Useful information about your retirement options

Transcription

1 Your Options at Retirement Useful information about your retirement options It s important that you read and understand this brochure as it explains: Annuities and how they work Using the Open Market Option What to do next

2 Welcome Before your retirement there are some very important financial decisions to make. We ve put together this simple guide to help you see at a glance what your options are. Everything you need to make an informed decision is in this booklet please read it carefully before completing and returning your Pension Claim form. If you are not yet ready to retire, just give us a call and we will move your retirement date back. If, however, you are almost ready, please read on This booklet explains: Planning your retirement page 3 Which annuity is best for you page 4 Shopping around for an annuity page 6 Using B&CE to buy an annuity page 8 B&CE s retirement schemes page 10 What happens next page 12 In a nutshell: Your pension fund will not automatically provide money for your retirement. You have 3 main options: a Lump Sum Payment, income drawdown or an annuity. Please read on for more information... Generally speaking, the lower your life expectancy the better your annuity rates. Page 2 Your Options at Retirement

3 Planning your retirement It s time to look at the different options available to you as you think about how to make the most of the pension fund(s) you have built up. Lump Sum Payment If you are aged 60 or over, you may be able to claim all your pension fund as a lump sum. 1. Small Lump Sum Payment If the value of your pension fund within any B&CE arrangement does not exceed 2,000 then that fund may be payable as a taxable lump sum. Please see page 7 of this brochure. 2. Trivial Lump Sum Payment If the total value of all of your pension fund(s) from all providers does not exceed 18,000 then your entire B&CE fund may be payable as a taxable lump sum. Please see page 7 of this brochure. Income Drawdown If the total value of all of your unclaimed pension fund(s) is more than 100,000 then you may want to take advice about reinvesting your fund and drawing income directly from it. Of course you can still buy an annuity regardless of the value of your fund(s). Annuity However, if the total value of your unclaimed pension fund(s) is more than 18,000, but less than 100,000 then you will most likely buy an annuity. An annuity will convert the money you have in your pension fund(s) into a regular income for the rest of your life. You can buy an annuity from any insurance company that offers this type of product. Annuity rates determine the income that your annuity will provide. Rates vary from provider to provider and are basically related to your life expectancy. You can compare annuity rates from different providers using the Open Market Option. This means you are free to buy an annuity from any provider in the market. Buying the right annuity is very important as once bought, you can t get your money back. The annuity provided will depend on a number of factors including: The size of your pension fund Annuity rates and market conditions when you buy your annuity Your age Any medical/lifestyle conditions you may have The type of annuity options you choose, for example if the annuity is just for you, or includes your partner, or if you want an inflation proofed income. Your choices: You can buy an annuity any time from age 55, generally the later you decide to buy an annuity, the higher the income. You can usually take up to 25% of your total pension fund(s) as a tax free lump sum, and buy an annuity with the rest of the fund. You can leave your pension fund(s) invested and use an income drawdown product. We do not offer this option, so you would need to take independent financial advice about drawing income directly from your pension fund(s). Your Options at Retirement Page 3

4 There are many points to consider when it comes to choosing an annuity. By following the decision tree below you should be able to select the options to look out for that are important to you. You may wish to get independent financial advice before making your decision. Which annuity NO Consider a Single Life Annuity. This pays an income to you for the rest of your life, but will stop when you die. NO Consider a level annuity that will pay you a fixed income throughout your lifetime. The income will initially be higher than an escalating annuity but inflation will reduce its spending power over time. TYPES OF ANNUITY Do you have a wife, husband, civil partner or other financial dependant? ANNUITY OPTIONS Inflation will reduce the spending power of your pension income. Do you want to protect your income against this, even though it may mean taking a lower income initially? YES Consider a Joint Life Annuity. This pays an income to you for the rest of your life. And then, when you die, it continues to be paid (either at the same level or a reduced level) to your widow, widower, civil partner or other financial dependant until they die. YES Consider an escalating/ increasing annuity. You could choose an annuity with the following options: 1. RPI escalation your annuity would be linked to the retail price index (RPI) so it will keep up with inflation. 2. Fixed rate escalation your annuity would have a fixed annual escalation rate eg 3% or 5%. Page 4 Your Options at Retirement

5 is best for you? NO If you don t qualify for an impaired life annuity, you may be able to get an enhanced annuity based on health and lifestyle conditions, for example, if you are a smoker, or overweight. Do you have a health condition that may shorten your life expectancy? You can also have a guaranteed annuity that, on death, will pay an income for a guaranteed period, usually 5 or 10 years. Should you die within the period the income will continue to be paid to your estate or a person you have specified. This is available on all annuity options. YES Impaired life annuities can pay a significantly higher income if you have a health problem that threatens to shorten your life. Your Options at Retirement Page 5

6 Shopping around for an annuity You do not have to buy an annuity from the same company that you have your pension fund with. You can buy your annuity from any company who provides annuities. This is called using the Open Market Option. The Open Market Option encourages you to shop around to see if you can get a higher annuity for your personal requirements. Annuity rates vary from company to company, so it s important to make sure you get the best deal for you. Remember once you make the final decision and buy your annuity you can t change your mind later. If you use the Open Market Option, this usually involves taking any tax free cash entitlement from your existing pension provider first and then transferring the remainder of your pension fund to your chosen annuity provider. You can of course also use the Open Market Option with the whole of your fund(s) without taking 25% tax-free cash. Things to keep in mind: When you shop around, make sure you get the same illustrations from different providers. For example make sure they are all level, joint life illustrations, so you are comparing like with like. You should not be charged for transferring a Stakeholder Pension to a different annuity provider using the Open Market Option. This means you can transfer your B&CE pension funds to another provider and we will not charge you to do this, likewise you should be able to transfer another Stakeholder Pension to us without charge. You can compare annuities by visiting and viewing the comparative table of Pension Annuities. Taking your pension fund(s) as a Lump Sum Payment If you are aged 60 or over, HM Revenue & Custom (HMRC) rules introduced in April 2012 may allow you to claim your pension fund(s) as either a Small Lump Sum Payment or a Trivial Lump Sum Payment. 25% of the lump sum will be tax free and the remaining 75% will be subject to tax. If both options are available to you, you will need to carefully decide which option to choose, based on HMRC rules and your own individual circumstances. The size of your pension fund may affect the type of annuity you can buy. For example, if you have a small pension fund you may find that some providers will not offer you an annuity, or may charge you to transfer your funds, which would out weigh the better annuity rate. Page 6 Your Options at Retirement

7 What are the HM Revenue & Custom (HMRC) Rules? 1. Small Lump Sum Payments from Personal Pension Schemes (EasyBuild and The TUTMAN B&CE Contracted out Pension Scheme) The value of the personal pension arrangement must not be more than 2,000 (EasyBuild and EasyBuild S2P are separate arrangements). You can only have up to two of these payments during your lifetime. The payment removes your entitlement to benefits under the personal pension arrangement. Any contributions received after the Small Lump Sum Payment may need to be used to buy an annuity or if possible, be paid to you as another Small Lump Sum Payment or Trivial Lump Sum Payment. These payments can be made regardless of the value of any other pension funds you may have. They can be made in addition to any Trivial Lump Sum Payments or any Small Lump Sum Payments from any occupational pension schemes that you may have received. 2. Small Lump Sum Payments from Occupational Pension Schemes (Additional Voluntary Contributions (AVC) Scheme) The total value of your Lump Sum Retirement Benefit (LSRB) (which pays a tax free lump sum at retirement) and AVC funds do not total more than 2,000. The payment removes your entitlement to benefits under the scheme. You have not transferred benefits out of the LSRB or AVC schemes during the three years before the date of payment. 3. Trivial Lump Sum Payments The total value of all of your pension fund(s) from all providers must not exceed 18,000*. *This excludes any pension fund(s) below 2,000 being paid to you as a small lump sum. You have to take all your Trivial Lump Sum Payments from all of your pension funds within a 12 month period. The whole fund to be used for the Trivial Lump Sum Payment must be taken in its entirety. Any contributions received after the date the Trivial Lump Sum Payment is made, cannot be included in any future trivial calculation. You may need to buy an annuity with this amount or if possible, have it paid to you as a Small Lump Sum Payment. Any existing annuity/pension income (excluding any State pensions) that you started to receive before 6 April 2006 must be taken into account when working out your entitlement to a Trivial Lump Sum Payment. It will be multiplied by 25 to get a lump sum equivalent value. For example if you have a yearly annuity/pension of 200 (before tax) it will be multiplied by 25 to get the lump sum equivalent value of 5,000. ( 200 x 25 = 5,000.) For any annuity income you started to receive from 6 April 2006, the value will be the actual pension fund value used to buy your annuity and provide any tax-free cash taken. The LSRB will count towards the Trivial Lump Sum Payment limit but will remain tax-free. Please Note: Although we will deduct tax from your payment, it may not be the right amount due, when all of your income for the year is taken into account. HMRC will check whether you have paid the right amount of tax and will contact you if you have not. If you have any queries about the tax you pay you should contact your local tax office. If you make any false declarations it could lead to a 3,000 fine being imposed by HMRC. Your Options at Retirement Page 7

8 Using B&CE to buy an annuit We do not offer our own annuity product. We exclusively offer an annuity from a leading UK annuity company called Partnership, a specialist provider of financial solutions, offering a complete range of Enhanced Annuities for people with health/lifestyle conditions. This means if you complete the Pension Claim form and agree for your details to be passed on to Partnership, you will receive an illustration 6 weeks prior to your selected retirement date. The annuity illustration will be sent by us and show what could be provided by Partnership. The annuity rate that we have negotiated with Partnership will be offered exclusively to our customers. Of course, you do not have to buy the Partnership annuity product and the Open Market Option is your right to compare the Partnership offer with what other annuity companies can offer. independent financial advice before deciding on which annuity to proceed with. If you would like advice free of charge you can contact The Pensions Advisory Service (TPAS) on who are an independent not-for-profit organisation. You can also use their online annuity planner at This free service helps you with the decision making process of converting your pension fund into an income. You can also seek advice from your independent financial adviser or you can contact one by visiting Remember, we do not offer advice, so we can not advise on the suitability of the Partnership annuity, or any other annuity. We strongly recommend taking If you use the Open Market Option you might get a higher income. This is not always the case, but it is worth checking before you buy. Page 8 Your Options at Retirement

9 y Faced with new adventures and directions, retirement can be both an exciting and anxious time. There are many important issues to consider and one of these is undoubtedly how do I make the most of my carefully built up pension fund? For most annuity providers, the retirement income they offer is usually based on your life expectancy as an average for your gender and age group. However, if your health or lifestyle (smoking, drinking, obesity) is expected to lead to a reduced life expectancy, you could qualify for an enhanced annuity*. An enhanced annuity could provide a higher rate of income compared to a standard annuity, sometimes up to 30% more in certain cases**. This is because an enhanced annuity is based on your personal circumstances, rather than just an average. Estimates suggest that up to 40% of the retiring population is eligible for an enhanced annuity yet, in practice, a much smaller percentage are actually taking advantage of this. Partnership s retirement annuities are designed specifically for this 40% group, as each case is assessed individually to offer the best Partnership income rate possible. Partnership is authorised and regulated by the Financial Services Authority, and is a specialist provider of annuities and life assurance for people with health/lifestyle conditions, as well as those suffering from serious medical conditions such as cancer or heart disease. They are experts in assessing medical conditions and the first company to offer enhanced annuities. Partnership offers a complete range of Enhanced Annuity solutions, from those who smoke or have minor health impairments, through to serious conditions such as Cancer. They are the market leaders in the provision of annuities for Long Term Care funding, and also offer specialist life assurance solutions for those who have been declined cover from other companies. *From 21 December 2012 annuity providers may no longer be able to take gender differences into account when calculating the annuity **based on Partnership research Your Options at Retirement Page 9

10 B&CE s retirement scheme This table explains your options depending on which retirement pension funds you have. Retirement pension fund Age your benefits become payable Lump Sum Retirement Benefit 65 (LSRB) You can claim it earlier in certain circumstances but this is likely to affect your payout. Additional Voluntary 65 Contributions (AVCs) You must claim it at the same time as Lump Sum Retirement Benefit (LSRB). Employer s Additional 65 Voluntary Contributions (EACs) You must claim it at the same time as Lump Sum Retirement Benefit (LSRB). EasyBuild Stakeholder Pension EasyBuild S2P From 55 If you are using your fund to buy an annuity, generally the longer you can leave it the higher the income it may provide. The TUTMAN B&CE Contracted Out Pension Page 10 Your Options at Retirement

11 s These details are based upon our understanding of HM Revenue & Customs and Department for Work & Pensions rules and regulations. These details are for guidance only and must not be taken as an authoritative statement of the law or the basis for retirement planning. Choose to take it as a tax free lump sum? Yes, you can take 100% of your fund as a tax-free lump sum. Choose to take it as an annuity? Yes, if you wish. See pages 4 and 5 Which annuity is best for you? for more information. If you started contributing before Yes, if you wish. 8 April 1987, you can take 100% of See pages 4 and 5 Which annuity is best your fund as a tax-free lump sum for you? for more information. subject to HMRC rules. If you started contributing after Yes, you must use at least 75% of your 8 April 1987, you can take 25% fund to buy an annuity. of your fund as a tax-free lump sum. See pages 4 and 5 Which annuity is best for you for more information. Depending upon your circumstances, HMRC rules may allow you to take your benefits as a Lump Sum Payment (25% will be tax free and the remaining 75% will be subject to tax). See page 6 Taking your pension fund as a Lump Sum Payment for more information. Yes, you can take 100% of your fund as a tax-free lump sum subject to HMRC rules. Yes, if you wish. See pages 4 and 5 Which annuity is best for you? for more information. You must use at least 75% of your fund to buy an annuity. See pages 4 and 5 Which annuity is best for you? for more information. You can take up to 25% of all your funds as a tax-free lump sum. Depending upon your circumstances, HMRC rules may allow you to take your benefits as a Lump Sum Payment (25% will be tax free and the remaining 75% will be subject to tax). See page 6 Taking your pension fund as a Lump Sum Payment for more information. Your Options at Retirement Page 11

12 What happens next Are you retiring now? NO Give us a call and tell us when you would like to retire and we will get back in touch with you closer to that date. YES If you are 60 or over and your pension fund from any B&CE Scheme is not more than 2,000, you may be eligible to have this as a taxable Small Lump Sum Payment. If you would like to do this please complete sections A to F on the claim form and return to us. Alternatively, you may be eligible to take all your B&CE pension fund(s) as a taxable lump sum Trivial Lump Sum Payment or you can choose to take your pension fund(s) as an annuity. YES Is your pension fund from any B&CE Scheme 2,000 or less? NO Excluding any pension fund(s) of less than 2,000 being paid to you as a Small Lump Sum Payment, is the total of all your pension funds(s) from all providers under 18,000? *If your total fund(s) value over 100,000 you can have an income drawdown product in place of an annuity we recommend you take independent advice. Please ensure you consider taking independent financial advice before choosing between a Partnership annuity or going elsewhere. Page 12 Your Options at Retirement

13 YES If you are 60 or over, you may be eligible to take your entire fund as a taxable Trivial Lump Sum Payment. If you would like to do this please complete sections A to F on the claim form and return to us. You can still take your funds as an annuity if you have less than 18,000 if you would like to do this, please complete the entire claim form and return to us. NO You are unable to have your B&CE pension fund(s) paid to you as a Lump Sum Payment. Would you like to receive an annuity illustration from Partnership Life Assurance? * NO Complete sections A to H on the Pension Claim Form make sure you select option 3 in section G and return it to us. Then make your own enquiries using the Open Market Option. We strongly recommend taking independent financial advice before making any decisions regarding your annuity. YES 1. Complete all sections on the claim form make sure you select option 1 in section G and return it to us. 2. We will get in touch if we need any more information. 3. You will receive an illustration and some more information around 6 weeks prior to your selected retirement date. Your Options at Retirement Page 13

14 Jargon buster Annuity: An annuity is a policy that you buy with your pension fund. It gives you a pension which is an income for the rest of your life. There are a range of different annuities available, so you can purchase one to suit your own personal circumstances. Illustration: An illustration shows you how much you can expect to receive as an income from an annuity by investing a lump sum from your pension fund(s). It is not guaranteed due to possible changes in annuity rates and the fund values used to buy the annuity. Joint annuity: A joint annuity will provide you and your spouse or registered civil partner or dependant with an income. Taking out a joint annuity will ensure that in the event of your death, your spouse or registered civil partner or dependant will still receive an income for the rest of their life. Open Market Option: You can buy your annuity from any annuity provider and this is called using your Open Market Option. Different providers offer different annuity rates, so you can shop around to find the best annuity rate for your own personal circumstances. Please see page 6 for more details. Small Lump Sum Payment: A Small Lump Sum Payment is where the pension provider is able to pay a pension fund not exceeding 2,000 to you as a lump sum rather than as an annuity. There are certain rules which can affect you being able to take a Small Lump Sum Payment, please see page 7 of this brochure for further details. Trivial Lump Sum Payment: A Trivial Lump Sum Payment is where the pension provider is able to pay your entire pension fund to you as a lump sum rather than as an annuity. There are certain rules which can affect you being able to take a Trivial Lump Sum Payment, please see page 7 of this brochure for further details. Page 14 Your Options at Retirement

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16 Dedicated to improving the financial wellbeing of our members B&CE is a not-for-profit organisation, which operates for the benefit of its members and their dependants. Established in 1942 and founded in construction, B&CE s current offering includes a workplace pension, employee accident cover, employee life cover, employee healthcare and holiday pay. Today it manages assets of over 1.8 billion and provides financial benefits to more than 205,000 individuals on behalf of nearly 6,000 corporate accounts. (Information correct as of December 2011) For the past 30 years, B&CE has been providing workplace pensions to employers with transient, low to moderate earning workforces, both large and small. B&CE has been operating a form of auto-enrolment for ten years through its stakeholder product. Information in this brochure is correct as at March 2012 and may be subject to change. The details are based upon our understanding of HM Revenue & Customs (HMRC) and Department for Work & Pensions (DWP) rules and regulations, tax rates may differ depending on individual circumstances. for more information: tel or [email protected] To help improve our service, we may record your call. B & C E Financial Services Limited Manor Royal, Crawley West Sussex, RH10 9QP Tel or Fax Registered in England No To help us improve our service, we may record your call. Authorised and regulated by the Financial Services Authority, the Company is a distributor of pensions, accident insurance and a range of financial welfare products. The accident cover and the EasyBuild pension scheme are provided by B & CE Insurance Limited and employee healthcare is provided by Westfield Contributory Health Scheme Limited. B&CE Financial Services acts as an introducer to Partnership Life Assurance Company Limited for the provision of annuities. Thesis Unit Trust Management Limited (TUTMAN) is the manager of the TUTMAN B & CE Contracted out Pension Scheme. Each of these organisations is also authorised and regulated by the Financial Services Authority. The holiday pay and death cover products are however not FSA regulated products. 1009/0312