AVCs

Please note that the Trustees decided that, with effect from 1 January 2007, members who had not made Additional Voluntary Contributions (AVCs) prior to this date would no longer have the facility to pay AVCs.

Additional Voluntary Contributions (AVCs) are a simple and effective way to top up your Diageo Scheme pension. As the name suggests, AVCs are contributions that you choose to pay voluntarily on top of contributions you are required to pay to the Scheme. By paying AVCs you will build up a fund of money with Prudential which is then used to provide additional pension benefits when you retire. You will choose how to invest the money with the Prudential.

The Trustee regularly reviews the range of funds available to members. The current options available to members and the corresponding annual management charges are shown below.

Fund

Annual management charge (%)

Prudential Cash Fund

0.55

Prudential Fixed Interest Fund

0.75

Prudential Indexed Link Fund

0.75

Prudential Socially Responsible Fund

0.75

Prudential UK Equity Passive Fund

0.65

BlackRock Aquila (60:40) Global Equity Fund

0.75

Lifestyle Option

0.75

The Lifestyle Option combines the BlackRock Aquila Global Equity Fund and the Cash Fund. Your contributions would automatically be invested in the BlackRock Aquila Global Equity Fund and progressively be transferred to the Cash Fund. You will be asked to choose the age at which you want the transfer completed and your fund will be transferred gradually each month starting from 5 years prior to your selected retirement age.

If you are in the Lifestyle option this assumes that the AVC funds will be taken as cash at retirement. Please ensure you are satisfied with this assumption when reviewing your investment selection.

The Cash Fund provides lower returns in return for lower volatility. This can be a high risk investment for younger people as returns may not exceed inflation. Furthermore, given current market conditions, this may not be appropriate as a long term investment if the annual management charge is higher than the gross return which would result in an overall negative net return.

Please click this link to view factsheets for the above investment options (Series 3). You can also find out the latest unit price by clicking this link.

Please click this link  to view a guide to making the most of your AVC investments.

You will choose how to invest the money with the Prudential and the accumulated value of the fund you have built up will be used to provide additional pension benefits at retirement.

Unlike your Scheme benefits, where your pension is based on your pay and service, the AVC Plan has been set up on a defined contribution, or money purchase basis. This means that your contributions are invested in your name in an account.

At retirement the accumulated value of your account is used to secure benefits for you and your dependants. This is in addition to your benefits under the Diageo Scheme.

The main points to bear in mind are:

  • The Scheme's AVC arrangement gives you flexibility and choice in saving for your retirement whilst you are an active member of the Scheme.

  • You decide how much you want to pay, subject to certain limits. You can increase, decrease or stop payments at any time. You can also make one-off payments.

  • Like your Scheme contributions, AVCs are taken from your pay before tax is levied and so qualify for tax relief at your highest rate of income tax.

  • You choose how you want your contributions invested from a range of investment options that are made available through Prudential.

  • The investment returns on your contributions are largely free of tax.

  • The value of your AVC fund can go down as well as up.

  • You'll receive a statement each year to show you how your AVC fund(s) are performing.

  • Diageo AVCs are only available to active members of the Scheme who paid AVCs prior to 1 January 2007. If you leave the Scheme, you must stop paying AVCs.

If you do not currently pay AVCs but did so prior to 1 January 2007, you can start by paying AVCs again at any time by completing the Changing your AVCs form.

You choose how much to pay. The maximum amount of AVC contributions you can pay is 15% of your earnings (subject to the Scheme specific earnings cap) less your Scheme contributions. There is no minimum contribution required. However, if you make a contribution to the Lifestyle Option, you can’t make a contribution to another fund at the same time.

You can stop, restart or vary your contributions at any time simply by completing another Changing your AVCs form. You should do this at least one month before the effective date of the change.

When you retire, the benefits you receive from your AVCs will depend on: 

  • how much you've paid in AVCs;

  • the investment return achieved;

  • your age when you retire;

  • how you take your benefits;

  • how much a pension costs if you take a pension;

  • whether you provide an additional pension for your spouse in the event of your death; and

  • whether you include inflationary increases on your AVC pension.

From April 2015, when you retire you can use the value of your AVC’s to provide you with benefits to suit your needs and lifestyle. The benefits can be provided as

  • a cash lump sum;

  • a pension from either the Diageo Pension Scheme or from an insurance company;

  • flexi-access drawdown;  or

  • a combination of the above.

Cash lump sum

If you elect to receive a tax free cash sum on retirement, you can take as much as possible from your AVC fund and any remainder can be taken by giving up part of your Scheme pension.

Any AVC balance over and above the maximum tax free cash sum limit can still be taken as cash but will be subject to the deduction of tax at your marginal rate of income tax.

Pension

Your AVC fund can be used to provide additional pension entitlement from the Diageo Pension Scheme. Alternatively, you can buy an annuity (pension) from an insurance company to suit your needs.

The amount of pension you can expect to receive from an insurance company will depend on a number of factors including:

  • The terms of the annuity you wish to buy;

  • Your health and whether you smoke or not;

  • The value of your AVC fund at the date of your retirement;

  • The level of any increases to apply to your annuity in retirement;

  • Whether you want to provide for a dependants pension following your death;

  • Whether payment of you annuity is guaranteed for a number of years in the event of you dying soon after retiring; and

  • The cost of buying an annuity when you retire.

Flexi-access drawdown

Flexi-access drawdown allows you to take a cash lump sum and/or an income without buying an annuity. 

  • You can drawdown your retirement income when you need it;

  • Easy to pass your pension fund to your dependant;.

  • Take as much or as little as cash at any time with up to 25% available tax free; and

  • Keep your pension fund invested for potential growth.

As an alternative to the options outlined above, you also have the option of transferring your AVC fund to a new pension provider. This option may be of interest to someone who wishes to consider withdrawing their AVC fund in stages so as to manage their tax liability.  You can also consider using your AVC fund to purchase an annuity (pension) from an insurance company of your choice. This is known as an open market option.

Signpost to Guidance

Pension wise: Your Money, Your Choice

The Government’s 2014 Budget announcement on 19 March 2014 set out some significant changes to pensions. Individuals who are able to take advantage of the new flexibility provided by the change to legislation effective from April 2015 are entitled to 45 minutes of guidance via a website, over the phone or face to face.

To receive free, impartial guidance from the government, go to www.pensionwise.gov.uk or Telephone: 030 0330 1001.

  • tailored guidance (online, over the telephone or face to face) to explain what options you have and help you think about how to make the best use of your pension savings;

  • information about the tax implications of different options and other important things you should think about; and

  • tips on getting the best deal, including how to shop around.

In addition to the guidance provided by Pension wise you may want to consider taking independent financial advice.

You can change the fund(s) that future AVCs are paid to at any time and without charge. All you need to do is complete a Changing your AVCs form detailing which fund(s) future AVCs should be paid to.

You can also change the way in which existing AVCs are invested. To switch existing contributions, you should complete the Switching AVC funds form.

For guidance on the appropriate funds for your circumstances we recommend that you seek independent financial advice. You can obtain a list of registered advisers from the Financial Conduct Authority website at https://register.fca.org.uk .

If you leave the Company, you won't be able to pay any more AVCs. Your AVCs will then be treated in the same way as your Scheme benefits:

  • If you're entitled to a deferred pension, your AVCs will remain invested until you retire. You'll also be able to switch your existing AVCs to another fund at any time prior to retirement.

  • If you elect to transfer your Scheme benefits, your AVC fund will also be transferred. Any transfer value will include your AVC fund value.

If you die before retirement, the full value of your AVC fund at the date of your death will be paid to your dependants as a tax-free lump sum.

If you want to boost your pension benefits but are not paying AVCs through the Scheme, there are a couple of external pension options available.

These are Free Standing AVCs (FSAVCs) and stakeholder pensions. You can buy them from providers such as banks, insurance companies and building societies.

With FSAVCs the benefits are broadly similar to the Diageo AVC arrangement, but with two important differences:

  • FSAVC charges are generally much higher than a company AVC scheme and you will have to pay the administration and commission costs.

  • With an FSAVC you will be responsible for claiming the tax relief on your contributions.

Stakeholder pensions are the government's low-cost flagship pension arrangement.

Although a stakeholder arrangement is mainly aimed at those people who do not have access to a good company pension scheme, you can contribute to a stakeholder pension as well as the Scheme.

AVC schemes, like FSAVCs and stakeholder pensions, are specifically designed for saving for retirement. They are, therefore, a long-term investment.

If you are likely to require your money before you retire, you should consider one or more of the other tax-efficient methods of saving, such as Diageo's share plans or Individual Savings Accounts (ISAs).

For guidance on the appropriate funds for your circumstances we recommend that you seek independent financial advice. You can obtain a list of registered advisers from the Financial Conduct Authority website at https://register.fca.org.uk.