Featured ArticleAVCs – is it time to let them fly the nest?
In 1988 the Government introduced Personal Pension Plans and with them Free Standing Additional Voluntary contributions (FSAVCs), which allowed members of Defined Benefit (DB) Pension Schemes to increase their pension savings outside of the DB Scheme. Pension flexibility was born but definitely not a favourite child!
Over the years FSAVCs stayed in the background with Scheme AVCs more popular with members. Trustees had no option, under legislation, other than to provide a vehicle for members to increase their contributions. All well and good, I hear you say, but the issue has always been the governance of such schemes. The funds accumulated in AVC contracts are assets of the DB Scheme. Trustees are responsible for choosing the AVC vehicles and the funds into which members contributions are invested (ignoring added years as these are a different issue) and need to review these regularly, checking that the investment funds remain suitable; the performance of the funds is still acceptable and that the charges levied on the contracts are reasonable. Given the number of contributors relative to the size of the AVC vehicles this is a very expensive exercise and is often an area of governance which is overlooked, particularly in closed DB Schemes. (more…)