lump sum or to draw income flexibly.
Is it still worth doing AVCs later in my career?
Yes – even a few years of AVCs can build up a valuable pot, especially with tax relief and investment returns. It's never too late to start boosting your savings.
How to set up AVCs
You can start AVCs at any time, just:
- Log in to the USS member portal
- Go to the Investment Builder tab on the left hand side of the landing page and click on ‘View or Manage Savings’
- Choose whether to make regular monthly AVCs or a one-off payment
- Decide how much to contribute, either as a fixed value or a percentage of your pay
- Tick the box to make your contributions via salary sacrifice
- Select your investment preferences (or stick with the default strategy).
You can change or stop your contributions whenever you like.
Final thought
- AVCs can be a simple and effective way to take more control of your retirement planning. They offer flexibility, tax efficiency, and the opportunity to grow your personal savings beyond the standard USS benefits.
- Whether you’re planning for early retirement, want to increase your lump sum, or just want more financial freedom later in life, AVCs are worth considering.
- For more information, watch this video on the USS website (3min, 28 seconds).
