Please help with AVC - confused

[jiggedlyjune]

Can someone tell me if I've understood this correctly please?

So, I understand I can make AVCs and that this is made attractive by not having to pay tax on what I 'buy' if done through my employer. This suggests that if I purchase an additional £80 per month, it'd be worth £100 (I think) as the 20% tax is not charged.

Which, on the surface, sounds good ....

However, when I come to take that money back out, am I then charged tax on 75% of any profits or on the whole lot? I'll probably only build up the AVCs for another 7 years max (will be 66 by then). Can someone explain how it works please with some number examples. If I put bought AvCs for 7 years at £250 a month, what is actually taxed when I withdraw this? Does it just work as a savings account like an ISA? My attitude to risk would be low-medium

Is there a pensions department at your work who you could speak to? Or does your work pension scheme have any guides/FAQs (as that might have the info you’re looking for)? I think your workplace would be a good first port of call because AVCs can be so specific to the particular pension scheme you’re enrolled in.

My workplace are hopeless - they just refer me to the Pru and it's quite hard to get to speak to anyone from there. I've looked at the AVC website and it just confuses me

There are different AVC schemes. Most of them are not flexible - you have to buy an annuity. Having said that there are some that allow flexible drawdown.
Yes, anything that you take out above the 25% tax free cash is taxable at your marginal rate. Again, there were some that provided enhanced tax free cash but they seem to have almost disappeared now.
The tax relief effectively means you are not taxed on the income you put into a pension. The idea is that you have more money to grow. Your employer may also pay into AVCs but only your employer can confirm that.

You are not “charged tax on 75%”. You pay tax according to your income and personal tax code.
So if your tax code is 12,500K, and you withdraw from your AVC an amount that doesn’t take you over that amount, you’ll pay no tax. For example if your state pension was due at age 67, you might use your AVC money from age 65 to retire 2 years early and pay no tax.

I haven’t found the same as @ForensicAccountant that you have to buy an annuity, but I do agree that you have to check specific scheme rules. In my company for example, you can take the AVC without triggering the entire DB pension - so couldn’t use it for early retirement as I described. However, I can use it entirely towards my 25% tax free lump sum which is very useful for preserving the value of my DB annual pension.

You need to understand your scheme to make decisions.

Thanks @Testina. That's useful to know