University of York Pension Fund Scheme Guide Version 1 (2013)

Transcription

1 University of York Pension Fund Scheme Guide Version 1 (2013) Leaving the Fund Joining Retiring Contributions Benefits for dependants Topping up your benefits

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3 Contents Introduction... 5 Joining the Pension Fund... 6 Working part-time...6 Salary exchange...7 Transfers into the Fund...7 The State Pension...8 Contributions... 9 Tax relief...9 Membership Change of Tier...10 University of York Pension Fund Pensionable salary Topping up your benefits Added Years...13 Money Purchase AVCs (MPAVCs)...14 Summary...14 Retiring from employment Retirement age...15 How benefits are calculated...15 Types of retirement...15 Normal retirement...16 Early retirement...16 Premature Retirement Compensation Scheme (PRCS)...17 Late retirement...17 Phased retirement...17 Ill-health retirement...17 Serious ill-health...18 Trivial commutation...18 Tax-free lump sum...18 General information about receiving a Fund pension...19 Leaving the Fund Deferred benefits...20 Transferring out of the Fund...20 Refund of contributions...20 Opting out of the Fund

4 University of York Pension Fund Benefits for dependants Lump sum life cover...22 Pensions for spouses or registered civil partners...22 Children s pensions...23 Important notes...24 Divorce or dissolution of a registered civil partnership Tax Limits on pension saving Lump sums...26 Annual allowance...26 Lifetime allowance...26 Protections...26 Governance Employers...27 Committees...28 Member Nominated Directors (MNDs)...28 Investment Sub-Committee...28 Joint Negotiating Sub-Committee on the Modification of the Pension Fund...28 Advisers...29 Technical detail Data Protection Act Disclosure...30 Compliments, complaints and useful contacts Internal Dispute Resolution Procedure (IDRP)...31 Compliments...31 The Pensions Advisory Service (TPAS)...32 The Pensions Ombudsman...32 The Pensions Regulator...33 The Pension Tracing Service...33 State Pension Forecast...33 HM Revenue and Customs...34 Contact us The University of York Pension Fund...35 Rewards Extra...35 Employee Plus...35 Glossary of terms

5 Introduction The University of York Pension Fund (the Fund) was established in Its aim is to provide its members with a range of worthwhile benefits including: lan income for life upon retirement from the Fund la range of benefits available to eligible dependants llife cover in the form of a lump sum payable should you die whilst contributing to the Fund This booklet is provided to give contributing members general information about the Fund. Its purpose is therefore purely explanatory, and it cannot cover all circumstances. In the event of any discrepancy or dispute between the information provided in this booklet and the Trust Deed and Rules, the Trust Deed and Rules will take precedence. Pension schemes are governed by complex legislation which changes regularly. This booklet describes the Fund benefits and arrangements in place on 1 January University of York Pension Fund Throughout the booklet, you will notice some words highlighted in bold text. These words are ones which you will find explained in the Glossary of Terms at the end of the booklet. We have also used examples to illustrate particular calculations. The examples are not based on any real member s circumstances, but are meant to provide a simple guide to how a calculation works. If you have any questions about this booklet, or how any of the information described in it may apply to you, or require any further information, please contact the Pensions Office using one of the following methods: pensions@york.ac.uk Telephone: / 4805 Post: The Pensions Office New Building 5 5A Main Street Heslington Village York North Yorkshire YO10 5DD 5

6 University of York Pension Fund Joining the Pension Fund You may join the Fund if you are: la permanent employee of the University; or a fixed term employee and the University agrees to your membership la permanent employee of a participating subsidiary company (see the Employer s list in Governance section for further details); or a fixed term employee and the University agrees to your membership laged at least 18 and under 60 lnot eligible to be a member of the Universities Superannuation Scheme or NHS Pensions. Membership is by application you are not automatically entered into the Fund. If you want to join, all you need to do is to complete a simple application form and provide evidence of your date of birth (such as a birth certificate, or current valid passport or photo-card driving licence). If you are joining after your first six months of being eligible to do so, we may also ask you to complete a short medical questionnaire. This doesn t prevent you from joining, but, dependant upon the information you provide, may restrict the amount of life cover that is provided for you as part of your membership of the scheme. If you join within your first six months of being eligible to do so, there is no medical questionnaire to complete. All new members of the Fund will join in Tier 2 (the Lower option) for their first three years of membership. Working part-time Part-time employees may join the scheme on the same terms as full-time staff, provided they receive payment throughout the year. Part-time members build up membership on a pro-rata basis according to their hours of pensionable work. Example Janet works 16 hours per week. The full-time equivalent hours for her job are 37 per week. If Janet worked full-time, then, over the course of a year, she would build up one year s membership of the Fund. However, as Janet works part-time, her membership is reduced pro-rata. So: (365 days 37 hours) X 16 hours = 158 days membership However, when retirement benefits are calculated for part-time members, it is their full-time equivalent pay (FTE) which is used to calculate their benefits. Example Janet works for the University for 5 years, and decides to retire. During that time, her pro-rata membership is 2 years 59 days. The part-time pay for Janet s job is 9,500 per year. However, it is the full-time equivalent that would be used to calculate her benefits: ( 9,500 actual, pro-rata pay 16 hours) X 37 hours = 21,969 full-time equivalent pay 6

7 Staff that work term-time only must be paid over twelve months in order to join the University of York Pension Fund. If you think that you may be affected by this you are advised to obtain further details from the Pensions Office. Salary exchange The University and some of the participating subsidiary companies in the Fund operate a salary exchange scheme (sometimes known as salary sacrifice), through which you can make contributions to the Fund. For employees of the University of York, the salary exchange scheme is called Pensions Extra. For employees of NYCH and York Conferences Ltd, the salary exchange scheme is known as Pensions Plus. Each scheme has its own terms and rules, and you should refer to the terms and conditions of the relevant scheme for the details of how any scheme available to you operates. However, the general principle of how participation in the scheme affects your membership and contributions is the same, and is explained below. University of York Pension Fund Contributing to the Fund through a salary exchange scheme means that, instead of you paying your contributions to the Fund from your pay, your employer pays the contributions on your behalf, but reduces your pay by the same amount. Contributing in this way means that, as your total pay is lower, you will pay less in National Insurance Contributions (NICs) and thus your take-home pay will be higher. Regardless of whether you contribute to the Fund through a salary exchange scheme or not, your contributions to the Fund will receive tax relief. Example Susan s pay is 20,000 per annum. She pays into the Fund at 7.25% of her salary. If she does not pay into the Fund through a salary exchange scheme, then, based on 2012/13 rates, she will pay 107 per month in NIC s. If she pays into the Fund through a salary exchange scheme, then, based on 2012/13 rates, she will pay 94 per month in NIC s. As the amount of NIC s that Susan pays is lower through a salary exchange scheme, her take home pay each month will be higher. Please note that, if you leave the Fund with less than two years membership, and have contributed through a salary exchange scheme, no refund of contributions is available to you. This is because you will not have made any contributions to the Fund, as your employer will have paid them on your behalf. In these circumstances, if you have contributed to the Fund for at least three months, you will be awarded a deferred benefit in the Fund. If you have contributed for less than three months, you will not receive a refund of contributions, and cannot be awarded a deferred benefit either. Transfers into the Fund The Rules of the University of York Pension Fund allow it to receive cash equivalent transfer values and provide transfer credits within the meaning of Chapter IV of Part IV of the 1993 Pensions Act. However, acceptance is subject to the discretion of the Trustee. At their meeting on 8 December 2005, the Directors of the Trust agreed a formal policy of not accepting transfer payments into the Fund. This policy is regularly reviewed, and members will be informed as appropriate if it changes. 7

8 University of York Pension Fund The State Pension The University of York Pension Fund is contracted out of the State Second Pension (S2P). This means that, when you pay into the Fund, you pay a lower rate of NICs, and do not contribute to S2P. However, you will still be contributing to the basic State Pension. In order to offer this facility, the Fund has to meet a test which checks that the benefits that it offers are at least as good as those that the member would have received had they contributed to S2P. The Fund does meet this test. 8

9 Contributions The amount of contributions that you pay into the Fund depends upon the Tier that you are a member of, and how much your pensionable salary is. For more information about the different Tiers, please see the Membership section on page 10. The contribution rates that currently apply to the University of York Pension Fund are: lif you are a member of Tier 1, then you pay 7.25% of your pensionable salary into the Fund. lif you are a member of Tier 2, then you pay 3.75% of your pensionable salary into the Fund. lregardless of the Tier that you contribute in, your employer contributes 14.95% of your pensionable salary into the Fund. The contribution rates that apply are regularly reviewed by the Actuary, and are set by agreement between the Trustee and the University of York. The contribution rate is calculated to ensure that the cost of paying for benefits is met. University of York Pension Fund In addition to the employer contribution described above, the University also contributes to the cost of administering the Fund. Tax relief The contribution rates quoted are the gross rates that apply; however, pension contributions attract tax relief, so the real cost to you is lower than the rates quoted above, because you pay less in tax. Example John s pay is 18,000 per annum. He is therefore a basic rate taxpayer, at 20%. His tax code is 810L, which means that the first 8,105 that he earns is tax-free. If John does not contribute to the Pension Fund, then his tax is calculated as follows: ( 18,000 8,105 = 9,895) X 20% = 1,979 tax paid per year If John decides to join the Fund, he will join in Tier 2, and so will pay 3.75% in contributions. His tax would therefore be calculated as follows: 18,000 X 3.75% = 675 Pension Fund contributions ( 18, ,105 = 9,220) X 20% = 1,844 tax paid per year If John later decides to change Tier, and pay the higher rate of contributions, he will receive even greater tax relief. 9

10 University of York Pension Fund Membership When you contribute to the Fund, you build up years and days of membership. If you work fulltime, then for each day that you are a member of the scheme and employed, you build up one day of membership in the Fund. Janet s example on page 6 showed the effect that working part-time can have on membership. The Tier that you are a member of can also have an impact on your membership. This makes a difference when your pension is finally calculated upon retirement. For members in Tier 2, each day of membership buys you a pension based on one eighty-fifth of your final pensionable salary. For members in Tier 1, each day of membership buys you a pension based on one sixtieth of your final pensionable salary. Please note that an overall membership cap of 40 years membership applies in the Fund. No member is allowed to build up more than this amount of membership. Change of Tier Since 1 October 2009, two Tiers have existed in the University of York Pension Fund. If you were already in the Fund before that date, then you were given the option of joining either Tier. If you first joined the Fund on or after 1 October 2009, then you will normally have been entered in Tier 2, and you must contribute to that Tier for three years. After three years, on the anniversary of your joining date, the Pensions Office will write to you to give you the option of changing Tier, and joining Tier 1 instead. As we have already shown, Tier 1 costs more to contribute to, but buys you a bigger pension. The timescales to opt to change Tier are very strict, and will be advised to you by the Pensions Office. If you decide not to change Tier at that time, you will get a further option at the next triennial October election window, and every three years after that. Example Anita joined the Fund on 1 December 2009 and was entered into Tier 2. On 1 December 2012, the Pensions Office wrote to her to let her know that she had 28 days during which she could decide to join Tier 1. Anita decided not to join Tier 1 at the time. The next triennial October election window after December 2012 opens on 1 October On this date, the Pensions Office write to Anita again to let her know that she has another window during which she can choose to change Tier. If Anita still decides not to change Tier, she will get another chance in October 2018, then again in October 2021, and every three years after that. For members who were already in the Fund before 1 October 2009 and elected to contribute in Tier 1, or those who have chosen to change Tier during the first triennial October election window, then as a member of Tier 1, you get the option of changing back into Tier 2 once a year, every October. This is known as the annual October election window. Again, strict time limits apply to elections, and the Pensions Office will write to you to notify you of an election window opening. 10

11 Pensionable salary Membership is an important factor in calculating your retirement benefits. However, equally important is pensionable salary. Pensionable salary is the pay that you receive, upon which you pay pension contributions. This is not always all the pay that you receive from your employer; for example, bonuses are excluded from being pensionable. If you are an employee of a subsidiary company, then any uncharacteristic pay increases in your last three years of membership of the Fund can also be excluded from pensionable salary, at the discretion of the Trustee. The University of York Pension Fund is a Final Salary Scheme. This means that, when your retirement benefits are calculated, they are normally based on your final salary. As salary generally increases over working life, all the years and days of membership that you built up on lower salaries are based on your salary upon leaving, which is usually highest. However, there may be instances when your salary upon retirement is not the highest salary. To address this, a protection is built into the Fund s rules, which is known as the best of the last three years. When you retire and your retirement benefits are calculated, the Pension Office will check your pay upon leaving, as well as the amount of pay you have received in each of the preceding two years. If either of these figures is higher, your pension will be calculated using the higher figure. University of York Pension Fund Example 1 Faye is retiring and has recently received a promotion, which has increased her pensionable salary. When calculating her retirement benefits, the Pensions Office check her last year s salary, and the two years before this: Year Pay , , ,000 As Faye s pay is highest upon leaving, the figure of 21,500 is the figure that is used in the calculation of her benefits. Example 2 Edith is retiring and has recently experienced a pay cut as a result of her taking a lower graded job. When calculating her retirement benefits, the Pensions Office check her last year s salary, and the two years before this: Year Pay , , ,300 As Edith s pay was highest the year before she retired, the figure of 25,000 is the figure that is used in the calculation of her benefits. 11

12 University of York Pension Fund It is important to note that your final pensionable salary is not the salary scale that you were on at retirement, but your total pensionable earnings over the course of your final year. Example Elspeth retired on 31 August On 1 August 2012, Elspeth received an incremental progression. Her pay progression is shown below: 1 August ,000 1 August ,400 Elspeth therefore only received her higher salary for 31 days in August Elspeth s final pensionable salary is calculated as: ( 23, ) X 31 days = 1,953 ( 22, ) X 334 days = 20,498 1, ,498 = 22,451 Final Pensionable Salary 12

13 Topping up your benefits As well as paying your normal contributions into the Fund, you are also able to make Additional Voluntary Contributions (AVCs). In the Fund, AVCs take two forms, and, subject to all relevant limits, you may be able to contribute to either of these arrangements, or both. The two types of AVC offered by the University of York Pension Fund are very different from each other, and if you are considering making additional contributions, you should think carefully about which type of arrangement would best suit your circumstances. Paying AVCs is a way of increasing the pension and/or lump sum that you may receive upon retiring from the Fund. Paying an AVC also attracts further tax-relief, although you are not able to pay an AVC through a salary exchange scheme. Added Years University of York Pension Fund One type of AVC is buying Added Years. Added Years simply buy you extra years and days of membership in the Fund. When you retire, these are added to your ordinary scheme membership, and your pension from them is calculated using your final pensionable salary. The additional contributions qualify for tax relief in the same way as your normal contributions. If you work parttime, the amount of Added Years you buy is adjusted pro-rata in the same way as your ordinary scheme membership. The cost of buying Added Years depends on your age when you take the contract out. The nearer you are to retirement when you start buying Added Years, the greater the monthly cost of buying one year s additional membership would be. There are limits to the amount of membership you can buy and limits to the extra percentage of salary that you are able to pay. The rates for buying Added Years are set by the Trustee following recommendations from the Actuary, and are revised from time to time. Example Andrew has enquired about buying Added Years. He joined the scheme at age 26, and will have accrued 39 years membership by the time he reaches age 65. He can therefore only purchase one Added Year. Andrew is in Tier 1, and can therefore purchase Added Years at a rate of 60ths (see Accrual Rate in the Glossary). If Andrew commences the contract on his 30th birthday, the cost to him of purchasing the additional year s membership will be 0.98% of his pensionable salary. However, he will receive tax relief on this contribution, so the net cost will be slightly lower. He will have to pay this amount from each month s pay, until he reaches age 65 to buy the Added Year. If Andrew delays starting the contract until his 50th birthday, the cost will have increased, as he will have less time to make the contributions over. By starting the contract on his 50th birthday, the cost to Andrew of purchasing the additional year s membership will be 2.26% of his pensionable salary. If Andrew does not begin the contract until his 60th birthday, the cost will have increased to 6.72% of his pensionable salary. If you choose to buy Added Years, you will be entering into a contractual arrangement to pay a set percentage of additional contribution from each month s pay, until you are 65. You are not able to vary the level of additional contribution that you pay. You are able to cancel the contract at any 13

14 University of York Pension Fund time, by giving one month s notice, in writing, to the Pensions Office. If you decide to cancel the contract before your 65th birthday, or you retire before your 65th birthday, you will only be credited with the proportion of Added Years that you have paid for. If you decide to cancel the contract, and subsequently want to buy Added Years again, you will have to take out a new contract, the cost of which will be based on your age at the time that you take the new contract out. This will be higher than the cost of the original contract. If you think that you may want to buy Added Years, or would like an estimate of the cost, please contact the Pensions Office who can calculate an estimate for you. Money Purchase AVCs (MPAVCs) The University of York Pension Fund also offers a Money Purchase AVC through Clerical Medical. The MPAVC arrangement works differently from the Added Years AVC arrangement, and offers greater flexibility, but less predictable benefits. In taking out a MPAVC, you are paying into a pot of money, which is invested, and which can be used when you retire to increase the maximum taxfree cash that you can draw from the University of York Pension Fund. Alternatively, you can buy an annuity either from Clerical Medical or on the open market. Subject to limits, you may be able to receive all of your MPAVC Fund back as tax-free cash. You are able to amend, stop or start paying contributions to this arrangement once during each pay period, upon written request. Subject to HMRC limits, the most that you are able to pay into the Clerical Medical Money Purchase AVC is 100% of salary, less your ordinary pension scheme contributions and any Added Years contributions that you are making. Summary As the above explains, there are a number of differences between the two types of AVC arrangement that are offered by the Fund. The table below summarises the similarities and differences between the two. Added Years AVC Money Purchase AVC Attracts Tax Relief P P Can be paid for through salary exchange O O Offers flexibility in payment amount each month O P Provides a known income in retirement P O Can stop and start payments at any time O P Final benefits linked to salary increases P O 14

15 Retiring from employment There are a number of factors to take into account when considering retiring from the Fund. Retirement age The Fund s Normal Pension Age is 65. If a member retires before age 65, there are usually early retirement reductions applied to their benefits. The Fund s Minimum Pension Age is 55. This is normally the earliest age at which it is possible for a member to receive their benefits, except for retirement on the grounds of ill health or where the member has a protected right to retire earlier than 55. To retire from age 55, you must have at least 10 years membership in the Fund, and your employer must agree to you retiring early. From the age of 60, you are able to retire without your employer s permission. There is also no requirement that you have 10 years membership to retire from the age of 60. University of York Pension Fund How benefits are calculated We have already shown how membership is built up, how final pensionable pay is calculated and explained the difference between the accrual rate of the two Tiers of the Fund. These factors are all important in the calculation of your retirement benefits. The pension that you finally receive is calculated by multiplying either one sixtieth or one eighty-fifth of your final pensionable salary for each year and day of membership in the Fund. This may sound complicated, but the following example shows that the formula is simpler than it sounds! Example Richard will shortly be retiring at age 65, and has built up 24 years membership in the Fund. He has always contributed in Tier 1, and so his accrual rate has been on a sixtieths basis. His final pensionable salary is 18,000. His pension is calculated: (24 60) X 18,000 = 7,200 pension per year If Richard had opted to join Tier 2 on 1 October 2009, and built up 3 years membership in that Tier, and had 21 years membership in Tier 1, then his pension would be calculated as shown below: (21 60) X 18,000 = 6,300 AND (3 85) X 18,000 = 635 6, = 6,935 pension per year Types of retirement There are also different types of retirement, which can have an impact on the amount of pension that you will receive in retirement. These are explained in more detail overleaf. 15

16 University of York Pension Fund Normal retirement A normal retirement is when a member retires at the Normal Pension Age of 65. As the member would be retiring at the scheme s normal retirement age, there would be no early retirement reductions to their pension. The example of Richard shows how retirement benefits are calculated at Normal Pension Age. There are no additional factors in a normal retirement calculation. Early retirement An early retirement is when a member chooses to retire before the Fund s Normal Pension Age of 65. Your pension is calculated in the same way as a normal retirement, but is reduced by an actuarial reduction factor to take account of the fact that the pension is being paid earlier than expected, and so will be in payment for a longer period. The actuarial reduction factors are calculated by the actuary and are revised from time to time. A different actuarial reduction factor is applied to different periods of membership to take account of the different Normal Pension Ages that have been in operation in the Fund. These are described below: luntil 31 December 2003, the Fund had a Normal Pension Age of 60 lbetween 1 January 2004 and 30 September 2009 the Fund had a Normal Pension Age of 63½ lfrom 1 October 2009 the Fund had a Normal Pension Age of 65. Example Chris decides that he would like to retire at age 60. His membership has all been on a sixtieths accrual rate, and his final pensionable salary is 24,000. His membership looks like this: Membership up to 31 December 2003 Membership between 1 January 2004 and 30 September 2009 Membership from 1 October years 5 years 3 years As he has attained the age of 60 when he retires, there is no actuarial reduction factor to apply to his membership up to 31 December 2003, when the Fund had a normal pension age of 60. His membership between 1 January 2004 and 30 September 2009 has an actuarial reduction factor applied to it to take account of Chris retiring 3½ years before the Fund s normal pension age for that period of membership. His membership from 1 October 2009 has an actuarial reduction factor applied to it to take account of Chris retiring 5 years before the Fund s normal pension age for that period of membership. His pension is calculated as follows: ((30 60) X 24,000 = 12,000) X (actuarial reduction factor) = 12,000 ((5 60) X 24,000 = 2,000) X (actuarial reduction factor) = 1,762 ((3 60) X 24,000 = 1,200) X (actuarial reduction factor) = 1,004 Total Reduced Pension = 14,766 16

17 Premature Retirement Compensation Scheme (PRCS) At its discretion, the University of York operates a PRCS scheme. This means that, in certain circumstances, and only by prior agreement with the University, a member may be able to retire from the age of 55 with no (or limited) reduction to their pension. The PRCS also gives the University the discretion to award additional pension. The award of additional pension or the waiving of early retirement reductions are entirely at the University s discretion, and the Trustee has no influence in this matter. As the University s permission is required in order to access the PRCS, estimates of your benefits payable under the PRCS are not available unless an award has been made. Late retirement You are able to continue to work after the Fund s Normal Pension Age of 65. If you continue to work you are also able to continue contributing to the Fund, provided you have not reached the overall membership limit of 40 years. Your pension will normally be paid from the date you leave employment, and will be based on your final pensionable salary and your total membership at the date of retirement. You should note that you are not able to receive your pension and continue in employment unless your employer agrees to a phased retirement. No increases are applied to your benefits to take account of it being drawn later than the Fund s Normal Pension Age. You must draw your benefits in the Fund before your 75th birthday and cannot contribute beyond this date. University of York Pension Fund Phased retirement Phased retirement is a type of retirement which potentially allows you to draw your pension and/ or tax free lump sum whilst continuing to work. The actual provisions regarding phased retirement are outlined in a separate policy (which will be reviewed from time to time), the details of which are available on the University s pension website. Alternatively, you may ask the Pensions Office for further details. Ill-health retirement Sometimes, your circumstances will be such that you will not be able to continue working in your job or perform the duties of a job with comparable demand until the Fund s Normal Pension Age because of ill-health or incapacity. In these circumstances, there is provision in the Fund s rules for you to be able to access your pension benefits early on an unreduced basis. If you are under the age of 63½, then you will also be awarded the additional membership that you could have built up until that age on the accrual rate that you on are at the time (again, the Fund s overall 40 year membership limit applies). You can qualify for an ill-health retirement at any age you do not need to have reached the Fund s minimum pension age in order to access your retirement benefits on health grounds. However, retirement on the grounds of ill-health requires the University of York to agree that your ill-health or incapacity does mean that you can no longer do your job or any other comparable job. The Trustee must also agree to you receiving an ill-health or incapacity pension. You must also have five years membership of the Fund to qualify for an ill-health retirement. 17

18 University of York Pension Fund Example The University has recommended that Linda is eligible to retire on the grounds of ill-health, and the Trustee has agreed. Linda is 56 years old, and has built up 35 years membership in the Fund on an accrual rate of sixtieths. Her final pensionable salary upon retirement is 16,000. As Linda is retiring on ill-health grounds she can be awarded membership equivalent to that which she would have built up by 63½. Linda could have built up a further 7½ years membership by 63½, but this would take her over the 40 year membership limit. The most membership she can therefore be awarded is 5 extra years. Linda s annual pension would therefore be calculated: (40 60) X 16,000 = 10,667 ill-health pension An ill-health pension is normally payable for the rest of your life. However, if you are receiving an ill-health pension and your health improves, the Trustee has the discretion to suspend or reduce your pension in the period up to your Normal Pension Age. As the University s recommendation is required in order for you to receive an ill-health pension, estimates are not available. Serious ill-health If a member who has not yet received their pension is diagnosed with a life-expectancy of less than one year, the Trustee may, if the member requests it, pay the members benefits in the form of a oneoff lump sum instead of an on-going ill-health pension. The Trustee and University must receive and be satisfied with medical evidence provided. Payment of a serious-ill health lump sum does mean that there is no lump sum payable in the event of the member s death, but does not extinguish any entitlement to an on-going spouse s, civil partner s or child s pension that may be payable. Trivial commutation Where a member reaches age 60 and has a very small pension, they may request that, instead of receiving a small monthly pension, they receive a one-off lump sum instead. The Trustee is able to decline this request. There are strict criteria that must be met in order to receive a Trivial Commutation, which are imposed and regulated by HMRC. The payment of a one-off lump sum extinguishes all the member s entitlement to benefits in the Fund, including any lump sum that may be payable in the event of the member s death, and any entitlement to an on-going spouse s, civil partner s or child s pension that may be payable. Tax-free lump sum Your standard package of benefits does not include a tax-free lump sum. However, you are able to commute some of your pension for a bigger lump sum. If you have paid MPAVCs then you may also be able to take all or some of your AVC Fund as tax-free cash. The amount of tax-free lump sum that you are able to take from a pension scheme is limited by HMRC. The amount of lump sum that you receive for each pound of pension that you commute is different depending on the age that you are when you retire, and is determined by a table of cash factors which are calculated by the Actuary and periodically reviewed by the Trustee. The formula for calculating the maximum tax-free lump sum that you are able to receive is: (Standard Pension X 20) (3 + (20 Cash Factor)) 18

19 The formula is different if you have paid MPAVCs, and other limits may apply which can reduce the amount of tax-free cash that you are able to take. Example Matthew retires at age 65 with a pension of 10,000 per year. The cash factor at age 65 is currently To calculate the maximum tax-free lump sum that Matthew is able to take: ( 10,000 X 20) (3 + ( )) = 44,407 tax-free lump sum. In order to receive this tax-free lump sum, Matthew must commute some pension. This is calculated as: 44, = 3,339 pension per year that Matthew must commute. Matthew s reduced pension would therefore be: 10,000 3,339 = 6,661 pension per year University of York Pension Fund General information about receiving a Fund pension lpensions are paid in arrears on the last working day of each month. lyour first pension payment is payable the month after your last payment of salary. lincome tax is deducted at source using a tax code supplied by HMRC. lnics are not payable on pension income. lincreases on pensions in payment are payable at the discretion of the University and Trustee. lwhere an increase is payable, it is payable from 1 April. ldifferent parts of your pension are increased in different ways and at different rates. lif an increase is payable, it applies at the same rate to member s, spouse s, civil partner s or children s pensions. lyour first increase will be calculated pro-rata according to the number of completed months of retirement between your date of retirement and the following April. lbenefits in payment cannot otherwise be increased. 19

20 University of York Pension Fund Leaving the Fund If you leave your job before you are able to retire then there are a number of options available, which are explained below. Deferred benefits If you leave the Fund with more than two years membership, have had a transfer of benefits into the Fund or have more than three months membership and have contributed through a salary exchange scheme, then you will be eligible to receive a deferred benefit. Increases to benefits in deferment are applied at the discretion of the Trustee. If an increase is awarded, it will be applicable from 1 April each year. Where increases are granted, different parts of deferred pensions are increased in different ways during the period between the date you leave employment (and/or the Fund) and the date you retire as shown below: lthe part of your deferred pension which represents your Guaranteed Minimum Pension (if any) will be increased (if applicable) by a rate of revaluation set by the Government. lthe part of your deferred pension which is derived from your membership before 6 April 2009 will be increased each year by the lower of the rate of inflation* or 5%. lthe part of your deferred pension which is derived from your membership after 5 April 2009 will be increased each year by the lower of the rate of inflation* or 2.5%. *Inflation is currently based on the rate of CPI inflation announced during the September before the increase is applied in April. Transferring out of the Fund If you enter another employer s pension scheme you may be able to transfer your deferred benefits from the University of York Pension Fund. A request in writing will be required and you will be provided with a Cash Equivalent Transfer Value (CETV) which is normally guaranteed for three months. If you wish to proceed with the transfer, you will be required to reply within the guarantee period. Legally you are only entitled to request a transfer value once every twelve months. If an additional transfer value is required within twelve months of your previous request, you may be charged for it. Your transfer value is the amount calculated by the Actuary, using assumptions considered reasonable and taking account of current market conditions, to have the same value as your preserved benefits, allowing for increases both before and after the benefits become payable. Currently, the transfer value would include the value of any discretionary benefits that you might receive if you kept your pension in the fund. You and your dependants will cease to be entitled to any benefits from the Fund after the transfer takes place. Refund of contributions If you have less than two years membership and have not contributed through a salary exchange scheme, then you may be able to receive a refund of your contributions, less the amount required to repay you into S2P and the tax relief that you have received on your contributions. If this option is available to you, you will be notified by the Pensions Office when you leave the Fund. 20

21 Opting out of the Fund You may opt out of the Fund by obtaining a form to do so from the Pensions Office. You must give at least one month s notice of your decision to opt out. If you later decide that you would like to rejoin the Fund, you will only be able to re-join at the University s discretion and subject to the normal rules of membership of the Fund. You will have to re-join in Tier 2 and your terms and conditions of membership may be varied. If you opt out, but your employment continues then you will not be able to draw your deferred benefits until your employment has ended. University of York Pension Fund 21

22 University of York Pension Fund Benefits for dependants As well as a pension for you, the Fund provides a range of benefits for your dependants in the event of your death. These benefits are part of your ordinary scheme membership and are paid for through the cost of your normal contributions. There is no additional cost to you for any of these benefits. Lump sum life cover In some circumstances, the University of York Pension Fund provides for a lump sum to be paid in the event of your death. The amount payable is dependent on your status in the Pension Fund at the time of your death. lif you die whilst contributing to the Fund and are under 65: the amount payable is three times the amount of your actual salary at the date of your death. lif you die whilst contributing to the Fund and are 65 or over: the amount payable is equal to five years worth of pension calculated at your date of death. lif you die whilst your benefits are deferred and are under 65: the amount payable is the balance of your MPAVC Account (if any). If you have no MPAVCs, no lump sum is payable in these circumstances. lif you die whilst your benefits are deferred and are 65 or over: the amount payable is equal to five years worth of pension calculated at your date of death. lif you die whilst receiving a pension: the amount payable is the balance of five years pension. If you have drawn your pension for more than five years, no lump sum is payable. You are able to inform the Trustee of who you would like this payment to be made to by completing a nomination form which is available on the Fund s website. Whilst the Trustee retains the discretion of who to pay, your wishes will normally be taken into account. You can nominate one person, or can split the amount payable between a number of beneficiaries. You can even nominate a charity to receive some or all of the lump sum. You can also change your nomination at any time if your circumstances change. If you have not completed a nomination form, the Trustee will make any payment due to your dependants, relatives or estate as they see fit. Pensions for spouses or registered civil partners If you are married or in a registered civil partnership when you die, then an on-going pension may be payable to your partner for the rest of their life. The pension that may be payable to a spouse or a registered civil partner is different depending upon whether you die whilst in receipt of a Fund pension, with a deferred benefit or whilst contributing to the Fund. If your spouse or registered civil partner is more than 10 years younger than you, then any pension payable to them upon your death may be reduced, and the amount payable to any spouse or registered civil partner may also be different depending on whether the marriage or registered civil partnership took place before or after you left or retired from employment. If your spouse or registered civil partner is able to receive a pension in the event of your death, then it will be payable from the day after the date of your death. The pension is paid by monthly instalments and is subject to tax deducted under PAYE. If you die whilst contributing to the Fund and are under Normal Pension Age at your date of death, then any spouse or registered civil partner may be entitled to a pension equal to 50% of the value of the pension you have built up at the date of your death. In addition, they may also receive a pension equal to the value of 50% of the pension that you would have built up between your date of death and Normal Pension Age, based on your Tier of membership, part-time hours (if any) and final pensionable salary at the date of your death. 22

23 Example Edna dies whilst contributing to the University of York Pension Fund. She is 55 years old when she dies, and has built up twenty years membership in the Fund. Her pensionable salary at the date of her death is 18,000, and Edna contributed to Tier 1 of the Fund. Edna was married when she died, and so her husband Edward is able to receive a spouse s pension. Edward s spouse s pension is 50% of the pension that Edna has built up and is calculated as: ((20 60) X 18,000 = 6,000) X 50% = 3,000 Edward is also able to receive 50% of the pension that Edna would have built up by Normal Pension Age. This is calculated as follows: ((10 60) X 18,000 = 3,000) X 50% = 1,500 Edward s total spouse s pension is therefore 4,500 per year. If you die whilst contributing to the Fund and have reached or passed the Fund s Normal Pension Age at the date of your death, then any spouse or registered civil partner may be entitled to a pension equal to 50% of the value of the pension you have built up, based on your membership and tier at the date of your death, and your final pensionable salary at Normal Pension Age, increased at a rate determined by the Actuary. University of York Pension Fund If you die whilst your benefits are deferred and are under Normal Pension Age, then any spouse to whom you were married when you left employment, or any civil partner with whom you had formed a registered civil partnership when you left employment may be able to receive a pension equal to 50% of the value of your deferred benefits. If you die whilst your benefits are deferred, are Normal Pension Age or over and have chosen to defer the payment of your pension then the amount that may be payable to a spouse or registered civil partner is a pension equal to the value of 50% of your pension, increased at the appropriate rate from Normal Pension Age. If you married your spouse or formed a registered civil partnership with your civil partner after you left employment, then any pension that they may be able to receive would be equal to 50% of the value of your deferred benefits, based only on your membership built up after 31 March If you die whilst receiving a pension, and retired on or before Normal Pension Age, then any spouse or registered civil partner may be entitled to a pension equal to 50% of the value of your pension, before any lump sum commutation. If you die whilst receiving a pension, and retired after Normal Pension Age, then any spouse or registered civil partner may be entitled to a pension equal to 50% of the value of your pension, based on your membership and Tier at the date of your retirement, and your final pensionable salary at Normal Pension Age, increased at a rate determined by the Actuary. Children s pensions In the event of your death, a pension may be payable to an eligible child in addition to any spouse s or civil partner s pension that may be being paid. A child is deemed to be eligible to receive a child s pension if they are the legitimate, legitimated or adopted child of the member. Eligible children qualify for a children s pension whilst they are under age 16, or whilst they are under 23 and in approved full-time education or vocational training approved by the Trustee. The amount 23

24 University of York Pension Fund payable depends upon the number of eligible children and whether or not you are married or in a registered civil partnership at the date of your death. The eligibility conditions and calculations are complex so please ask the Pensions Office if you require more information. Important notes Pensions are not payable to a partner to whom you are not married or with whom you have not formed a registered civil partnership. 24

25 Divorce or dissolution of a registered civil partnership Your pension benefits are valuable and, in the event that you become divorced, or your registered civil partnership is dissolved, the courts can take them into account. The main possibilities are: lpension Sharing: This is where your benefits are split, and your ex-spouse or ex-civil partner can receive a pension in their own right. The University is able to exercise its discretion as to whether the ex-spouse or ex-civil partner can receive a benefit entitlement in the Fund, or whether they must transfer this to an external provider. Your pension benefits will be reduced as a result of this. learmarking: This is where a portion of your benefits is earmarked, and paid to your exspouse or ex-civil partner when they become payable. University of York Pension Fund loffsetting: This is where the value of your pension is offset against any other assets. For example, you can keep your pension, but your ex-spouse or ex-civil partner may receive a larger portion of the house equivalent to the value of your pension. If you are going through a divorce, or your registered civil partnership is being dissolved, your solicitor may ask you to obtain the Cash Equivalent Transfer Value (CETV) of your pension. It is important that you ask us for this quickly, as there are strict time limits that apply. When you make your request, please let us know that you require the information for the purposes of divorce or dissolution of a registered civil partnership, and whether the application with the Court has been lodged in England or Scotland. You should note that charges apply for the implementation of a pension sharing order, and for the provision of information in addition to that which members are entitled to receive for free. 25

26 University of York Pension Fund Tax Limits on pension saving Savings that you make to a pension scheme are generally tax-free; however, there are limits that apply to the amount that you can save and draw tax-free from a pension scheme, which are outlined in this section of the Scheme Guide. Lump sums The lump sum that can be drawn upon retirement by commuting some of your pension is usually tax-free. However, there is a limit to how much tax-free cash you can draw from a pension scheme, which is usually 25% of the value of your pension pot. The Pensions Office will calculate this amount for you at the time of your retirement. Annual allowance The annual allowance is a limit set by HM Revenue and Customs which gives a maximum amount that your pension can increase by within a year. The year against which the increase in your pension is tested is known as the Pension Input Period (PIP). Different schemes have different PIP s, but for the University of York Pension Fund, the PIP runs from 1 August to 31 July. The annual allowance is currently 50,000 per annum but will reduce to 40,000 per annum from 6 April However, in the University of York Pension Fund this change will take effect for the PIP commencing on 1 August If you exceed the limit in a given year, you may have to pay a tax charge to HM Revenue & Customs on the excess saving. Very few members of the University of York Pension Fund are expected to exceed the annual allowance, but statements will start to be sent to potentially affected members during You are able to ask the Pensions Office for a calculation if you require it. If the increase in your benefits in the University of York Pension Fund means that you do exceed the annual allowance, you are able to offset the excess against any unused annual allowance that you may have from the previous three years. If, despite this, the increase in your benefits in the University of York Pension Fund means that you still exceed the annual allowance, then you are able to ask the Trustee to pay any tax charge on your behalf. The Trustee will arrange for an reduction to be made to your benefits when you draw them to take account of this. If you do exceed the annual allowance, it is your responsibility to inform HM Revenue & Customs. Lifetime allowance The lifetime allowance is a limit set by HM Revenue & Customs and represents the maximum amount that you are able to receive from approved pension schemes. When you draw benefits from a scheme, you will be provided with the details of how much of your lifetime allowance those benefits have used up. You will be asked for information about other pension benefits that you may have when you ask to receive your benefits in the University of York Pension Fund. If you do exceed the lifetime allowance, then you will have to pay extra tax on the excess over the lifetime allowance. The lifetime allowance is currently 1.5 million but will reduce to 1.25 million from April Protections If you have any form of enhanced, fixed or primary protection in place, you should let the Pensions Office know immediately upon joining. 26