1 Combined Nuclear Pension Plan (CNPP) Frequently Asked Questions (FAQs) for members of the New Joiners Benefit Structure and for members making defined contribution Additional Voluntary Contributions and Shift Pay Pension Plan contributions The CNPP Trustee has prepared this note for members of the defined contribution (DC) New Joiners Benefit Structure or members who have investment accounts as a result of making DC additional voluntary contributions (AVCs) and/or Shift Pay Pension Plan (SPPP) contributions. The list of FAQs is intended to help answer some of the questions you may have about your options as you approach retirement. If you have specific queries, you should contact your employer representative or the Plan Administrator. The FAQs do not apply to members of the Nirex Benefit Structure who should contact the Plan Administrator. What are my choices at retirement following the proposed changes announced in the March 2014 Budget? The CNPP Lead Company and the Trustee will be considering whether any changes to the CNPP should be made in response to the Chancellor s announcement. However, since the majority of the changes announced in the Budget are not expected to take effect until April 2015, please be aware any changes are unlikely to be implemented before April 2015 and the responses to the questions below have been formulated based upon the Rules of the CNPP as at September What happens when I approach retirement age? A. If you are a member of the New Joiners Benefit Structure and: (i) you are retiring at your normal pension age (or the preferred pension age you have selected and notified to the Plan Administrator (your "selected pension age")), the Plan Administrator will write to you at least four months before you are due to retire to explain the options available (see note 1 below); or (ii) you decide to retire earlier than your normal retirement age or "selected pension age", your Employer Representative will contact the Plan Administrator to arrange for your retirement options to be issued to you (see note 1 below). B. If you not a member of the New Joiners Benefit Structure but are an active member of the CNPP and have made, or are making, DC Additional Voluntary Contributions (AVCs) or Shift Pay Pension Plan (SPPP) contributions, your Employer Representative will ask the Plan Administrator to arrange for retirement quotations to be sent to you (see note 2 below). C. If you are no longer working for an employer that provides a CNPP pension, the Plan Administrator will write to you at least four months before you are due to explain the options available.
2 Note 1 - Retirement Options: The Plan Administrator will inform you of the current value of your investment account and provide details of how you can estimate your future retirement income when you retire. You can either ask the Plan Administrator to provide an annuity quotation to you (see note 2 below), or you can find an annuity from an external provider (this is known as the "Open Market Option"). If you select the "Open Market Option" you don't have to use Hargreaves Lansdown s annuity finder link but it enables you to shop around using the value of your investment account to compare available options (please see How can I obtain quotations from other insurance companies? and Who pays for Hargreaves Lansdown s annuity finder service? below). Note 2 - Retirement Quotations: If the Plan Administrator is asked (by you or your Employer Representative) to arrange for an annuity quotation to be sent to you, the Plan Administrator must make sure your contributions (regardless of whether they are normal employee/employer contributions, AVCs or SPPP contributions) made shortly before you retire have been added to your investment account. Since contributions are received monthly from your employer, you should be aware that this means that the quotation can only be sent to you after you have retired. The quotation will provide a range of options for you, but other options are available and you may ask for further quotations that suit your requirements. Please note: quotations are only guaranteed for a short time and an insurance company will usually reserve the right to amend the quotation if you accept after the guaranteed period has expired. What is an annuity? An annuity is a regular income stream for the rest of your life. You buy an annuity from an insurance company with the money you have built up in your investment account. With annuities, a medical condition can work in your favour, and could boost the amount of income you receive. These types of annuities are called enhanced, or impaired life, annuities. What is an enhanced or impaired life annuity? Enhanced, or impaired life, annuities work on the basis that, if you have a medical condition, you'll have a shorter life expectancy than someone in a better state of health. Insurance companies will usually offer you a higher monthly retirement income than someone who is in good health. You will need to provide detailed medical information to the insurance company to enable them to assess your health.
3 When can I retire? Retirement is no longer a fixed time in your life and you can take early retirement from age 55 or carry on working beyond State Pension Age (SPA). Please note: the Government proposes to increase the minimum early retirement age to 57 in 2028 so that it is consistent with the rise in SPA. Your state pension won t be available until you reach SPA. Retiring early will depend upon your own personal circumstances and if you decide you want to retire early, you should start by speaking to your Employer Representative. If you are thinking about retiring early from the CNPP whilst continuing in employment, please check with the Plan Administrator to see if this is allowed within the Rules of the CNPP (as it is only allowed in a small number of situations). If you have left your employer and have a deferred pension, you should contact the Plan Administrator for information: If you are a defined benefit (DB) member of the CNPP and have a SPPP or AVCs investment account then you must take your main scheme benefits at the same time as your benefits from your SPPP/AVCs investment accounts come into payment. The CNPP s Rules do not allow you to defer your main scheme benefits after you have started to receive a pension from your SPPP/AVCs investment accounts. What can I do with my investment account when I retire? You can take some of your investment account as tax free cash (please see How much tax free cash can I take at retirement? ) the remainder must be used to buy an annuity. This may be a temporary annuity (please see What is the State Scheme Spreading Option? ) and/or an annuity for the rest of your life. Alternatively, and provided it is at least one year before your normal pension age, you can transfer your investment account (together with all your other CNPP benefits) to another provider to access specialist alternatives such as income drawdown or flexible drawdown (please see What is income/flexible drawdown? below). How much tax free cash can I take at retirement? As the law currently stands, the amount of tax free cash you can take from your investment account at retirement will depend on your circumstances, but may be an amount of up to 25% of the total of your investment accounts. Please note: if you were a former member of the GPS Pension Scheme and have made AVCs, you may be able to take more than 25% of your investment account as a tax free cash lump sum, depending on your circumstances. What are my options for accessing my AVCs or SPPP investment accounts at retirement? If you are a defined benefit (DB) member of the CNPP then you must take your benefits in respect of your SPPP/AVCs investment accounts when your main scheme benefits come into payment. The CNPP s Rules do not allow you to defer your SPPP/AVCs after you have started to receive a pension from the CNPP.
4 Can I shop around for quotations? Yes, you can shop around and compare rates, also known as the "Open Market Option". Choosing your retirement options is an important decision as you will be buying your retirement income for life. You don't have to accept the retirement income offered to you by the Plan Administrator and you can take your investment account to another insurance company and possibly get a better quotation. As you would do with house or car insurance, shopping around can increase your retirement income and market research suggests that each year people throwaway 1bn in pension income through not shopping around, so it s important to read the information about shopping around included with the illustration sent to you by the Plan Administrator before you retire. If you believe that you may qualify for an enhanced, or impaired life, annuity, you should make the insurance company aware of this before you buy your retirement income. How can I obtain quotations from other insurance companies? You can obtain quotations directly from some insurance companies. Alternatively, you can use Hargreaves Lansdown s annuity finder service or another broker. Hargreaves Lansdown will determine whether you qualify for an enhanced, or impaired life, annuity and will search the market to find the most competitive and appropriate retirement income for you. You should consider taking professional advice as to which annuity is most suitable for you. Who pays for Hargreaves Lansdown s annuity finder service? Hargreaves Lansdown will charge you for this service (currently in the region of 350 to 450). At retirement, the Plan Administrator will ask you whether you wish to use Hargreaves Lansdown s annuity finder service and will deduct Hargreaves Lansdown s fee from your investment account. There are other providers of annuity finder services and their fees may be taken in the form of a commission payment from the insurance company. You should be clear about how much you are paying for advice before you engage an annuity finder service.
5 What is the State Scheme Spreading Option (SSSO)? This option is not provided by the CNPP but is offered at the discretion of the Prudential. The SSSO allows you to use your investment account at retirement to buy temporary retirement income until you reach State Pension Age (SPA). Once you reach SPA the Department for Work and Pensions will commence payment of a single person s Basic State Pension or a married couple s Basic State Pension and the SSSO will stop. You may use all or part of your investment account to purchase a temporary SSSO pension equal to either: 125% of the value of the current single person s Basic State Pension; or such lesser amount as the funds can secure. You may exercise the option on retirement providing that it is at least one year prior to reaching the SPA. Any excess funds must be used to buy additional retirement income which will be payable for the rest of your life. Please note: the SSSO is not available to all CNPP members (please see Will the State Scheme Spreading Option (SSSO) be available at retirement? below). Will the State Scheme Spreading Option (SSSO) be available at retirement? The choice of annuities available is dependent on what is available in the market place, and may change over time. The Trustee cannot guarantee that any particular option that is currently available, including the SSSO, will continue to be available in the future. The Plan Administrator will advise you on what is available at the time you come to use your investment account to buy your retirement income. The following paragraph applies only to members of the Springfields Fuels 2, Magnox, LLWR, Sellafield, RSRL and DSRL Sections: The Prudential, the Trustee s current annuity provider, have withdrawn their preferential annuity quotation service (and this includes the SSSO) for members who joined the CNPP after 14 May If you joined before 14 May 2010 you are unaffected by this change and will automatically receive a quotation from Prudential on preferential terms on your retirement. For those who joined after 14 May 2010 and do not have investments in the Prudential With Profits Fund (only available to AVCs), the Prudential will still be able to provide a quotation, on request, but it will not be on preferential terms. (For the avoidance of doubt, members of the GPS DRS, GPS WEC/UAM, GPS SLC, GPS Nexia and GPS EnergySolutions Sections should disregard this paragraph). How long does it take to set up my annuity? Once you have decided upon the insurance company you wish to use to buy your retirement income and the paperwork has been completed, the Plan Administrator will transfer your investment account to the insurance company within 10 working days.
6 Can I change my mind once I've bought my retirement income? No, once you have purchased your retirement income you cannot change to a different insurance company or get your money back. It is therefore important you consider your options and choices carefully and seek professional advice (for example, an independent financial adviser) if you are uncertain. However, insurance companies do offer a short cooling-off period during which you may be able to cancel. What happens if I die after buying an annuity? If you die after taking your retirement income then, typically, there will be no further payments or lump sum paid to a beneficiary. However, when buying your retirement income you can select certain guarantees to ensure certain money is paid out upon your death, such as: Guarantee period - You can select a guarantee period of up to 10 years. This will mean that, should you die within the selected period, retirement income will continue to be paid until that period expires. Joint life option - You can select a certain proportion of your annuity to continue to be paid to your spouse or other dependant upon your death. Value protection - If you die before a pre-set age and the total gross income paid out is less than the amount of the fund used to purchase the annuity, the balance will be paid out as a lump sum, less a 55% tax charge. Selecting any of the above options will affect the retirement income you will receive. The degree to which it is affected will depend upon your circumstances and the options chosen.
7 What is income drawdown? Income drawdown is a way of taking an income from the money you've built up in your investment account. You can use the money you take from income drawdown to retire fully or semi-retire and supplement your earned income. There are limits to how much you can drawdown each year and you should consider obtaining professional independent financial advice before considering this option. While you're making withdrawals from your investment account, the remainder of your fund continues to be invested, giving it the potential for growth. Please note: the value of the fund can go down as well as up and is not guaranteed, you may not get back what you have invested. Income drawdown is not available in the CNPP (please see Will I be able to access income or flexible drawdown from the CNPP? below). What is flexible drawdown? This is much more flexible than income drawdown and this option removes the cap on the income you can take. There are no income limits at all and you can draw as much income as you like when you like. The more you withdraw, the less you will have available to use as income in the future. You continue to choose where your pension is invested and your money remains subject to market fluctuations. The amount you will have available to withdraw in the future will therefore also rise or fall depending on investment performance. Flexible drawdown will not be available to everyone and there are certain criteria that must be met before you can choose it. It is also worth remembering any income is subject to tax at your marginal rate. Flexible drawdown is not available in the CNPP (please see Will I be able to access income or flexible drawdown from the CNPP? below).
8 Will I be able to access income or flexible drawdown from the CNPP? No, the CNPP does not currently provide either option. However, other providers offer both options and, as long as you do so more than a year before your normal pension age, you will be able to transfer into one of the many products offered by insurance companies. Please note: the transfer payment must include all elements which make up your retirement benefits from the CNPP, with none remaining within the CNPP. If you are a defined benefit (DB) member of the CNPP and have a SPPP or AVCs investment account, this means that your DB entitlement must also be included in the transfer payment. Income and flexible drawdown are complicated arrangements with tax implications and you should consider seeking professional independent financial advice. What should I do about my pension savings even though I m not approaching my pension age? The level of your contributions can be a key factor in determining the overall size of your investment account at retirement. You should regularly review your investments and the amount you contribute and consider whether you need to make higher contributions to meet your retirement income needs. There are many on-line pension calculators which can help you to assess whether your estimated pension at retirement will meet your income needs. Hargreaves Lansdown s pension calculator is at https://www.hl.co.uk/pensions/interactivecalculators/pension-calculator It is important for the Plan Administrator to correctly record any preferred pension age you have selected and notified to the Plan Administrator. Please check your annual benefit statement each year to ensure that it matches your planned pension age. You should consider taking professional independent financial advice about your long term retirement savings. CNPP Trustee September 2014