MINEWORKERS PENSION SCHEME

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1 MINEWORKERS PENSION SCHEME Handbook for Members

2 Index Foreword Background to the Scheme as it is today Benefits on Retirement The pension calculation - Guaranteed Benefits The pension calculation - Bonuses Annual increases - pension in payment Pensions and inflation (or deflation) Increases and bonuses Payment of pension Changes in circumstances Confirming continuing entitlement to benefits Taxation considerations Information for Deferred Members Increases to deferred pensions Bonuses When pension is due for payment Early retirement choices Tax treatment of pensions Lump sums Trivial commutation Statements Transferrring out of the MPS 10 Death Benefits Pension benefits payable Members who left the Scheme before 6 April 1978 Members who left the Scheme after 6 April 1978 Civil Partners Other dependants Establishing entitlement to benefit on death - alternative beneficiaries Children s allowances Lump sums on death 14 Other Useful Information Additional Voluntary Contributions Transfers into the Scheme Payee arrangements Discretionary benefits Divorce 17 1

3 Index Trustees and Scheme Management The Committee of Management Appointment of Trustees Trustee Elections What are the Trustees duties and responsibilities? The Sub-committees Other Trustee Groups The Trustees Office The Scheme s Advisers The Scheme s Administrators The Government guarantee The Sub-funds Valuations, Bonuses and other benefit improvements 19 Retirement Income General notes about the Scheme and Retirement Income The State Pension Scheme Income Related State and Council benefits Assignment of benefits/court Orders 25 Scheme Publications Data Protection 26 Useful Contacts Pension Queries Questions about tax For more information about the Scheme Coal Industry Social Welfare Organisation (CISWO) Problems and complaints The Pensions Advisory Service The Pensions Ombudsman The Registrar of Pension Schemes The Pensions Tracing Service The Pensions Regulator 27 Glossary 30 2

4 Foreword The legal document which governs the operation of the Scheme is the Mineworkers Pension Scheme Rules. This is a document which started as a set of Government Regulations laid under the Coal Industry Act Since 1994, all changes to the Rules of the Scheme have been made by Government, after consultation with the Committee of Management. Other relevant provisions are contained in the Government Guarantee, the constitution of the Trustee Company and the general law covering pension schemes. This Handbook is a guide to the main terms of the Scheme Rules, which apply to pensioners and deferred pensioners, and it should be treated only as a guide. It is correct at the time of printing, but may be revised in the future in the light of changes to the Scheme, changes to the law and regulations governing pension schemes. The Rules of the Mineworkers Pension Scheme, and other legal documentation, contain the Scheme s full provisions and override this Handbook in the event of any inconsistency. A copy of the up to date version of the Rules is available from the administration office. The original Regulations are available from HMSO under the reference S.I No References in this Handbook to employment with British Coal include employment with any other employer which entitled coal industry employees to a pension under the Scheme. This handbook reflects pensions and taxation law and practice as at the end of However, please be aware that these may change in the future. As well as this Handbook there are other publications and reports which give more information about the Scheme. These can be obtained on request from the Administration Office, or can be accessed via the Scheme s website, which provides information and news all in one place. It also provides links to other sites which may be of interest to coal industry pension scheme members. Full details of how to contact the MPS are given on pages 27 and 28. 3

5 Background to the Scheme as it is today Since the MPS was introduced, it has changed significantly in structure. This section summarises those changes, and sets out the calculation basis for MPS benefits. The benefits payable to Scheme members vary because each member s circumstances are different. The MPS came into effect on 1 January Membership was made compulsory from 3 April Benefits earned before 6 April 1975 were relatively small and until April 1990, these benefits did not increase, either before or after they went into payment. The benefit structure of the Scheme was significantly revised from 7 April 1975, when it became an earnings related, final salary scheme. After 6 April 1975, as contributions changed from a flat rate to an earnings related basis, the Scheme was able to provide better benefits than before as a result of the higher contribution level. Refunds of contributions, paid as small lump sums, have been payable in certain circumstances - usually as a result of having relatively short service. Any member who was entitled to a refund of contributions was notified at the time of leaving the MPS. Where a refund was paid, no further benefits would be payable for that particular period of membership. The following table shows eligibility for membership and contribution rates: Date Membership MPS Contribution rate 1 January 1952 to 3 April April 1961 to 6 April April 1975 to 31 December January 1979 to 5 April April 1988 Scheme membership was voluntary in most cases Scheme membership was compulsory Scheme membership was compulsory Scheme membership was compulsory Scheme membership was no longer compulsory Maximum of 7.5p per week Maximum of 20p per week 5% of pensionable earnings 5.25% of pensionable earnings 5.25% of pensionable earnings Following privatisation in 1994, the MPS was closed and no further payments of ongoing contributions were accepted. MPS contributors who continued to work in the coal industry after privatisation were able to transfer to the Industry Wide Mineworkers Pension Scheme (IWMPS) from January

6 Benefits on Retirement The level of benefits the Scheme can pay depends on four factors which will vary between individual members. These are: the length of MPS service; the reason for termination of employment, the date of leaving the Scheme, and the contributions paid to the Scheme. The following paragraphs give a general description of how pensions at retirement are worked out. For more specific information on the calculation of individual benefits, please contact the Administration Office. The pension calculation - Guaranteed Benefits Scheme benefits are made up of a number of elements. Part of the pension is guaranteed, and the remainder is paid in the form of bonuses. The amount of pension is calculated by reference to the four factors above, but will always be a fixed rate pension amount, paid four weekly, quarterly or annually. Benefits earned for contributions paid to the Scheme before 7 April 1975 Contributions were made on a flat rate basis. Members paid fixed amounts of pension contributions, which were not related to their earnings. The maximum level of contribution up to April 1975 was never more than 20p a week. The pension earned for membership between 1952 and 7 April 1975 would never be more than 2.00 per week. Benefits earned for contributions after 6 April 1975 For members who left service after 7 April 1975, pension payable at the Scheme s pensionable age is based on pensionable earnings, contributing service and the accrual rate, all of which are explained further below. Pensionable earnings are normally an average of the highest three consecutive full tax years earnings (revalued in line with inflation) out of the last thirteen years of Scheme service since 6 April Contributing Service, which is a member s total Scheme service after 6 April 1975, plus any service transferred into the Scheme from another pension scheme, and any additional service credit due following the 1992 and 1994 valuations of the Scheme. Any period of strike absence when Scheme contributions were not repaid does not count as Contributing Service and is not included in the pension calculation. Accrual Rate, which is the rate at which the pension earned after 6 April 1975 built up. The Accrual Rate used in the benefit calculation depends on the date a member left the Scheme, as shown below: Date of leaving the Scheme: Accrual rate is: 7 April March /90th 1 April February /80th From 1 March /60th 5

7 Benefits on Retirement For example, if a member: left after 1 March 1992; had 17 years of Scheme membership; and based on the calculation explained on page 5, had pensionable earnings of 20,000, then his pension entitlement would be calculated as follows: 20,000 x 17 = a pension of 5,667 per year, or a weekly pension of Depending on the date they left and the reason for leaving, some members receive: a make-up to a minimum rate - generally, where a member took age or incapacity retirement or redundancy retirement over a certain age; a value for money addition, which ensures that the benefits due to members who left before normal pensionable age represented fair return for their contributions. At retirement, actual earned benefits, plus any increases added to the pension before it becomes due for payment, are compared with the level of the value for money pension. If the earned pension does not, in the opinion of the Trustees, provide value for money for the contributions paid, the higher of the two is payable; an award of additional contributing service, for members made redundant between 11 March 1981 and 29 March 1987, and who were aged between 50 and 59 at the date of redundancy. Any additions that are due are automatically added to pensions and do not have to be claimed separately. The pension calculation - bonuses The remaining part of the pension is paid in the form of bonuses, which arise from surpluses from past valuations. Bonuses are additional pension amounts which are paid with the Guaranteed benefits. Bonuses awarded from previous valuations cannot be guaranteed and in some circumstances, explained more fully on page 8, they might reduce. The Guarantee arrangements protect members benefits, ensuring that there is no reduction in total benefits in cash terms even during a prolonged valuation deficit period, when pensions stand still. The Guarantee arrangements are explained in more detail on page 21. 6

8 Benefits on Retirement Annual increases - pensions in payment Pensions are made up of three components: Guaranteed benefits; any Guaranteed Minimum Pension element; and Bonuses Guaranteed benefits are the part of pension built up during service in the industry. Guaranteed benefits receive full annual increases in line with any increase in the cost of living as measured by the Retail Prices Index (RPI). Any increase is normally applied by the Scheme in the autumn. In years where RPI is less than zero, as it was in 2009, for example, the Rules ensure that any fall in RPI will not result in a reduction in a member s total pension. The autumn RPI increase does not apply to bonuses, or to any Guaranteed Minimum Pension element. Where a member contributed to the MPS after 5 April 1978, the MPS undertook that, from State Pensionable Age, the Scheme would pay at least a minimum level of pension, called the Guaranteed Minimum Pension (GMP), which replaces a comparable benefit otherwise payable from the State. The Scheme pays all the increases on any MPS pension in payment before the GMP becomes payable. Once GMP becomes payable, the Scheme increases any GMP earned after 5 April 1988 by the increase in the cost of living up to 3% each year. The pension increase on the pre April 1988 GMP and any pension in excess of 3% on the post 1988 GMP will be added to the State pension by the Benefits Agency when the State pension increases. These increases are effective from 6 April each year. At the date this Handbook was published, State Pension Age is 65 for men and 60 for women. From April 2010, State Pension Age for women will begin to gradually increase so that by 2020, State Pension Age will have been equalised for men and women, at age 65. The GMP is not an additional pension; it is a minimum level, calculated by the State. If a member contributed to the MPS after 5 April 1978, the Scheme pension is compared against the GMP to ensure that it is no less than the GMP. If it is less, it would be increased to the same value as the GMP. The GMP should not be confused with the Guaranteed benefit element which forms part of the benefits payable by the MPS. As previously explained, bonuses arise from surpluses from past valuations. They are not generally increased in the autumn. 7

9 Benefits on Retirement Pensions and inflation (or deflation) As explained on page 7, the Rules provide for Guaranteed benefits to increase each year by the increase in the Retail Prices Index (RPI) measured over the period June to June. In 2009, for the first time since MPS became a closed Scheme in 1994, the change to the RPI was negative (-1.6%). The Rules of the Scheme state that pensions cannot be allowed to fall and Guaranteed benefits will stand still even when the RPI change is negative. The Rules also state that any increases in RPI in subsequent years must be offset against negative RPI in earlier years. This means that annual increases on Guaranteed benefits can only begin again once future RPI increases are more than the previous falls, though the Trustees aim is always to try and increase pensions in line with any increase in the RPI by awarding bonuses (when funding permits) to top up the Guaranteed benefit entitlement. Increases and bonuses Bonuses added to pensions are not generally increased, though flat rate bonuses have been (and in the future will be when affordable) added to Guaranteed benefits with the aim of keeping members benefits increased in line with inflation. Bonuses already awarded came from surpluses in the Scheme after Bonuses have been added to pensions in 1997, 2000 and 2006 when reviews showed that there were surpluses in the Scheme. Continuing payment of bonuses is not guaranteed; bonuses are likely to decrease if a review shows that there is a large deficit in the Scheme, although overall pension cannot be reduced in cash terms, as previously explained. Payment of pension MPS pensions are normally payable every four weeks, that is two weeks in advance and two weeks in arrears. For small pensions, payment is made quarterly or annually. Pensions are usually paid into a member s UK bank or building society account by direct credit from the Scheme s bank account. Payment by cheque or girocheque is no longer available. Where a member is living abroad, payments can be made to an overseas account but there may be additional bank charges. The Scheme offers an option to pay pensions to those living overseas quarterly or annually so as to reduce these costs and exchange rate losses. 8

10 Benefits on Retirement Changes in circumstances In most cases, pensions are payable for life, unless they were paid on the understanding that payment would only continue while the recipient meets certain qualifying conditions - for example, where a pension is being paid for the duration of a child s education, or where a Serious Ill Health pension was awarded. Since 1979, widow s benefits have been payable for life, even after re-marriage. However, the Scheme will need to be informed about the re-marriage in order to make sure we are making payments, and addressing correspondence, correctly. Some changes in circumstances will affect payment of pension. All of the changes listed below should be reported to the Scheme s administrators, who will confirm whether they affect the benefits payable. What changes should be reported? Deaths - including the death of a Scheme member, a dependant or a deferred member Changes of address Closure of a bank account, or a change of account number A move to a retirement home, or to a nursing home A return to work, where Serious Ill Health Benefits were awarded Remarriage If a child leaves school, or reaches age 21 if before (if a child s pension is in payment) A divorce A change of name Failure to notify the Administration Office of a change could result in an overpayment of Scheme benefits. In all cases, the Trustees have a duty to recover overpayments of MPS benefit and will take whatever action they consider necessary to recover overpaid money. Confirming continuing entitlement to benefits Our administrators make regular checks It is important, and in the interest of all with a specialist tracing agency to ensure members, that Scheme benefits are paid that the Scheme is advised where the only to those who are entitled to receive death of a pensioner might have gone them. The Trustees are responsible for unreported. If we receive a report of a looking after the assets of the Scheme death, and we are not contacted by the for every member. The Trustees would be next of kin within a reasonable period, we accountable to members if they did not will write to our pensioner s address to take action to recover overpaid benefits. confirm the position. If fraud is involved, the Trustees will pursue the return of any money received fraudulently and, if necessary, take legal action to recover it. Taxation considerations Pensions in payment are taxed under PAYE, although lump sums paid from the Scheme are generally free of tax. If a member has another pension arrangement which has yet to come into payment, he may be asked how much of his Lifetime Allowance is taken up by MPS benefits before that pension can be paid without incurring very high tax charges. More information about the Lifetime Allowance is covered in the next section but if a member s pension is already in payment he can work out the value of his MPS benefits against the Lifetime Allowance by multiplying his annual pension by 25 and, if he left the MPS before 1 March 1992, adding any separate lump sum. If a member retired after 5 April 2006, the Lifetime Allowance figure will have been quoted on his retirement statement. 9

11 Information for Deferred Members Increases to deferred pensions Deferred pensions increase before and after retirement. Increases to pensions in payment are described on page 7. This section explains how pension will increase before retirement. Deferred pensions are made up of three components: Guaranteed Minimum Pension (GMP) (for those members who contributed after 6 April 1978); An increasing component (the increasing pension); and A non-increasing component (the non-increasing pension). Before retirement, the GMP will increase broadly in line with the rate of increase of National Average Earnings. The increasing pension, which includes benefits earned during Scheme membership (but excluding any GMP element) and any additional benefits awarded from surplus before privatisation, will increase in line with price inflation as measured by any annual increase in the Retail Prices Index. All of these increases are provided by the Scheme. The non-increasing pension is made up of bonuses awarded from surpluses after No increase will be paid on this part of the pension, although (as with pensions in payment) new bonuses may be paid in future to help keep total pension in line with retail price changes. Bonuses Bonuses have been added to deferred pensions in 1997, 2000 and 2006 when reviews showed that there were surpluses in the Scheme. These bonuses are not guaranteed and do not increase annually. Continuing payment of bonuses is not guaranteed; bonuses can actually decrease if a review shows that there is a large deficit in the Scheme, although overall pension will not be reduced. When pension is due for payment Full pension is payable from age 60, the Scheme s normal pensionable age. Three months before a member s 60th birthday, the Administration Office will confirm the amount of benefits payable and the arrangements which need to be made in order to draw them. If a member has not heard from the Administration Office two months before his 60th birthday, he should contact the Administration Office directly. 10

12 Information for Deferred Members Early retirement choices Benefits can be taken before age 60, at a reduced rate. For the majority of MPS members, the earliest age at which reduced benefits can be taken is age 50. However, during 2010, the earliest age at which reduced benefits in most UK pension schemes can be taken will increase from age 50 to age 55. In the MPS, where members had an unconditional right to a reduced pension at 50, they will retain that right. MPS members who were reinstated into the MPS after 6 April 2006 will not have access to benefits before age 55. The Administration Office will have already notified members to whom this applied that they cannot draw an early pension until age 55, rather than age 50. In all cases, payment at an earlier age than 50 (or 55, as appropriate) is not possible other than in the exceptional circumstances described on page 18. Benefits taken before age 60 will be lower than those shown on benefit statements as being payable from age 60 because they will payable earlier, and for longer. This is to ensure that a member s early retirement is not subsidised by other members. The level of reduction is reviewed regularly by the Trustees. Currently, benefits payable from age 50 would be 60% of the amount payable at age 60. If taking pension at age 55, 76.4% of the amount payable at age 60 would be payable. Different reduction rates apply to members with a value for money enhanced pension, and to current contributors to the IWMPS who are taking both IWMPS and MPS benefits at the same time. Tax treatment of pensions Up to 6 April 2006, the MPS was an exempt approved scheme for the purposes of the Income and Corporation Taxes Act The Scheme s exempt approved status meant that pension contributions were not treated as taxable earnings, cash lump sums on retirement and death were tax-free and both the investment income from the fund, and the growth in value of investments, were mainly exempt from tax. In exchange for these tax advantages, the benefits that the Scheme provided were subject to certain limits, based on salary and service. MPS benefits generally fell well within these limits and for most members could be paid with no restrictions. Since 6 April 2006, the HMRC limits on contributions and benefits from approved pension schemes have been replaced with allowances, up to which tax treatment remained favourable. The MPS became a Registered Pension Scheme. All types of registered pension schemes come under one set of regulations. For most people, the 2006 tax regime applies to all sources of pension income, except State pensions. The Lifetime Allowance, introduced in 2006, applies to all pensions savings, replacing the previous rules for different types of pension arrangements. The allowance applies to the total value of benefits from all registered schemes, not just MPS, at the time benefits are put into payment. Initially, the Lifetime Allowance was set at 1.5 million; for the tax year 2009/2010, the allowance is 1.75 million. A member who has not yet drawn his pension can work out the value of his MPS benefits against the Lifetime Allowance by multiplying the annual deferred pension by 20 and, if he left the MPS before 1 March 1992, adding any separate lump sum. Members who think their total pension entitlements may amount to over 70,000 a year, or over 1.75 million in value - or are close to that figure - can download a factsheet from the Scheme s website, which explains the taxation of pensions in more depth. A copy of the factsheet is also available on application to the Administration Office. 11

13 Information for Deferred Members Lump sums Members who left after 1 March 1992 are able to take a tax-free cash lump sum of up to 25% of the total value of MPS benefits, subject to a maximum of 25% of the Lifetime Allowance. A 9:1 exchange rate is used for calculating the lump sum payable. The exchange rate is fixed in the Scheme Rules. It in no way represents a fair exchange of annual income for cash when compared with annuity rates offered by insurance companies on the open market. Some members who left before 1 March 1992 may have a separate lump sum entitlement which cannot be converted to a pension although an optional higher cash lump sum may be payable. The Lifetime Allowance calculation for a member who left the MPS before 1 March 1992 must include any separate lump sum entitlement before making an estimate as shown on page 11. Although the Scheme offers a lump sum option, a decision to take the maximum lump sum from the Scheme will probably not be in the financial interests of a member in normal health. Taking cash permanently reduces the amount of weekly pension which may be paid for decades to come. Members should bear this in mind before selecting a cash option and may wish to seek independent financial advice. Trivial commutation In some instances, very small pensions may be exchanged for a final trivial commutation cash lump sum, provided they pass tests set by HM Revenue and Customs (HMRC). Before December 2009, the only condition was that the pensions from all schemes being converted to cash must be valued at less than 1% of the overall limit on tax-favoured pension funds under the Lifetime Allowance test. Using HMRC s conversion tables, that means that provided pensions from all schemes come to roughly less than 16 per week in tax year 2009/10, they can be cashed in from age 60 (but before age 75) and converted to a one off lump sum. From December 2009, a more flexible additional version of trivial commutation was made available by HMRC. Members whose pension within a single scheme is valued at less than 2,000 by their formula (which is equivalent to an MPS pension of 1.53 per week) may commute it for a single cash payment from age 60. Under this new test, it does not matter whether such members also have other pension scheme income. Statements Benefit statements showing a member s entitlement under the Scheme are sent out every three years. Where an MPS member also has active membership of one of the Industry Wide schemes, statements are sent out annually. 12

14 Information for Deferred Members Transferring out of the MPS If a member s MPS benefits are not yet in payment, and subject to certain limits, he can transfer the cash value of his Scheme benefits to: another registered pension scheme in the UK, or certain overseas schemes - as long as the managers of such an arrangement are willing and able to accept the transfer. The amount available for transfer is called a cash equivalent transfer value (CETV) and will vary depending on a member s age, gender and current market rates. The CETV payment will be used to provide additional benefits in the receiving arrangement. For more information, a member can contact the Administration Office about a transfer. They will provide a quotation of the CETV together with details of the Scheme benefits the member would be giving up by transferring. A member can ask for a CETV quotation once a year any time up to one year before his full MPS pension is due to start. In most cases, CETV quotations will be guaranteed for three months. Once this period has expired, the CETV must be re-calculated using up to date factors, and the amount of CETV payable may change. If a member is thinking about transferring to any other pension arrangement he should consider his options carefully and think about independent financial advice. If a member transfers out of the MPS, he will give up all rights to benefit from the Scheme. 13

15 Death Benefits It is important that the Administration Office is told of the death of an MPS member as soon as possible. They can then let the family know what details are needed to allow them to identify and pay any benefits due. The benefits payable on death will vary, because they depend on the benefits the member was receiving from the MPS. If a member is uncertain of the benefits payable in the event of his death, the Administration Office can confirm whether any benefits would be payable to his family. Pension benefits payable Members who left the Scheme before 6 April 1978 Most small pensions awarded to those who left the industry before 6 April 1978 carry no continuing entitlement to a widow s pension. There are exceptions - a widow s pension may be payable where a member left the industry at age 65, or was retired on incapacity grounds by British Coal s Medical Officer. If at the date of death, the member has been married for less than twelve months, widow s benefits would be payable at the discretion of the Trustees. If no widow s pension is payable, any pension benefits due but unpaid at the date of death would be paid to the member s widow, or next of kin. A lump sum may be payable on the death of a member who left after 6 April There is more information on page 16. Members who left the Scheme on or after 6 April 1978 Widow s pension A widow will receive benefits based on two-thirds of the member s total weekly pension. If at the date of death, the member has been married for less than six months, widow s benefits would be payable at the discretion of the Trustees. If pension is taken before the member had reached age 60, it is payable at a lower rate, with an early retirement reduction. That early retirement reduction would not apply to the calculation of widow s pensions. Once in payment, a widow s pension is payable for her life and would not cease should she re-marry. The position in the event of the death of a Scheme member who was divorced depends on any legal arrangements which might have been agreed between the couple at the time of the divorce. The section on page 18 gives more information. Generally speaking, following a divorce, there would be no spouse s benefits payable to the former spouse on the death of a member. 14

16 Death Benefits The widows and widowers of members who contributed to the MPS after 5 April 1978 may also have a Guaranteed Minimum Pension (GMP) entitlement. For widows, this will be half of the member s GMP. For widowers, the entitlement will be half of the member s GMP arising from service on or after 6 April The GMP is a minimum level of pension, which replaces a comparable benefit otherwise payable from the State. There is more information about GMPs on page 7. From 6 April 2006, changes introduced by HMRC allow increased flexibility in how lump sum death benefits can be taken. Any GMP element can only be paid as a widow or widower s pension. This is because the GMP is a pension that is paid in place of a State benefit, the State Earnings Related Pension Scheme (SERPS), or the State Second Pension (S2P). If the benefits due from MPS exceed the level of the GMP, the excess can be converted into a cash lump sum, provided the lump sum is below the limit of the unused balance of the deceased member s Lifetime Allowance. Any lump sum death benefit paid above that level would be taxed at the rate of 55%. A lump sum death benefit can only be paid if the member is under the age of 75 at the date of death. After a member reaches that age, any benefits due on their later death can only be paid as a pension. There is more information about HMRC s April 2006 changes on page 11. Taking a cash lump sum instead of a pension may not be in the best financial interests of dependants, who may have to live on the income for many years. The Trustees strongly recommend that dependants take financial advice before deciding to take cash from the Scheme instead of pension income. Widower s pension Leavers before 6 April 1988 There is generally no entitlement to widowers pension for the husbands of female Scheme members who left the Scheme before April The Administration Office will be able to confirm whether a pension is payable. Leavers on or after 6 April 1988 Where a female Scheme member contributed to the Scheme after April 1988, and died on or after 6 April 1989, benefits are payable to her widower. The benefits payable are calculated in the same way as widow s benefits. Civil Partners The Civil Partnership Act 2004 came into force on 5 December Since then, same-sex couples in the UK have been able to enter into a legally recognised relationship which gives a registered civil partner rights and responsibilities similar to those of spouses, including rights to pension scheme benefits. Benefits payable to a qualifying surviving civil partner would be payable on the same basis as the benefits payable to MPS widowers. Other dependants The Rules give the Trustees some discretion on deciding how to pay particular benefits in certain circumstances. This includes the payment of dependant s benefits on the death of a Scheme member. These benefits may be payable, depending on the circumstances, where an unmarried couple were living together as partners. The Trustees will take full account of all relevant information provided about a member s circumstances in making a decision on the payment of discretionary Scheme benefits. Benefits may also be paid at the Trustees discretion, for the duration of the child s education, to a claimant who had care of the member s children at the time of his death, or to anyone (except someone already entitled to a child s pension from the Scheme) who was wholly or mainly maintained by the member. The Trustees can review these discretionary benefits if a dependant s circumstances change. 15

17 Death Benefits Establishing entitlement to benefit on death - alternative beneficiaries Where a couple are legally married, it is relatively straightforward to establish entitlement to benefit following the member s death by asking to see the marriage certificate. This is not possible, of course, where a couple who were unmarried were living together as partners. In such cases, we ask to see supporting evidence of the relationship and of the claimant s financial dependency on the Scheme member. This could include confirmation of a shared bank account, letters, and utility bills addressed to both parties at the same address. We may also arrange for a visit from a representative of CISWO (the Coal Industry Social Welfare Organisation), as often a claimant may prefer to speak personally to give details of their circumstances. In the interests of security, many people routinely destroy bank statements and other paperwork. However, anyone living with a partner who would wish to make a claim for dependant s benefit on the death of the Scheme member should consider whether there would be sufficient information to support their claim. Children s allowances Children under 16, including a child born following a member s death, a legally adopted child, or a child for whose care and maintenance the member was responsible, may be entitled to receive a pension. Any disabled children, permanently incapable of supporting themselves, may receive a pension for life. Otherwise, pensions to children cease when they reach age 16 unless they are in full time education in which case payment will continue as long as education continues, up to a maximum age of 21. It is important that we are notified as soon as education ceases because any overpayment will be repayable to the Scheme. Children s pension payments form part of their taxable income. Children s pensions are normally paid to an adult, usually the surviving parent, for the child s benefit. They do not form part of the taxable income of the parent as the law currently stands provided the income is the entitlement of the child, and is used for that child s benefit. Lump sums on death If there is no dependant s pension entitlement following a member s death, we check to see whether the payments due, or payable, to the member represented the full value of his contributions to the Scheme. If not, any balance, usually a small lump sum, will be paid to the member s widow, or his estate. Deferred pensioners Where a member left after 6 April 1975 and benefits were not in payment at the date of death, the member s widow or his next of kin would be entitled to a lump sum equal to the higher of three years worth of pension or the value of the member s contributions, plus interest. Pensioners in payment Where a member left the MPS after 6 April 1975, payments are guaranteed for five years from the date the pension is put into payment. If a member dies within five years of starting to draw pension, any remaining instalments of pension due but unpaid are payable as a lump sum. 16 Taxation considerations Other than in circumstances where benefits are paid in excess of a member s Lifetime Allowance, under current tax law, none of these lump sums would be subject to tax on payment by the Trustees. Payments made to the member s estate may, however, be assessed to Inheritance Tax as part of the estate.

18 Other Useful Information Additional Voluntary Contributions If a member paid Additional Voluntary Contributions (AVCs) in addition to normal MPS contributions, and did not transfer his AVC fund to another arrangement, he will have built up an AVC fund with the Prudential Assurance Company, the company chosen by the Trustees to manage the Scheme s voluntary contributions arrangement. A member s AVC fund will provide additional benefits at the time his main MPS benefits become due for payment and can be used to buy an annuity, which provides a pension for life for the member and, if he chooses, for his dependants, or a lump sum. The AVC has an Open Market Option, which means that a member can take an additional pension with any provider he chooses at retirement. The Financial Services Authority (FSA) has a website ( that allows a comparison of annuity rates available based on the type of annuity a member wishes to take and his AVC fund size. In order that a member can make a comparison, a quotation request form will be sent at the same time as his MPS retirement options. Up to four quotations can be requested from the Prudential. The quotation request form sent to members who have large AVC funds will include details of an independent annuity broker, Hargreaves Lansdown, who can help to select an annuity from all providers. Following the tax changes introduced in April 2006, a deferred member can take some (or, in many cases, all) of his AVC fund as a tax-free lump sum, as opposed to having to take it all as pension. As explained elsewhere in this Handbook, there is also an option to take part of the benefit from the main scheme as a lump sum rather than pension. If a member wishes to take a cash lump sum, whatever the total amount that a member wishes to receive as cash (from his AVC fund and from the MPS, taken together), it is likely to be in his interests to take as much of that sum as possible from his AVC fund rather than from the MPS. This is because the rate at which AVC pension is converted to lump sum is currently more favourable than the corresponding rate that currently applies under the terms of the MPS. Information about the AVC policy itself can be obtained from the Prudential s website: Members who paid AVCs and who have not yet drawn their benefits receive details of their AVC fund in a separate benefit statement. For any questions about an AVC fund, or the benefits from an AVC fund, please contact the Administration Office at the address on page 27. Transfers into the Scheme Following privatisation, transfers into the MPS were no longer accepted. However, in the 1980s and early 1990s, many members of occupational schemes were advised by personal pension salesmen to transfer their benefits out of the MPS. This advice was later found to be inappropriate for some members. In such cases, the Trustees policy was to allow reinstatement, providing the personal pension provider met the full cost. This option was withdrawn from 1 October Any former MPS member, who believes he may have been badly advised to leave the Scheme, should contact his personal pension provider to determine whether compensation may be payable. Payee arrangements If a member who is receiving a Scheme pension becomes unable to manage his pension because of physical or mental incapability, the Committee of Management can appoint a relative or other person to act as payee to receive the pension on his behalf, providing the payee uses the pension payments for the member s benefit. Further details of these arrangements are available from the Administration Office. 17

19 Other Useful Information Discretionary benefits The benefits provided for MPS membership are set out in the Rules and the Scheme s Trustees have a duty to pay benefits in accordance with the provisions of those Rules. However, the Trustees may, in certain circumstances, pay discretionary benefits. Where MPS benefits are not yet in payment, the Trustees currently have a discretionary power to grant early payment of unreduced MPS benefits in extreme and exceptional circumstances, whatever a member s age. For example, discretionary benefits may be claimed where a deferred member provides medical evidence to show that life expectancy is limited to eighteen months or less as a result of terminal illness. Please do not delay a claim in such circumstances. Members who need further information about discretionary benefits should contact the Administration Office at the address shown on page 27. Divorce Any member who is involved in divorce proceedings should always consult a solicitor for guidance. The following information provides a general outline of the way in which Scheme benefits might be affected after a divorce. It should be noted that there are differences in the way family law is administered in Scotland to the way it is administered in England and Wales. When a couple divorce or separate, the court must give full consideration to the value of the pension rights of each spouse or partner. To do this, a calculation of the pension rights of one or both parties will be needed. On request, the Scheme will provide the member with a valuation for divorce purposes. A valuation can also be provided to a solicitor acting for either party, provided the member s written authorisation is received. In certain circumstances, the Scheme is entitled to make a charge for this information. There are three ways in which pension rights can be divided when a couple divorce or separate. The first is called offsetting, in which the pension value is included in the assessment of the value of the couple s assets - for example, a family home. The two remaining methods are: Earmarking - part of the member s pension is set aside for the benefit of the former spouse, to come into payment when the member retires, (or is immediately effective if the member has already retired), or dies. Depending on the terms of the court order, payment of benefits to both parties will cease on the death of the member. Pension sharing - an alternative option where divorce proceedings were filed after 1 December The member gives up an agreed share of his pension value, which is used to create a pension in the former spouse s own name. If the former spouse is of pensionable age then pension income can start straight away and will be paid for life. If she has not reached pensionable age at the date of divorce, then the fund is set aside to provide a pension from her retirement date. The share belonging to the former spouse may stay in the Scheme for payment on retirement, or can be transferred to another qualifying pension arrangement. In contrast to Earmarking orders, benefits payable to the former spouse under a Pension Sharing Order are unaffected by a subsequent change in the scheme member s position - for example, his marital status, or death. The Scheme is entitled to make a charge for the provision of specific divorce information and for the complex process of implementing a court order. We will not generally begin work or accept a court order without payment of the appropriate charges. A leaflet outlining the legal position on pensions and divorce, showing the current charges payable, can be found on the Scheme s website. 18

20 Trustees and Scheme Management This section explains how the Scheme is run, the duties of the Trustees and the arrangements for management of the Scheme. The Committee of Management Trustees of the Mineworkers Pension Scheme Limited (TMPSL) is a trustee company, whose ten directors are responsible for managing the Scheme. They form the Scheme s Committee of Management. (For ease of reference in this Handbook, members of the Committee of Management are usually referred to as the Trustees ). Appointment of Trustees Of the ten members of the Committee, five are appointed, and may be removed, by the Committee. A Nomination Group proposes recommendations to the Committee for these five Trustees, from whom are drawn the Chairman and the Chairmen of the Sub-committees. The appointment of the Scheme Chairman and the Chairman of the Investment Sub-committee require the consent of the Guarantor. Trustee Elections The remaining five members of the Committee are Pensioner Representatives elected by Scheme members from five geographical constituencies. All pensioners and deferred pensioners on the Scheme s electoral register have the right to stand for election and to vote in the constituency where they live. Outgoing Pensioner Representative Trustees who were Union Representatives at October 1994 may also stand for re-election. The period of office for Pensioner Representatives is five years. Each constituency holds an election in turn. The five constituencies are: Yorkshire and North Lincolnshire; Central & Southern England & South Wales; North East England & Overseas; Scotland, North West England & North Wales; and Derbyshire, Nottinghamshire & Lincolnshire All Trustees are entitled to receive payment for their work as members of the Committee. The rate of remuneration is set by the Guarantor. Their remuneration is reported annually in the Scheme s Report and Accounts. Each Trustee has a duty to consider the interests of every member and beneficiary of the Scheme. They have a duty to represent the interests of pensioners and deferred members equally, regardless of whether they were appointed or elected. Elected Trustees are unable to treat members in their constituency in a more favourable way to those in any of the other constituencies. 19

21 Trustees and Scheme Management What are the Trustees duties and responsibilities? The Trustees are responsible for the financial management of the Scheme, including investing the Scheme s funds, and for ensuring that benefits are paid in accordance with the Rules. The Committee of Management is responsible for the overall management of the Scheme; it has regular quarterly meetings and as necessary may meet on other occasions throughout the year. The Trustees duties and powers are defined in the Scheme and Rules and in the general law. In summary, their main duties are: to ensure that the MPS is run in accordance with the Scheme and Rules; to invest the funds, and to secure payment of Scheme benefits; to act in the best interests of all the beneficiaries of the Scheme; and to act honestly, prudently and conscientiously. The Sub-committees To help perform its duties and to streamline decision making, the Committee has delegated certain of its powers to a number of Sub-committees. Sub-committees are made up of an equal number of elected and appointed Trustees. The principal Sub-committees are as follows: The Investment Sub-committee, which oversees the implementation of the Scheme s investment strategy by its investment managers, monitors the performance of each investment manager and considers investment issues. The Administration and Benefits Sub-committee, which deals with the administration of the Scheme and benefit issues. Monitoring the performance of the MPS administrator is a key aspect of its duties. The Discretions and Appeals Sub-committee, which has powers to award certain discretionary benefits. This Sub-committee also considers appeals made at the Second Stage of the Scheme s Internal Dispute Resolution procedure. The Risk and Assurance Sub-committee, which oversees the Trustees overall risk management framework to ensure that it is efficient and capable of providing an appropriate level of assurance. This Sub-committee also reviews the role, activities, resources, independence and effectiveness of the Scheme s Internal Audit function, and the scope of the External Auditor s annual Audit Plan. Other Trustee Groups: The Investment Strategy Working Group considers issues relating to the three yearly review of the Scheme s investment strategy. The Nomination Group proposes recommendations for Appointed Trustees when vacancies arise on the Committee of Management. The Valuation Working Group considers the work of the Actuary in preparing three-yearly Scheme valuations and reports its findings to the main Committee. The Trustees Office The Trustees have a full time executive employed by Coal Pension Trustees Services Limited, a company jointly owned by the Trustees of the Mineworkers Pension Scheme and the Trustees of the British Coal Staff Superannuation Scheme. 20

22 Trustees and Scheme Management The Scheme s Advisers The Scheme has appointed a number of specialist investment managers to manage and invest the Scheme s assets. In addition, professional advice to the Scheme is provided on legal, actuarial, medical and investment matters. All contracts with advisers and service providers are reviewed periodically, and their performance is closely monitored. More details of these appointments are contained in the Scheme s Report and Accounts. The Scheme s Administrators Pension scheme administration services are provided by a third party administrator selected by the Trustees. The main point of contact for Scheme pensioners and deferred pensioners is the Scheme s Administration Office. The Trustees expect the administrators to work to high standards of customer service and their performance is closely monitored. Every year, the Trustees carry out a survey of a sample group of Scheme members to obtain an independent view of how members regard the services provided by the Scheme. The Government guarantee The British Coal Corporation, as the principal employer, was until 1994 primarily responsible for funding the Scheme. The Corporation was formally dissolved following the making of a Restructuring Scheme under the Coal Industry Act 1994 which provided for the remaining assets and liabilities of British Coal to transfer to the Department of Trade and Industry (DTI). The Government Guarantee was put in place on 31 October 1994, the day the Scheme was changed to reflect the impact of the privatisation of the coal industry. Certain powers changed with effect from the Closure Date and, at the request of the Committee, the Guarantor amended the Rules to ensure that a small number of important powers and obligations held by British Coal were not lost - in particular, the power to augment benefits. These powers were transferred to the DTI. In 2007, the DTI was replaced by the Department for Business, Enterprise and Regulatory Reform (BERR). In October 2008, responsibility passed to The Department of Energy and Climate Change (DECC). This change does not affect the Scheme s Guarantee arrangements in any way. The Government Guarantee is a legally binding contract between the Trustees and the Government. In addition to ensuring that benefits earned up to privatisation, and benefit improvements from surpluses before 1994, will always be paid and keep their real value, the Guarantee provides protection to ensure that the total pension is not reduced in cash terms each year. If a future valuation of the Scheme shows there is not enough money in the Guaranteed Fund to pay benefits, funds will be drawn from the Investment Reserve to make up the shortfall. Should the funds in the Investment Reserve be insufficient to achieve this, the funds in the Guarantor s Fund and the Bonus Augmentation Fund would be used to make good the remaining shortfall. If this happens, the standstill arrangement ensures that combined pension payments from the Guaranteed Fund and the Bonus Augmentation Fund do not decrease (although the total may stand still for a period). If the combined assets of the Guarantor s Fund and the Bonus Augmentation Fund are not enough to achieve this, the Government will have to put new money into the Scheme to fund the Guarantee. 21

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