O P Q RETIREMENT & DEATH BENEFITS PLAN. For Employees of The OPQ Company MEMBERS' BOOKLET

Transcription

1 O P Q RETIREMENT & DEATH BENEFITS PLAN For Employees of The OPQ Company MEMBERS' BOOKLET 2014 EDITION Reviewed January 2014

2 INTRODUCTION This booklet is an overview of the main benefits and conditions of the OPQ Retirement & Death Benefits Plan (the Plan) as they apply at 1 January The contributions that you pay to the Plan and those paid by the Employer on your behalf are held in your Personal Retirement Account. This is designed to provide benefits for you on retirement, leaving the Employer or withdrawal from the Plan and benefits for your Dependants in the event of your death. Although this booklet is only a guide to the Plan, you are advised to study the contents and keep it in a safe place for future reference. The full terms are contained in the Trust Deed and Rules which are amended from time to time. Further information about the Plan can be obtained from your Human Resources Department at the address below: Human Resources Department Head Office Main Street Any Town ZZ1 1AA Alternatively, you can contact the Pensions Department at: Pensions Department 123 High Street Any Town XX1 1BB You can also find further information and useful forms at the website 1

3 DEFINITIONS This section contains certain terms used in this booklet. Wherever these terms appear in italics they have the meaning set out below:- Annual Allowance Annual Salary Additional Voluntary Contributions (AVCs) Annuity Dependant Employer Lifetime Allowance Normal Pension Date (NPD) Personal Retirement Account Plan Plan Service Plan Year means the annual limit up to which your pension savings benefit from tax relief and is 40,000 for the 2014/15 tax year. If your annual pension savings are more than the Annual Allowance then you may have to pay a tax charge on the excess. It is possible for any unused balance of Annual Allowance from the previous three tax years to be carried forward. You are responsible for paying any Annual Allowance tax charge to HM Revenue and Customs and must declare any such charge on your Self Assessment Tax Return. The Annual Allowance limit does not apply in the tax year in which your benefits are paid in the event of your death. means your total earnings from the Employer for the 12 month period ending on the last day of the preceding Plan Year (if you were not in receipt of earnings for the whole of this period then your Anuual Salary will be determined by the Employer to take into account your current rate of earnings). means contributions that you can make over and above your normal pension scheme contributions. They are used to buy additional benefits. means a contract with an insurance company which provides a regular income for life in return for a lump sum. An Annuity will be bought when you retire with some or all of your Personal Retirement Account. means your spouse (or registered civil partner) or any child or any other person who is financially dependent on you at the date of your retirement or death. means any employer who participates in the Plan. means the lifetime limit up to which your pension savings benefit from tax relief and is 1.25 million from 6 April If your lifetime pension savings are more than the Lifetime Allowance then you may have to pay a tax charge on the excess. means your 65 th birthday. means your account within the Plan. This is made up of your normal contributions, your AVCs, the Employer s contributions and any transfer payments from previous pension arrangements. It also includes any return on your investments. The value of your Personal Retirement Account depends upon the number of units that you have in each of the investment funds multiplied by the value of those units. means the OPQ Retirement & Death Benefits Plan. means your service with the Employer beginning on the date you join the Plan and ending on the date on which you opt out, leave service, retire or die. means the 12 month period commencing each 6 April. 2

4 Qualifying Service Target Retirement Date (TRD) means your Plan Service plus service whilst a member of any other registered occupational pension schemes from which you have transferred benefits to the Plan. means the date at which you have decided to retire. This is used to plan your investment changes if you have chosen the Lifestyle Fund. If you have not selected a TRD then your NPD will be used. 3

5 JOINING THE SCHEME How do I join the Plan? Can I opt out of the Plan? You will be enrolled automatically into the Plan from your first day of employment, provided you have not reached State Pension Age (SPA). Yes, but you can only opt out of your automatic enrolment within one month of the later of the date that you first became an active member of the Plan or the date that you were provided with the written enrolment information by the Human Resources Department. If you wish to do this you can obtain an opt-out notice from the Pensions Department. Once the Employer has received and validated this notice they will then arrange to refund your pension contributions (less tax) to you. If you wish to leave the Plan after the initial opt-out period has ended, you will need to cease membership of the Plan. Please contact the Pensions Department if you have missed the opt-out period and would like to cease membership. Your benefits will be calculated as shown in the section Leaving the Scheme on page 10 of this booklet. Please note that any entitlement to Life Assurance benefits ceases when you opt out. If you stay opted out the Employer will normally automatically enrol you back into the Plan after three years. Can I join and contribute to other registered pension arrangements? Can I transfer my benefits from previous pension arrangements? You can contribute to other registered pension arrangements (such as a registered stakeholder pension scheme) at the same time as contributing to the Plan. The Trustees may accept transfer payments. Any funds that you elect to transfer to the Plan from previous registered pension arrangements will be invested in your Personal Retirement Account to provide the benefits described later in this booklet. If you wish to consider transferring benefits to the Plan, please contact the Pensions Department who will provide you with the necessary forms. Alternatively, you can obtain a form from the Plan website at What should I do if I already have Lifetime Allowance Protection? If you already have Lifetime Allowance protection then you should seek Independent Financial Advice before joining the Scheme to ensure that your protection is not affected. There are various forms of Lifetime Allowance Protection that have been introduced since 6 April These include Primary Protection, Enhanced Protection, Fixed Protection 2012, Fixed Protection 2014 and Individual Protection

6 CONTRIBUTIONS How much do I pay? Does the Employer contribute? Can I pay more? What are the tax advantages? You are required to pay 5% of your gross weekly or monthly earnings to the Plan (although this percentage may vary from time to time). These contributions are added to your Personal Retirement Account. The Employer contributes to the Plan at the rate of 8% of your gross weekly or monthly earnings (although this percentage may vary from time to time). These contributions are added to your Personal Retirement Account. You can pay further contributions by paying AVCs. Your AVCs are added to your Personal Retirement Account in addition to your normal contributions and those paid by the Employer. If you wish to pay AVCs or change the amount of AVCs that you pay please contact the Human Resources Department for the necessary form. Alternatively, you can obtain a form from the Plan website at Tax relief is only available on your contributions to all registered pension arrangements up to 100% of your gross earnings in each tax year (or 3,600 if higher), subject to the Annual Allowance. Your contributions that are eligible for tax relief are deducted from your earnings before tax is calculated. This means that you receive tax relief automatically at your highest rate of income tax. In addition, your contributions and those of the Employer build up in your Personal Retirement Account and benefit from tax concessions on income and capital gains. What happens if I am absent from work? Under certain circumstances you may, at the discretion of the Employer, be treated as continuing in Plan Service. The maximum period is generally three years although the Employer may extend this if your absence is due to ill health or secondment to a UK Government department. If you are on paid maternity leave, then the Employer will continue to pay contributions at the rate of 8% of your notional gross earnings. However, you will only be required to contribute at the rate of 5% of the pay that you are actually receiving. If you are absent for acceptable reasons (including those outlined above), then you will continue to be covered for the life assurance benefit described on page 11 of this booklet. 5

7 INVESTMENT INFORMATION Choosing where to invest Your contributions and the Employer s contributions to the Plan are used to buy units in a selection of investment funds. You can spread your investments across the funds of your choice or you can choose the Lifestyle Fund, where your funds are automatically switched into less risky investments as you get closer to your chosen TRD. The value of your Personal Retirement Account can be significantly different depending on how much you choose to save and where the contributions are invested. Therefore, it is important that you choose carefully from the range of investment funds provided. Which funds can I choose from? You can choose from the following investment funds: Global Equity Fund This fund is invested in UK and overseas equities (company shares) to benefit from returns from both the UK and international equity markets. Although equity values are expected to fluctuate in the short term, over the long term equities are expected to provide higher returns than other forms of investment. Index Linked Bond Fund This fund invests in index-linked gilts which have the security of being issued and backed by the UK Government. If they are held to maturity date their income and capital value follow the rate of inflation. Balanced Fund This fund invests mainly in equities (company shares) both in the UK and overseas. It also invests in government securities and other fixed interest investments. Corporate Bond Fund This fund invests in bonds (loans) issued by companies either in the UK or overseas. Whilst the returns from corporate bonds are not expected to be as high as from equities, they are expected to be higher than from a bond issued by governments (i.e. gilts issued by the UK Government). Cash Fund This fund aims to deliver competitive rates of return from cash and invests in cash deposits and other short-term investments. Lifestyle Fund This fund is made up from three of the other investment funds, the Global Equity Fund, the Index Linked Bond Fund and the Cash Fund. It automatically provides an investment strategy that changes as you approach retirement. If you choose this fund then you cannot choose other investment funds. 6

8 How does the Lifestyle Fund work? Who manages these funds? How can I change investment funds? How do I make the correct investment decision? When you join the Lifestyle Fund your funds are invested in the Global Equity Fund. Then, five years before your TRD (or NPD if you have not chosen a TRD), your funds start to gradually switch into the Index Linked Bond Fund and into the Cash Fund so that you are wholly invested in these funds when you are ready to retire. An example of how lifestyling works is shown in Appendix A to this booklet. All funds are managed by DPC Investments. More details about each of the funds and their potential returns can be obtained from the website You can change your choice of investment funds at any time by completing a Change of Investment Choices form, which can be obtained from the Pensions Department. Alternatively, you can complete your change online at The growth of your Personal Retirement Account will depend on the investment performance of your chosen funds. As with any investment the value can go up or down. Therefore, it is important that you make the correct investment decisions for your personal circumstances. If you are in any doubt as to which investment decision to make you may wish to seek independent financial advice. Neither the Employer nor the Trustee will be liable for any loss arising from your choice of investments. 7

9 BENEFITS AT RETIREMENT What happens when I retire? Throughout your membership of the Plan, all your contributions (including AVCs), the Employer s contributions, transferred in funds and returns from your investments accumulate in your own individual Personal Retirement Account. When you retire, the value of your Personal Retirement Account will be used to buy an Annuity from an insurance company and other retirement benefits, such as a lump sum and benefits for your Dependant(s). You will be able to choose benefits tailored to your personal circumstances. There will be an Annuity Bureau charge of the greater of or 0.05% of the value of your Personal Retirement Account when you purchase an Annuity. This charge is calculated based on the value of your Personal Retirement Account after the deduction of any tax-free lump sum that you may decide to take. Once you have purchased your Annuity the insurance company will be responsible for paying the Annuity directly to you. When can I retire? Can I retire late? What are the benefits on retirement? You can retire and take your benefits from the Plan from your NPD. However, if you wish to retire early you can do this from age 55, or earlier if you retire due to ill health. With the consent of the Employer, you may also be able to take your benefits from age 55 whilst continuing to work for the Employer. You are not legally obliged to stop work at age 65. If you continue to work and wish to continue contributing to the Plan then the Employer will also continue to contribute. Your Personal Retirement Account will be used to provide one or more of the following benefits:- An Annuity that will be payable monthly in arrears for life from the date of your retirement. You will have the option of deciding at what level (if any) your Annuity will increase whilst in payment. A tax-free lump sum of up to 25% of the value of your Personal Retirement Account. An Annuity that will be payable to your Dependant(s) in the event of your death. The provision of such an Annuity will depend on how you elect to take your benefits when you retire. You should be aware that providing for an Annuity for your Dependant(s) will reduce your own Annuity. As an alternative to taking your benefits from the Plan you can use the proceeds of your Personal Retirement Account to secure benefits using an Open Market Option. The Annuity Bureau charge does not apply for this option. 8

10 How do I claim my benefits? Do I pay tax on my Annuity? Are there any restrictions on my retirement benefits? If you have not already claimed your benefits, then just before your NPD the Pensions Department will write to you with some Annuity quotations and options. If you are unsure about which options are most suitable for you, then you should seek independent financial advice. Your Annuity will be paid by an insurance company and treated as earned income. This means that it will be subject to the deduction of tax if your total income is such that it makes you liable for income tax. Should the value of your Personal Retirement Account exceed the balance of your Lifetime Allowance, then the amount over and above your Lifetime Allowance will be subject to a Lifetime Allowance Charge. The Lifetime Allowance Charge is 55% if the excess benefits are taken as a lump sum and 25% if taken as income. 9

11 LEAVING THE SCHEME What are the benefits if I leave the Employer or withdraw from the Plan with less than three months of Qualifying Service? What are the benefits if I leave the Employer or withdraw from the Plan with three or more months of Qualifying Service but less than 2 years? What are the benefits if I leave the Employer or withdraw from the Plan with 2 or more years of Qualifying Service? If you have less than three months of Qualifying Service and you have not transferred in pension rights from any registered personal pension arrangements, then you will receive a refund equal to the current value of your own contributions (including AVCs). The Trustees will deduct tax at the rate of 20% on the amount of contributions that you actually paid up to 20,000 and 50% on the amount of contributions that you actually paid over and above this amount. You must declare the value of any accumulated interest or investment returns on these contributions to HM Revenue & Customs since it is likely that this will be subject to a further tax charge. If you have three or more months of Qualifying Service but less than 24 months, and you have not transferred in pension rights from any registered personal pension arrangements, you have the choice of either a refund (as described above) or a cash equivalent transfer value. The option of a transfer value is available to you for one year from the date you leave the Employer or withdraw from the Plan. If a transfer value has not been paid within this period, then a refund will be paid automatically as a default (as described above). If you leave the Plan with 2 or more years of Qualifying Service (or if you leave the Plan with less than 2 years of Qualifying Service but you have transferred in pension rights from a registered personal pension arrangement), then you will have three options:- 1. You can leave your Personal Retirement Account invested in the Plan and take the value of your preserved benefits when you retire at NPD (or earlier provided you have attained at least age 55). 2. You can ask to transfer your Personal Retirement Account to a suitable registered personal pension arrangement. 3. If you join a new employer's registered pension scheme, then you can transfer your Personal Retirement Account to this new scheme (provided it is willing to accept the transfer). 10

12 BENEFITS PAYABLE ON DEATH What are the benefits if I die in Plan Service? If you die in Plan Service, then the following benefits will be payable:- a life assurance benefit equal to three times your Annual Salary, and a refund of the value of your Personal Retirement Account (including all interest and investment returns accumulated to the date of your death). You may indicate who you wish to benefit from the lump sum by completing the Nomination Form accompanying this booklet and sending it to the Pensions Department. Alternatively, you can complete this form online at Although the Trustees will take your wishes into consideration, they will have absolute discretion as to whom the lump sum will be paid. What are the benefits if I die in preservation? Are there any restrictions on the lump sum death benefit? What are the benefits if I die after retirement? Will there be a Dependant s Annuity if I die after retirement? If you die before your preserved benefits become payable, then your Personal Retirement Account (including all interest and investment returns accumulated to the date of your death) will be payable to your Legal Personal Representatives. Should the total value of the lump sum death benefit exceed your remaining Lifetime Allowance, then the Trustees will use the balance to purchase an Annuity for your Dependant(s). If you have no Dependant(s), then the excess will be paid as a lump sum to your Legal Personal Representatives who will be liable for a tax charge of 55%. The benefits payable on your death after retirement depend on the choices you make when you buy an Annuity. Any benefits on death after retirement will be paid by (and will be the responsibility of) the insurance company which pays your own Annuity. If you elect for a joint life Annuity on retirement, then a Dependant s Annuity will be payable monthly in arrears from the date of your death and for the life of the Dependant. The Dependant s Annuity (if applicable) will be paid by (and will be the responsibility of) the insurance company which pays your own Annuity. 11

13 STATE PENSION SCHEME What benefits are payable from the State? The State Pension Scheme is currently made up of two parts, the Basic State Pension and the Additional State Pension. However, the Government will be introducing a new single tier, flat-rate State Pension for people reaching State Pension Age (SPA) on or after 6 April For these people, the single tier pension will replace the Basic State Pension and the Additional State Pension. The earliest age at which you can receive your State Pension is your SPA, which is dependent on the date you were born. Full details relating to your State benefit entitlements and your SPA are available at How can I find out how much State Pension I will receive? You can obtain a statement online at the above website or you can write to the following address: Future Pension Centre Department for Work and Pensions Tyneview Park Newcastle Upon Tyne NE98 1BA 12

14 OTHER IMPORTANT MATTERS Who administers the Plan? The Plan is established under trust. This means that the assets of the Plan are held separately to those of the Employer. The Trustees are responsible for the administration of the Plan in accordance with the Definitive Trust Deed and Rules. They have expert advisers to help them in financial, investment and legal matters. Yearly Statement Who should I contact with my queries? Who is the Pensions Regulator? For each Plan year you will receive a benefit statement showing the contributions paid into your account over the previous Plan Year together with the current value of your Personal Retirement Account. This statement will also include an estimate of the pension that you can expect to receive at your TRD (or NPD) in today s money. In the first instance, you should contact the Pensions Department who will make every effort to help you. The Pensions Regulator is an independent body established by the Pensions Act 2004 to supervise occupational pension schemes. It has a wide range of powers to help put scheme matters right if problems arise. Their address is: Napier House Trafalgar Place Brighton East Sussex BN1 4DW Can the Plan be amended or terminated? What Plan documents can I ask to see? The Plan may be amended at any time but you will receive notice of any change. Should the Employer terminate the Plan, then the retirement benefits secured by your Personal Retirement Account at the date of termination will be preserved for you and will be payable as described earlier. The life assurance benefit will cease. The following documents are available from the Pensions Department. The Trust Deed and Rules This includes the full details about the Plan The Annual Report and Accounts This shows how money has gone in and out of the Plan during the year Payment Schedule This shows how much you and the Employer must pay into the Plan 13

15 Is the Plan registered and what is its tax position? What happens if I have a complaint? Yes, the Plan is registered with HM Revenue & Customs in accordance with the Finance Act This means that there are a number of tax advantages enjoyed by the Plan and its members. The tax position may change from time to time. The Trustees have established an internal procedure to cover the resolution of disputes between the Trustees, members, beneficiaries and prospective members that cannot be resolved informally. This is a two stage procedure and if you have a complaint you should initially write to the Pensions Department. You will receive a written response within two months from the date on which your complaint was received. If you are not satisfied with the decision, under the second stage of the procedure you may, within six months of receiving the response, appeal to the Trustee. If you still consider the reply that you receive from the Trustee to be unsatisfactory then you may write to The Pensions Advisory Service (TPAS) or to the Pensions Ombudsman. How can I contact TPAS or the Pensions Ombudsman? The Pensions Advisory Service (TPAS) is available to give help and advice in the unlikely event of you having a difficulty that cannot be resolved. If any complaint or dispute of fact or law relating to the Plan cannot be resolved satisfactorily by TPAS, then the Pensions Ombudsman can investigate and determine the matter. The address for both TPAS and the Pensions Ombudsman is: 11 Belgrave Road LONDON SW1V 1RB How can I trace any previous pension rights? The Department for Work and Pensions operates a tracing service that enables former members to contact pension schemes with which they have lost touch. The address is: Pensions Tracing Service The Pension Service Tyneview Park Whitley Road NEWCASTLE UPON TYNE NE98 1BA Data Protection Can I assign my benefits? The Data Protection Act 1998 requires that your consent is given before information can be processed about you. Your details are used to administer your Personal Retirement Account. When you join the Plan you give your consent to the use of your information for this purpose. The benefits described in this booklet are personal to you. This means that they cannot be assigned to anyone else or used as security for a loan. 14

16 APPENDIX A Lifestyle Matrix If you choose the Lifestyle Fund then all of your investments (including current holdings and future contributions) will be switched on the first day of each month based on the table below. If you have not selected a TRD, then your NPD will be used to determine when your funds will start switching. Months from TRD (or NPD if you have not chosen a TRD)* Global Equity Fund (%) Index Linked Bond Fund (%) Cash Fund (%) Months from TRD (or NPD if you have not chosen a TRD)* Global Equity Fund (%) Index Linked Bond Fund (%) Cash Fund (%) *This is the number of complete months from the date of the switch until your TRD (or NPD if you have not chosen a TRD). 15

17 Example of Lifestyle Switching Member: Mr OPQ Switch date: 1 February 2014 TRD: 30 October 2016 Using the dates above, as at 1 February 2014 Mr OPQ will have 32 complete months (based on the period 1 February 2014 to 30 October 2016) until his TRD. It should be noted that if Mr OPQ s TRD had been 31 October 2016 then Mr OPQ would have had 33 complete months until his TRD. Using the lifestyle matrix in Appendix A, this means that at 1 February 2014 Mr OPQ s funds will be switched automatically to be invested 53.33% in the Global Equity Fund, 35.00% in the Index Linked Bond Fund and 11.67% in the Cash Fund. At the next switch date of 1 March 2014 there will be 31 months until Mr OPQ s TRD. The funds will therefore be switched automatically to be invested 51.67% in the Global Equity Fund, 36.25% in the Index Linked Bond Fund and 12.08% in the Cash Fund. This automatic switching process will continue until Mr OPQ s funds are invested 75.00% in the Index Linked Bond Fund and 25.00% in the Cash Fund, in readiness for his retirement. For the avoidance of doubt, if a member leaves, retires or dies on the first day of a month then the switch for that month will be deemed to have already taken place. Example of Valuing a Personal Retirement Account The value of a member s Personal Retirement Account depends upon the number of units in each of the investment funds multiplied by the value of those units. The investment manager for each fund issues the unit prices on a regular basis. Assume that Mr OPQ (in the example above) has a total of 23, units in the Lifestyle Fund at 1 February This is split 53.33% in the Global Equity Fund, 35.00% in the Index Linked Bond Fund and 11.67% in the Cash Fund. The unit prices for these three investment funds are shown below: Fund Name Unit Price ( ) Global Equity Fund Index Linked Bond Fund Cash Fund The value of Mr OPQ s Personal Retirement Account is therefore calculated as follows: Global Equity Fund: 23, units x 53.33% = 12, x = 49, Index Linked Bond Fund: 23, units x 35.00% = 8, x = 56, Cash Fund: 23, units x 11.67% = 2, x = 10, Total Personal Retirement Account = 116,

18 Tax-Free Lump Sum and Annuity Calculation Once the Personal Retirement Account has been valued, the member s retirement options can then be calculated. In the example with Mr OPQ, let us assume that 25% of the Personal Retirement Account is taken as a lump sum, as follows: 116, x 25% = 29, This would leave Mr OPQ with 87, [ 116, ,234.80] to purchase an Annuity. However, before purchasing this Annuity, an Annuity Bureau charge is applied. This charge is the greater of 0.05% of the value of the Personal Retirement Account, after the lump sum has been taken, and Mr OPQ s Annuity Bureau charge would be the greater of 0.05% of 87, [ 43.85] and Therefore, a charge would be applied, leaving Mr OPQ with 87, [ 87, ] to purchase an Annuity. For the purposes of this example, let us assume that Mr OPQ is 62 years and 4 months at the date of retirement and wishes to purchase a non increasing, single life Annuity. The Annuity Bureau factor derived from the Table of Factors would be 8.00 [ (4/12 x 0.24)] which means that the Annuity would be calculated as: 87, / 100 x 8.00 = 7, p.a. Lifetime Allowance Check The checks on the Lifetime Allowance against the tax-free lump sum and the Annuity would be carried out as follows: Tax-free lump sum check - (BCE 6) 29, / 1,250,000 x 100% = 2.33% Annuity check - (BCE 4) 87, / 1,250,000 x 100% = 7.01% [using value prior to Annuity Bureau charge] 17