Key Features of the Flexible Retirement Income Plan

Transcription

1 Key Features of the Flexible Retirement Income Plan The Financial Conduct Authority is a financial services regulator. It requires us, Friends Life Limited, to give you this important information to help you to decide whether our Flexible Retirement Income Plan is right for you. You should read this document carefully so that you understand what you are buying, and then keep it safe for future reference. Please read this document with the accompanying illustration. Where relevant information is contained in other documents these will be signposted at the appropriate point. You need to be comfortable that you understand the benefits and risks of this Flexible Retirement Income Plan before deciding whether to proceed. The purpose of this document is to help you to make an informed decision. However, you need to seek financial advice before you make any decisions about this Flexible Retirement Income Plan. Please note your financial adviser may charge you for any advice provided. You can access free impartial guidance on your retirement options from Pension Wise ( What is a Flexible Retirement Income Plan? It is a plan that can provide a way of taking income withdrawals, also known as drawdown pension, from your pension fund while you leave the remaining fund invested. Through this plan you can invest in one or a number of investment funds. These funds invest in different types of assets, which tend to fall into four main categories: Money Market, Fixed Interest, Property and Shares. Please see the Pensions Investment Funds Guide for further information. Who should consider a Flexible Retirement Income Plan? You should take financial advice to make sure that the size of your fund is suitable to achieve your objectives. If you do not have a financial adviser, one can be found at If it is, you can start taking drawdown pension from this plan at any time between the ages of 55 and 75 as long as at least 30,000 is used for drawdown pension. But you can start taking drawdown pension earlier than this in certain situations. For example, if you are unable to follow your normal occupation due to incapacity or ill health. Its aims To allow you to take an income from your pension fund while leaving the rest invested. To let you take a proportion of your pension fund, normally 25%, as a tax-free cash sum. To let you take income without committing to a lifetime annuity. A lifetime annuity is a contract that pays you an annuity income for the rest of your life. To give you flexibility about when or if you buy a lifetime annuity. To give benefits on your death to your dependant(s) and beneficiaries. Your commitment To give up your rights under your existing pension arrangement in respect of the funds transferred to this plan. To invest a pension fund of at least 30,000 with us (before any tax-free sum which you may take) to start the drawdown pension option. To review with your financial adviser the income you take to ensure that your fund does not become too small to meet your needs.

2 You must decide before your 75th birthday if you will purchase an annuity, transfer the remaining value of your fund to another pension scheme to continue Income Drawdown past age 75 or take the remaining fund as an income payment. Risk factors Your previous pension arrangement(s) may offer valuable guarantees and protections which this plan cannot match. For example, tax-free cash sum rights may be protected at a higher level than could be provided under this plan. You should seek financial advice before considering any transfer into this plan. Many things could happen to alter the benefits shown on the accompanying illustration. For example: your plan s investment growth may be lower than the amount we have assumed. If the investment growth, less charges, is lower than any income you take, your plan s capital value will be eroded. This could result in lower long-term income, or an amount less than you would receive under an existing pension arrangement; you may incur exit costs on transfer from your existing provider; the value of your pension fund that remains after drawdown pension payments are taken can fall as well as rise and is not guaranteed; future income is not guaranteed as it depends on the level of drawdown pension, investment performance and future annuity rates; charges are more than illustrated; if you do not regularly monitor the level of income that you take each year, you could significantly erode the value of your plan. This could result in a lower income in the future. It could also reduce any provision for your dependant(s) and beneficiaries; if you leave it to the last moment, the day before your 75th birthday, you will have three options: 1. Buy a lifetime annuity at whatever rates are available at that time. 2. Transfer to another scheme to continue drawdown pension. 3. Take the remaining drawdown pension fund as an income payment. The greater the income you take from your fund, the more likely it is that your pension fund could run out; there is no guarantee that the plan will provide more income than if you had bought a lifetime annuity straight away. It may provide less. Annuity rates change frequently and once you buy an annuity you are locked into the income offered at that time. So any future annuity rate could be better or worse than that shown in your illustration; and tax rules change. The tax information provided here is based on our interpretation of current legislation which is subject to change and individual circumstances. Some of the funds in which you can invest may carry additional risks because of the types of asset they may hold, for instance: the value of funds that invest overseas may fall and rise due to changes in exchange rates; funds that invest in emerging markets may not be regulated as strictly as more developed markets and it may be harder to sell these assets; there may be a delay in accessing money if you invest in property. There are other risks which could affect the performance of the funds that you invest in. Please see the Pensions Investment Funds Guide for more information. If you invest in the with-profits fund, we may apply a market value reduction (MVR) if you leave the with-profits fund in adverse investment conditions. This will reduce the amount payable. If you would like more information on the MVR please refer to the section called What is the with-profits fund? on page 4. Questions and answers 1.3 Can I change my mind? Yes. If you change your mind and wish to cancel, you have 30 days to do so. This starts from when you receive our Your right to change your mind form. This form should be returned together with any tax-free cash sum and drawdown pension payments already received from us to the address in the How to contact us section on page 7. 2

3 When we receive your form, we will return the transfer payment to your existing pension scheme. The amount we give back will be reduced by any fall in the investment value of your transfer payment before the cancellation notice is received by us. If you have invested all or part of your remaining fund in our with-profits fund, a market value reduction (MVR) may apply (please see the section What is the with-profits fund? on page 4 for further details). Please bear in mind that your previous pension provider is not obliged to take back the transfer payment. In these circumstances we will pass the transfer payment to another registered pension scheme of your choice. If you don t exercise your right to cancel, the plan will proceed in line with its terms and conditions. 2.3 How do I start this plan? You start this plan by transferring the value of your existing fund from a registered pension scheme to this plan for drawdown pension purposes. The plan lets you take your tax-free cash sum and withdraw income from the remaining fund (see the section How much drawdown pension can I take? on page 4). If, once you have read this Key Features document you feel that this is right for you, you can apply to us to exercise the drawdown pension option by filling out the application form, which is available from your financial adviser. 3.3 What are the charges? The accompanying illustration shows the specific charges for your plan. Please read the illustration and make sure you understand it. The charges we take cover the cost of setting up and administering your plan, as well as professionally investing your money. Certain funds incur additional charges and costs and these are shown in the Pensions Investment Funds Guide which is available from your financial adviser. We take a yearly management charge from your retirement plan which accrues daily over the course of the year. The management charges may vary for each fund and are calculated as a percentage of the value of the fund. If you invest in the with-profits fund there are additional costs. These costs and the yearly management charges are taken into account in working out the bonus, if any, to be credited to your plan. The impact of these charges means that the cost of taking out the plan will be higher than if, alternatively, a conventional annuity had been bought with the entire fund. Bid Offer Spread There is an Initial Charge, currently 5%, on the purchase of units. The charge is allowed for in the Offer price of units. The unit Offer price is the price at which we allocate units to your plan and the unit Bid price is the price at which we cancel units. The difference between the Offer and Bid price is known as the Bid Offer Spread. Administration fee There is a monthly administration fee, taken by reducing the number of units held in the plan. The fee can increase each year, but no faster than the increase in Average Weekly Earnings. Changes to charges Several things could lead to increased charges: Changes in tax rules, legislative or regulatory changes. Changes in staff or overhead costs. These changes need to be reasonable in amount and reasonably incurred. Costs of using third parties being higher than we expected. A third party is any party which is not Friends Life. If we increase charges we will write to tell you. 4.3 Where can I invest my pension fund? You can choose from a range of our pension investment funds. You can invest in up to ten funds at a time. The funds invest in different assets like stocks and shares, property and in different markets and countries. The aims of the funds and the investments they hold are described in more detail in the Pensions Investment Funds Guide. Fund charges may vary depending on the fund chosen. You can request to select your own portfolio of investments using our self-invested facility, but only at the outset of the plan. Please discuss with your financial adviser and contact us for further information using the details in the How to contact us section on page 7. 3

4 What are units and unit-linked funds? Each unit-linked fund is divided into units of equal value. The value of the investment on a particular date is calculated by multiplying the number of units held by their bid price at that date. Unit prices are not guaranteed. They go up and down in line with fluctuations in the value of the funds investments. As unit prices go up and down, so does the value of your plan. This means you could get back less than you invest. What is the with-profits fund? If you invest in the with-profits fund, you are entitled to bonuses arising from a share of profits within the Friends Life FLC With Profits Fund. You receive your share of profits as bonuses that are added to your plan. Regular bonuses, if any, are added each year in the form of additional units based on the number of your existing with-profits fund units. An additional bonus may also be added on every third anniversary of your plan. In addition, we may pay a final bonus (sometimes known as a terminal bonus) when you leave the with-profits fund. We regularly review bonus rates and these can change at any time. The amount available for bonuses is affected by several factors which include the cost of meeting any guarantees provided under new and existing policies in the with-profits fund. Please remember that future bonuses cannot be guaranteed as they come from profits we have not yet earned. If the investment performance of the with-profits fund is lower than that reflected in the bonuses we have already added to your plan and you take money out of the fund we are likely to reduce the value of units. This is commonly known as a market value reduction (MVR). An MVR will not apply at age 75, on death, or when drawdown pension is taken. We declare bonuses and manage the with-profits fund in line with our Principles and Practices of Financial Management (PPFM). An abbreviated version of that document, including information about the different types of bonus which can be added to your plan, and in what circumstances MVRs may apply, can be found in our Guide to how we manage our with profits business. Copies of both documents are available from our website at or by contacting us. Our contact details can be found of page 7 of this document. Can I switch between investment funds? Yes. You can normally switch your investment between funds at any time. There is currently no switch charge for the first 12 switches in any calendar year. Friends Life reserves the right to change the number of switches where no charge is applied and the right to charge for any further switches in accordance with the plan s terms and conditions. Friends Life reserves the right to delay fund switches for up to one month (for example when dealings on a stock exchange are suspended) or up to six months for funds that invest in property (to allow property to be sold if necessary). In unusual or exceptional circumstances these periods may be extended for as long as is necessary and is fair to policyholders who are invested in the fund. Any transactions deferred will then be based on the unit price at the point the transaction takes place and not the date that it was requested. Please refer to your policy documents for further details. 5.3 How much drawdown pension can I take? There are no limits on the amount of income that you can take in each year. You can, if you want, take the whole fund at once. The risk of the remaining capital value falling below the amount originally invested is higher if a high level of income is taken. Also taking a high level of drawdown pension will mean a lower level of income for you (and your dependant(s) and beneficiaries if applicable) in the longer term. How is drawdown pension paid? Any drawdown pension can be payable in equal monthly, quarterly, half-yearly or yearly amounts. You can choose payments starting at the beginning of each payment frequency period, at the end, or at some date in between. Usually we pay the income by direct transfer straight into your bank or building society account. Where you have invested in more than one of our range of pension investment funds you can choose from which fund the income payments should be taken. You can choose to take income proportionately from across all your funds or you can choose up to three funds from which to take income in a specified order of preference. 4

5 If you decide to take an income from the higher risk funds first you could miss out on their higher growth potential. Or if they perform poorly their value could be reduced or eroded to zero, more quickly than the lower risk funds. If you exhaust the selected funds you can choose another remaining fund or take an income from across all your remaining funds. Once per year we give you the opportunity to change the order of funds free of charge. Can I change the level of income? Yes, you can make the following changes once a year: change the amount of your regular income, including reducing or stopping these or take the remaining value of your Drawdown Pension fund; and/or take an extra one-off income payment. You should keep your plan under review with your financial adviser, to make sure that the income you propose to take in the coming year is not likely to leave the fund too small to meet your needs in the future. Can I make additional contributions to my plan? No. However, you may be able to pay further contributions into a separate registered pension scheme. Please consult your financial adviser for further details. How will I know how my plan is doing? We will send you an annual statement showing the progress of your fund. This will show the performance of the pension investment funds you have selected and any drawdown pension you have taken. 6.3 Can I transfer my plan to another company? You may be able to transfer this plan to another provider as long as you meet their conditions, though you may incur charges as a result. You should seek financial advice before considering any transfer. 7.3 When can I buy a lifetime annuity? You can cash in all or part of your plan to buy a lifetime annuity at any time up to age 75. If you want to, you can buy the lifetime annuity from another provider. You should consider this option because annuity rates can vary significantly from company to company. By shopping around, you could improve your annuity income substantially, particularly if you are suffering from ill-health at the time. Other companies may also offer types of annuity that we do not but may apply a minimum fund size for taking such business. Annuity rates offered vary over time. You must decide before your 75th birthday the type of benefits you wish to take. You have the option to purchase an annuity, transfer to another pension scheme offering continued drawdown pension after age 75 or take the remaining fund as an income payment. You should seek financial advice before deciding when to buy an annuity and who to buy it from. The Money Advice Service publish a consumer factsheet, Your pension it s time to choose, which is available on their website, You can access free impartial guidance on your retirement options from Pension Wise Are there any disadvantages in delaying buying a lifetime annuity? Yes. Lifetime annuity rates are set taking into account a cross subsidy provided from those who do not survive as long as expected to those who live longer than the average. The longer you leave buying a lifetime annuity, the less you will benefit from this cross subsidy. Also, annuity rates may fall meaning you are only able to buy a smaller lifetime annuity. Is there an alternative to buying a lifetime annuity? You can transfer the value of your plan at anytime before your 75th birthday to another plan where alternatives are available. Such alternative options include continued drawdown pension and Scheme Pension. You should seek financial advice before considering a transfer. Alternatively, you could decide to take the remaining value of your drawdown pension fund as an income payment. 5

6 8.3 What about tax? What tax may be payable when I start this plan? When you start drawdown pension we have to see if a lifetime allowance tax charge is due. The standard lifetime allowance amount is 1 million for the tax year 2016/17. Your lifetime allowance is reduced each time you take benefits. If when you take benefits, or at age 75 if earlier, the value of benefits being taken exceeds your remaining lifetime allowance then the excess will be subject to a tax charge, known as the lifetime allowance charge. Your personal lifetime allowance may be higher than the standard lifetime allowance, if you have been granted one or more types of protection by HMRC. You can find out more about the lifetime allowance on the HMRC website at If you think you might be affected then we strongly recommend that you receive individual tax advice. For more information about tax please refer to a financial adviser. The amount of the lifetime allowance charge depends upon the circumstances in which benefits are taken. Any transfer payments made to this plan will not form part of your annual allowance for pension contributions. How are the pension investment funds taxed? The growth in the value of the investment funds you choose is currently free of UK taxes on capital gains and investment income. However, the funds cannot claim back any tax credits on dividends received from any investments they make in UK shares or any withholding tax paid in respect of non-uk equity held. Any investments the fund holds in overseas assets will be subject to the tax rules applicable in that country. This will be charged to the appropriate fund. How is the drawdown pension taxed? Your drawdown pension will be taxed through Pay As You Earn (PAYE) as pension income. The amount of tax paid on the income will depend on your income tax rate at the time the pension is paid. What about tax on a lifetime annuity? The relevant value of your plan will be tested against your remaining personal lifetime allowance at the point you buy a lifetime annuity, and a tax charge may be made at that time. Your financial adviser can provide more information. Your lifetime annuity income will be taxed through PAYE as pension income. The amount of tax paid on the income will depend on your income tax rate at the time the pension is paid. The above information is based on current tax rules and these could change in the future. Tax treatment depends on individual circumstances. Your financial adviser can provide further information. 9.3 What happens on my death? You can arrange for the value of the remaining drawdown pension fund to be allocated for the benefit of your dependant(s) or someone you nominate, at the date of your death. This is called making an allocation. In the event of your death the following options will normally be available to each of them in respect of their part of the fund: a lump sum payment; a lifetime annuity; a Drawdown Pension; Please speak to your financial adviser for further details. If you die on or after age 75 the payment of a lump sum will be subject to a tax charge. The amount of the charge will either be: at the recipient s marginal income tax rate (if paid directly to a dependant or beneficiary), or 45%. The beneficiary of a trust may claim the 45% tax charge paid on the lump sum death benefit as a deduction against their own income tax. Your financial adviser can provide further information. If you do not make an allocation before death, or if all the individuals named on the allocation are no longer alive or no longer qualify as being financially dependent on you, the value of the remaining fund, will be payable as a lump sum. You may choose how this lump sum is paid, either: to the trustees of an individual trust you have set up for the benefit of your family members or anyone else selected by the trustees; or 6

7 at Friends Life s discretion, to your family members or any others we select in accordance with the scheme rules. In either case you may nominate those whom you would like to benefit. Any nomination you make will be considered before a decision is made on how any lump sum payment should be distributed. There may be a liability to inheritance tax. Your financial adviser can provide further information. Further Information How to contact us Your financial adviser will normally be your first point of contact. If you have any questions, you can phone us or write to us. Call us on from Monday to Friday between 8.30am and 5.30pm. As part of our commitment to quality service, telephone calls may be recorded. If you wish to exercise your right to cancel your plan or to write to us for any other matter please use the following address: Friends Life PO Box 582 Bristol BS34 9FX United Kingdom Customer Status Friends Life will treat you as a retail client. This means that you have the highest degree of protection available under the Financial Conduct Authority rules. This includes access to complaints and compensation procedures. However you will not be covered for wrong advice unless this product was personally recommended to you by a financial adviser authorised by the Financial Conduct Authority. How to Complain If you are not satisfied with any aspect of the service that you have received from us, please contact us using any of the methods detailed above in the How to contact us section. Information regarding our formal complaints procedure is also available from the same contact points. Complaints that we cannot settle may be referred to the Financial Ombudsman Service at: Exchange Tower Harbour Exchange Square London E14 9SR United Kingdom Phone: Mobile: (calls to this number are charged at the same rate as 01 or 02 numbers on mobile phone tariffs) complaint.info@financial-ombudsman.org.uk Website: Making a complaint will not affect your right to take legal proceedings. Compensation Your plan is covered by the Financial Services Compensation Scheme. This means that if we are unable to pay claims/benefits because of financial difficulties you may be able to make a claim. You are covered for 100% of the claim, without any upper limit. For further information please see or telephone or Terms and conditions This Key Features document gives you a summary of the Flexible Retirement Income Plan. It does not include all the definitions, exclusions, and terms and conditions. These are shown in the Trust Deed that sets up the scheme, and the scheme s rules and Policy Provisions. If you would like a copy please ask your financial adviser or contact us. Main business and Register details Friends Life Limited is entered on the Financial Conduct Authority register, number: You can look up our register details through the website: 7

8 Financial Advisers We recommend that you seek financial advice before you make any decisions about this plan. Where you have received information or advice from a financial adviser they will provide you with information regarding their identity, the capacity in which they are acting and their address for future communications. Law and language The plan is governed by the law of England and Wales. Your contract will be in English and we will always write and speak to you in English. Key Features document information If the illustration supplied to you contains an expiry date and you wish to apply after this date, you should ask for a further illustration and Key Features document from your financial adviser. The date when the Key Features document was produced is shown at the end of the document. If you are not sure if you have the most up-to-date version, please contact your financial adviser. This document is available in other formats. If you would like a braille, large print or audio version of this document, please contact us on Friends Life, PO Box 582, Bristol BS34 9FX. Telephone number Friends Life Limited An incorporated company limited by shares and registered in England and Wales, number Registered office: Pixham End, Dorking, Surrey RH4 1QA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Telephone calls may be recorded. Friends Life is a registered trade mark of the Friends Life group. FRIPKFDPPINC (52967)