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AVCs and FSAVCs

Members of approved occupational schemes, whose benefits are below the maximum allowed by the Inland Revenue, can consider a number of routes to increase their benefits.

A contribution could be made to an in-house AVC or FSAVC. This would need to be within the aggregate maximum personal contribution of 15 per cent of remuneration, capped where appropriate. Any contributions which the individual had to pay as a result of being a member of the occupational scheme would be included within the 15 per cent limit.

Such contributions could only be paid provided the retirement benefits secured by them, together with any benefits from the employer&#39s occupational scheme and any benefits from earlier employments, do not exceed the maximum approvable benefits.

Any AVC established on or after April 8, 1987 cannot normally directly provide any tax-free cash sum nor can benefits from an FSAVC be paid tax-free. However, by increasing the member&#39s pension entitlement, both FSAVC and AVC benefits can in many cases enable a bigger tax-free cash sum to be taken from the member&#39s occupational scheme.

As an alternative to AVCs or FSAVCs, members of occupational schemes with P60 earnings of £30,000 or less in 2000/ 01 could consider a concurrent stakeholder or personal pension contribution of up to £3,600 gross in 2001/02 provided that they were not a controlling director in tax year 2000/01 and are currently not a controlling director. This would have some potential advantages:

Up to 25 per cent of the fund can be taken as tax-free cash.

The scheme benefits can be provided in addition to any benefits from the member&#39s occupational scheme (including AVCs and FSAVCs) irrespective of whether this would result in the member&#39s aggregate benefits exceeding the maximum approvable benefits.

A careful analysis will be required of all the options, taking into account the effect of charges, fund choice, etc. It should be remembered that a controlling director will only be able to effect an AVC, while any employees with P60 earnings in excess of £30,000 in 2000/01 will be restricted to either an AVC or an FSAVC.

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