Teachers’ Pension AVCs Explained - Benefits, Drawbacks, and How They Work

Many teachers reach a point in their career where they begin thinking seriously about their retirement income. While the Teachers’ Pension Scheme offers one of the most generous defined benefit pensions in the UK, some teachers want to do more to boost their future security or retire earlier. One of the main ways to achieve that is through an Additional Voluntary Contribution, more commonly known as an AVC.

You can explore other retirement options and calculators on our Teachers’ Pensions hub.

What Is an AVC?

An Additional Voluntary Contribution is an extra, optional payment into a pension pot that sits alongside your main Teachers’ Pension. It’s not part of your standard pension contribution and doesn’t increase your guaranteed income in retirement. Instead, an AVC builds up a separate, investment-based fund that grows over time and can be used to supplement your retirement income.

The Teachers’ Pension Scheme itself is what’s known as a “defined benefit” scheme - your pension is calculated from your salary and years of service. AVCs, by contrast, are “defined contribution” arrangements. The amount you get out depends on how much you pay in, the length of time you invest for, and how well your chosen investment funds perform. The official AVC provider for teachers is Prudential, though you can technically make separate private pension contributions elsewhere if you prefer.

How Do AVCs Work?

Contributions are deducted directly from your salary before tax, which means you automatically receive tax relief. For example, if you’re a basic-rate taxpayer contributing £100 per month, it effectively costs you £80 - the other £20 comes from tax relief. Higher-rate taxpayers benefit even more, which makes AVCs particularly attractive for teachers in senior or leadership roles.

Your AVC payments are invested in funds chosen from a range offered by your provider. You can usually pick between lower-risk and higher-risk funds depending on your personal comfort level and time until retirement. Over time, the fund ideally grows through both contributions and investment returns. The value of your AVC pot can then be accessed from age 55 (rising to 57 in 2028) - often used to provide additional tax-free cash or income alongside your main Teachers’ Pension.

To see how your AVC could grow over time, try our Teachers’ Pension AVC Growth Calculator. Enter your monthly contribution, expected growth rate, and years to retirement to estimate your future pot and potential tax-free lump sum. It’s a quick, simple way to visualise how small regular contributions can build meaningful extra income for retirement.

Why Consider Paying into an AVC?

For many teachers, AVCs are a way to take greater control over their retirement savings. They provide flexibility that the main pension scheme doesn’t - you decide how much to pay in, and when to start or stop. Because contributions attract tax relief, it’s one of the most efficient ways to save for the future. Even modest monthly contributions can make a noticeable difference over time, especially if started early in your career.

AVCs can also help teachers who are considering early retirement. Since you can normally access an AVC fund before your main Teachers’ Pension, it can act as a financial bridge - providing income or lump sums during the gap between leaving work and drawing your full pension. Some teachers use AVCs to increase their lump sum at retirement, giving them more flexibility when planning big expenses or reducing mortgage debt.

AVCs: Lump Sum or Extra Pension?

For teachers who prefer certainty over flexibility, the AVC can also be used to boost your main Teachers’ Pension rather than taken as a separate pot.

If you choose to use your AVC within the Teachers’ Pension Scheme at retirement, your fund can be exchanged for extra guaranteed pension instead of being taken as cash. This is sometimes described as a “45ths” conversion rate - meaning that for roughly every £45 in your AVC pot, you can buy £1 of annual Teachers’ Pension income for life. The exact rate depends on your age and the scheme factors in place at the time, but it’s a useful guide to understand how AVCs can translate into secure, inflation-linked pension income.

Comparing AVC Options

Alternatively, you could take part of your AVC as tax-free cash - for example, 25% of a £20,000 pot (£5,000) - and use the rest to boost your Teachers’ Pension lump sum or buy extra guaranteed pension income. The right mix depends on whether you want more cash upfront or higher secure income for life.

What Are the Drawbacks?

Like any investment, AVCs come with risks. The value of your pot can go up or down depending on market performance, so there’s no guarantee of a specific outcome. This makes them less predictable than your main pension. There are also charges to consider - most AVC providers apply annual management fees, which can slightly reduce growth over the long term. Finally, access to your AVC fund is normally restricted until at least age 55 (or 57 from 2028), so it’s not suitable for short-term savings.

Despite these limitations, for teachers who can afford to contribute a little extra each month, AVCs remain one of the most tax-efficient and flexible tools for retirement planning. The key is to view them as a long-term investment that complements, rather than replaces, the security of your defined benefit pension.

How to Arrange an AVC

Setting up an AVC is straightforward. If you’re currently contributing to the Teachers’ Pension Scheme, you can apply directly through the official Prudential AVC portal. This is the only in-scheme AVC recognised by the Teachers’ Pension Scheme.

You’ll need to decide how much to contribute each month - either a fixed amount or a percentage of your salary - and choose one or more investment funds from Prudential’s range. Once your application is approved, the payments are automatically deducted from your salary before tax, so you get the benefit of tax relief immediately.

You can start, stop, or change your AVC contributions at any time, as long as you remain an active member of the Teachers’ Pension Scheme. Your employer’s payroll team usually handles the deductions once Prudential confirms your application.

If you prefer to save through a separate pension provider, you can arrange a free-standing AVC or personal pension instead - though this won’t be linked to your Teachers’ Pension or allow you to combine benefits at retirement.

Worked Example - How AVCs Can Grow Over Time

The defaults assume a monthly AVC of £150, 20 years to retirement, and a 4% p.a. net investment return.

Over the full period, you would pay in £36,000. On these assumptions, the fund at retirement could be around £54,576, of which up to £13,644 may be taken tax-free. Actual outcomes will vary based on markets, fund choice, and charges.

In Summary

AVCs are an optional but highly effective way for teachers to take greater control over their retirement savings. They offer flexibility, generous tax relief, and the potential for significant long-term growth. Although they don’t alter how your core Teachers’ Pension is calculated, they provide valuable freedom - whether that’s accessing funds early, increasing your lump sum, or simply building extra security for later life.

This article is for general information only and should not be taken as financial advice. Always check the official Teachers’ Pensions guidance on Additional Contributions or speak to a qualified adviser before making financial decisions.