Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme Important information you need to read
The Financial Conduct Authority is a financial services regulator. It requires us, Prudential, to give you this important information to help you decide whether the NHS AVC Scheme is right for you. You should read this booklet carefully so that you understand what you are buying and then keep it safely for future reference. Braille, large print or audio versions of this booklet are available. 2 Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme
Welcome This booklet is the Key Features for our NHS AVC Scheme. If you are thinking about whether our NHS AVC Scheme may be right for you, this booklet, together with your illustration, will help you make that decision. Please read it and keep it in a safe place. Please also read A Guide to Fund Options and Your With-Profits Plan a guide to how we manage the Fund. When we refer to your normal pension age, this is the same as your normal benefit age in the NHS Scheme as at the date you join the AVC. For members who were in the 1995 Section on joining the AVC, this will be age 60 For members who were in the 2008 Section on joining the AVC, this will be age 65 For members who were in the 2015 Scheme on joining the AVC this will be your State Pension Age or age 65 if higher. Please note that if your State Pension Age changes your normal pension age for AVC purposes will also change. If you still have questions about our NHS AVC Scheme after reading this booklet, please call us on 0800 678 3921. If you have a financial adviser, please contact them in the first instance. Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme 3
About our NHS AVC Scheme It is a savings arrangement designed to help you to build up a pot of money to provide an additional pension and/or lump sum for your retirement and is subject to the NHS Pension Scheme (Additional Voluntary Contributions) rules. Taking out this product will meet the demand and need of a main scheme member wishing to make additional pension provision to meet their financial requirements in retirement. Its Aim To help you save for your retirement in a tax-efficient way. Your commitment To make payments into your plan. To allow the money in your plan to grow until you take your retirement benefits. Risks The value of the investments that make up your plan can go down as well as up. The value can even fall below the amount you invested. There are different risks for different funds. If money is taken out of the With-Profits Fund at any time other than your normal pension age or on your death, the amount payable may be reduced to reflect the value of the underlying assets at that time. This is known as a Market Value Reduction (MVR). Tax rules may change in the future. Inflation will reduce what you can buy in the future. If the total charges taken from your plan are more than any overall growth achieved, your plan will fall in value, possibly to even less than you have invested. 4 Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme
Q&As How much can I pay into the AVC Scheme? Your total contributions to this AVC scheme, the NHS Pension Scheme, Additional Pension Contributions and any other pension arrangement are subject to maximum tax relief on your contributions of up to 100% of your salary less any other pension contributions payable to a registered scheme. If the contribution you wish to make is over 85% of your salary we will contact your payroll to confirm this level of contribution. For more information about tax relief, please read What are the tax advantages of investing in the NHS AVC Scheme? on page 7. Your employer will take your payments directly from your salary and send them to us. The government s Pension Credit guarantees a minimum income if you re on a low income. If you have little or no other retirement provision, the income you receive when you take the benefits from this scheme could reduce the amount you receive as a Pension Credit. Where do you invest my contributions? You choose which funds you would like to invest your money in, from the fund range available. The price of each unit depends on the value of the investment in the fund and also whether more money is going into or out of the fund. Please refer to your Fund Guide for more information. Different funds offer different types of investment. For example, some only invest in property, others invest directly in the stockmarket, and others invest in a wide range of assets. Each fund has its own level of potential growth and risk. Usually, funds with more potential for growth carry more risk. The performance of the funds isn t guaranteed. The value of your investment can go down as well as up. If it goes down, you could have less money in your plan than you paid in. For information about the Funds you can choose from, please read A Guide to Fund Options and Your With-Profits plan a guide to how we manage the Fund. Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme 5
Can I switch my money between funds? You can switch your money between funds at any time. We currently don t charge you for this. If this changes in the future we will let your pension scheme know. We may apply a Market Value Reduction if you switch money out of our With-Profits Fund. For more information about this, please read What is a Market Value Reduction? on page 11. Can I take money out of my plan? From the 6th April 2015, from age 55, you are able to draw all or part of your pension fund as a lump sum (Uncrystallised Funds Pension Lump Sum) 25% of each payment being tax free with the remaining 75% being added to your income for the year and taxed accordingly. This may affect the rate of tax you pay when added to any other income for that tax year. Tax rules require careful consideration and you should speak to a financial adviser on this subject. Can I transfer my plan? You can transfer your fund to another pension arrangement at any time. You may hold pension pots in different categories, such as money purchase and defined benefit pensions. Under new rules you are able to transfer different categories of pension savings separately and to different places, for example, keep a defined benefit pension where it is, but transfer any money purchase pension. If you transfer a pension pot within a category, you can still accumulate money within the category once the transfer has taken place. You can transfer you pension savings in a category at any time as long as you have not purchased an annuity from the same category. For more information, please speak to your financial adviser or visit The Pension Advisory service website at www.pensionsadvisoryservice.org.uk/about-pensions/ when-things-change/transferring-your-pension. We won t charge you if you wish to transfer your plan, but we will require the NHS Pensions Agency to approve the transfer before it is made. 6 Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme
Can I transfer money from another pension scheme into this one? Should you wish to transfer any funds into the AVC you should approach your NHS pension scheme administrator in the first instance. What are the tax advantages of investing in the NHS AVC Scheme? Tax Relief AVCs are deducted from your salary before tax and passed to Prudential for investment. This means if you normally pay tax you ll qualify for immediate tax relief on your payments, so for every 100 that goes in your pension pot, it will cost you 80, with the 20 normally paid to the taxman going into your pension instead. If you re a higher rate taxpayer, it ll cost you 60, with 40 going into your pension instead of the taxman, subject to HM Revenue and Customs limits. Annual Allowance The Government limits the amount that can be paid each year, to all your pensions, before incurring a tax charge. This is called the Annual Allowance. If this is exceeded, you may be liable to a tax charge and must inform HMRC through the completion of a tax return. You may be able to carry forward unused allowance from the last three years to increase your limit for the current year. Your Annual Allowance includes all contributions from you, your employer, any third party and increases in the value of any salary related pension benefits you may have. Most people won t have pension savings worth more than the lifetime allowance. If your pension savings are worth more than this when you take your benefits, you ll have to pay the lifetime allowance tax charge on the excess unless you have some form of lifetime allowance protection. Tax is a complicated subject and you may wish to seek advice if you feel this will affect you. For more information please visit www.pru.co.uk/tax or visit the HMRC website at www.hmrc.gov.uk You may be able to carry forward unused allowance from the last three years to increase your limit for the current year. Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme 7
Your Annual Allowance includes all contributions from you, your employer, any third party and increases in the value of any salary related pension benefits you may have. Money Purchase Annual Allowance The Money Purchase Annual Allowance (MPAA) may apply to you if you have flexibly accessed pension benefits on, or after 6th April 2015. Your pension scheme or provider will have informed you if you have flexibly accessed your pension benefits. Examples or drawing benefits flexibly include taking income from flexi-access drawdown or a cash lump sum (Uncrystallised Funds Pensions Lump Sum). For more information visit www.pru.co.uk/tax Lifetime Allowance There is no limit on how big your pension fund can grow to, however you will have a lifetime allowance in relation to the maximum amount of tax-relieved benefits you can build up over your lifetime. If you think you are affected by this limit you can get more information visit www.pru.co.uk/ tax or the HMRC website at www.hmrc.gov.uk. Tax rules require careful consideration and you should speak to a financial adviser. Capital Gains Tax You don t pay capital gains tax on your pension funds Tax free lump sum When you decide to start taking your benefits from your scheme, you can take up to 25% as a tax free lump sum. To find out more information, please read Can I take any of the money invested in my AVC pot as a lump sum? on page 15. 8 Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme
Income Tax Any pension income will be taxed as earned income. This information is based on our understanding of current taxation, legislation and HM Revenue & Customs (HMRC) practice. These tax rules could change in the future without notice. The impact of taxation and any tax relief depends on your individual circumstances. For more information about tax, please go to HMRC s website: www.hmrc.gov.uk/rates add section: Scottish Rate of Income Tax The Scotland Act 2012 gives the Scottish Government the power to set a Scottish rate of income tax. Individuals identified by HMRC as Scottish rate taxpayers may pay a different rate of income tax to the rest of the UK. This would affect the amount of tax relief received on pension contributions. The Government has introduced a period of two years from the 6th April 2016 during which pension providers will continue to claim tax relief at the UK rate for all members. HMRC will identify Scottish taxpayers and make any adjustment (depending on the Scottish rate) directly with the member. This will be done either through the Self-Assessment process or PAYE Coding Notice. For more information on the Scottish Rate of Income Tax, please speak to your scheme administrator, your financial adviser, or please go to HMRC s website: www.gov.uk/ scottish-rate-income-tax. Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme 9
What are the charges? We take charges for managing your plan and your investments. The amount we charge depends on the funds you invest in. For more information, please read A Guide to Fund Options. Please remember that we ll keep taking our charges, even if you stop your payments. For most funds we calculate the charge daily and take it monthly from your plan by cancelling units. We calculate the charge for the With-Profits Fund differently. In addition to our Product Charges, there may be some additional costs which may impact the overall performance of the fund. These costs include trading, dealing costs and property expenses. With-Profits Fund charges The With-Profits Fund s management charge depends on the performance of the With- Profits Fund, in particular the investment return and our expenses. If, for example, over time investment returns are higher then we would expect to increase the charges and if investment returns are lower we would expect to reduce the charges. We currently expect this charge to be 0.8% a year, based on the assumption that future investment returns from the With-Profits Fund will be 5% per year. We deduct this charge through the bonus mechanism. With-Profits guarantee charges There is a charge to pay for all the guarantees the With-Profits Fund supports. We guarantee not to apply a Market Value Reduction (MVR) in certain circumstances, e.g. when payments are made because of death or at your normal pension age. Our current practice (which is not guaranteed) may include additional circumstances when an MVR is not applied. Please see What is a Market Value Reduction? for more details. You won t see this charge on your annual statement because we take it by adjusting regular and final bonuses. 10 Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme
The total deduction for guarantee charges over the lifetime of your plan is not currently more than 2% of any payment made from the fund. Our charges may vary in the future and may be higher than they are now. Charges may vary if, for example, the long term mix or type of assets held within the With-Profits Fund is changed. For more information about bonuses and charges, please read Your With-Profits Plan a guide to how we manage the Fund. Our charges may vary in the future and may be higher than they are now. Further details can be obtained by referring to the scheme policy conditions which are held by the scheme administrators. What is a Market Value Reduction? If you take money out of the With-Profits Fund, we may adjust the value of your fund if the value of the underlying assets is less than the value of your plan including all bonuses. This would also apply if the scheme administrator of your plan transferred part, or all, of the scheme. This adjustment is known as a Market Value Reduction (MVR). It is designed to protect investors who are not taking their money out and its application means that you get a return based on the earnings of the With-Profits Fund over the period your payments have been invested. We apply the MVR to your plan s value including regular and final bonuses. Please read Your With-Profits Plan a guide to how we manage the Fund for more information on bonuses. An MVR will reduce the amount payable on full or partial withdrawals and if investment returns have been very poor, you may get back less than you have invested in your plan. We guarantee not to apply an MVR at your normal pension age or on any claims due to death. Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme 11
Our current practice on applying an MVR We may apply a Market Value Reduction to any full or partial withdrawals as a result of switches or transfers out of the With-Profits Fund. We reserve the right to change our current practice on Market Value Reductions at any time, without prior notice, and this would apply to existing plans and any new plans or topups. Examples of reasons for a change would include significant changes in the investment market or because the number of people moving out of the fund increases substantially. How will I know how my plan is doing? We will send you an annual statement, which shows how your plan is doing. Alternatively, you can phone our Customer Service Centre on 0800 678 3921 and a member of our team will give you an up-to-date valuation. What happens if I leave? If you leave the NHS Pension Scheme your contributions will stop and your AVC plan will remain invested (you can restart contributions after a career break when you rejoin the main scheme). Any charges will also continue to be taken until you take your benefits. Alternatively, you may transfer your AVC plan to another Registered Pension Scheme as long as you apply to do so before your 75th birthday. Where your employer has provided you with a refund of main scheme contributions, your AVC account will normally also be refunded. This refund is subject to a statutory tax deduction, currently 20% on any refund up to 20,000 and 50% on any excess. We may apply an MVR to any monies taken out of the With-Profits Fund. Please refer to What is a Market Value Reduction? on page 11. 12 Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme
What if I want to cancel my plan? You cannot cancel your plan, and can only get your contributions back when you retire. However, you can stop, start, increase or decrease payments into your plan at any point. Other options available There are also other options that may be available to you. You have the option of buying Additional Pension within your NHS pension scheme and you should contact your main scheme administrator for more details. For information about all your options, please speak to a financial adviser. When can I start taking my benefits? The government currently allows people to start taking their benefits from the age of 55, even if you are still working (some members may have a lower minimum retirement age). You may be able to start taking your benefits earlier if you re in ill health. The minimum age from which you can access your personal or occupational pension is expected to increase from 55 to 57 in 2028 and remain at 10 years below the State Pension age. State Pension age will increase from age 66 to age 67 for males and females between 6 April 2026 and 5 April 2028. These ages may change in future as result of changes in life expectancy and other factors. Under the terms of this contract you are currently required to take your benefits by age 75. Introduction of the new State Pension Those who attain State Pension age on or after 6 April 2016 may be entitled to a new flat rate State Pension. This will replace the previous basic State Pension and additional State Pension from this date. For more information visit our website at www.pru.co.uk/tax, speak to your financial adviser or visit the Money Advice Service. www.moneyadviceservice.org.uk Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme 13
How do I turn the value of my AVC pot into an income? From the 6th April 2015 regulations allowed added flexibility in how you draw your pension savings. There are four main options which may be used in combination: Take a single or series of cash lump sums from your pension savings Uncrystallised Funds Pension Lump Sum. Flexi-access drawdown a new form of drawdown which will allow you to take an unlimited amount of income or lump sums from your designated defined pension fund. This will replace flexible and capped drawdown, although existing capped drawdown plans will continue. A pension annuity an investment that guarantees to pay a secure income for the rest of your life, regardless of how long you live. Pension directly from a pension scheme occupational pensions schemes are not changing. You will still be able to draw a pension from any occupational pension scheme you are a member of. This is subject to the rules of your scheme. Please contact us as you approach retirement and we will let you know which of these options we may be able to offer you. Whatever you decide to do with your pension, you don t have to stay with us. If you choose to use your pension to provide an income, you should shop around. Depending on the choices you make, you may be able to get a higher income elsewhere, so it s important you consider this. If you or your partner have a medical condition this could mean you are entitled to a higher income in retirement. Remember that you should shop around for your income and other companies may cover different conditions to us and may use different criteria which means you could get more or less income elsewhere. 14 Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme
Can I take any of the money invested in my AVC pot as a lump sum? New legislation gives you even greater choice and control over how you take your Additional Voluntary Contributions (AVC). Your scheme has informed us that it intends to allow you to take advantage of these new flexibilities. It is our understanding that you could choose to: Take your money in one go. 25% tax-free with remainder added to your income for the year and taxed accordingly. Take a tax-free lump sum and flexible income. 25% tax-free lump sum with the remainder used to provide taxable income. In order to do this you must transfer into a Drawdown plan and you may need to take financial advice. Take partial withdrawals. On each withdrawal 25% of it is tax-free with the remainder added to your income for the year and taxed accordingly. Take a tax-free lump sum and a guaranteed income for life, or as it is commonly known an Annuity. Take a combination of these options, or of course you can leave your AVC invested as it is now and continue saving for your retirement We recommend you get guidance or advice to help you with this decision. Pension Wise is a new service from the Government that will offer free and impartial guidance. It also contains details on where to find an adviser. Visit www.pensionwise.gov.uk/ And you don t have to take your AVC as cash if this isn t right for you other options may be available. Please contact us as you approach retirement and we will let you know what options we may be able to offer you. Subject to scheme rules changes. These tax and scheme rules could change in the future without notice. Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme 15
How much will my income be? You can use your pension fund to create an income. The size of your pension fund, to generate this income will depend upon many factors such as: the amount that has been paid into the plan how long you have been making payments the performance of the fund(s) you have invested in the age you choose to take your benefits the amount of charges you ve paid. The size of your income will depend upon many factors including how you draw your pension. What happens if I die before I take my benefits? If you die before taking your benefits, and on instruction from your scheme administrator, we will pay the value of your AVC pot as a lump sum. This will normally be paid to your spouse, civil partner or nominated partner or, in the absence of these, to your personal representatives. If you do not wish for any death benefits to be paid in this way, please contact your scheme administrator/nhs Pensions. You can also use your AVCs to fund extra death benefits for your spouse or dependants and premiums for this life assurance increase every three years for a given level of cover. 16 Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme
Other information How to contact us If you have a financial adviser, please continue to use them as your first point of contact. If you don t have a financial adviser, you can call our dedicated support team on 0800 678 3921. The opening hours are 9am to 6pm, Monday to Friday. Calls may be monitored and recorded for quality and security purposes. You can also contact us by: Post: Prudential, Lancing BN15 8GB Website: www.pru.co.uk Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme 17
Guidance Guarantee In addition to the advice your Financial Adviser can provide, we recommend you use Pension Wise, a service from the Government that offers free and impartial guidance. This service is available on the internet, over the telephone, or face to face. Find out how to access this by visiting www.pensionwise.gov.uk How to make a complaint If your complaint is advice related please contact your financial adviser. If we do anything that you re unhappy about, we ll always try to put it right if we can. To do this we need to know exactly what the problem is. So please write to us with all the details of what has happened. Please send your complaint to: Prudential Customer Relations Unit Lancing BN15 8GB Copies of our complaint handling procedures are available from this address. If you d rather phone, you can call us on 0800 678 3921. To make sure we have an accurate record of what you tell us, we may monitor or record your call. We hope that we will be able to handle your complaint in a way that satisfies you. But if we can t, you can speak to one of the following organisations: The Financial Ombudsman Service Exchange Tower London E14 9SR Telephone: 0800 023 4567 www.financial-ombudsman.org.uk 18 Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme
The Pensions Ombudsman 11 Belgrave Road London SW1V 1RB Telephone: 0207 630 2200 The Pensions Advisory Service (TPAS) 11 Belgrave Road London SW1V 1RB Telephone: 0300 123 1047 The Pensions Advisory Service is an independent, government funded body that gives free advice to members of the public about pensions. These are free services. Using them won t affect your right to take legal action. We can help you find the appropriate organisation to handle your complaint. Your client category and why it matters The Financial Conduct Authority (FCA) is a financial services regulator. It asks companies to categorise their clients based on their involvement in and familiarity with financial services. This helps to make sure we send the right information to the right people. For example, information for an individual customer should assume less knowledge than information for a financial services company. You re categorised as a retail client. This means you get the highest level of protection by getting the clearest explanation of what you re buying and more detail about the risks. This means the information we send you is clear, balanced and indicates any relevant risks. Your category does not affect your right to lodge a complaint with the Financial Ombudsman Service. If you have any questions about your client category, or think your category should be different, please call our Customer Service Team on 0800 000 000. Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme 19
Conflict of interest We want to make sure that we uphold our reputation for conducting business with integrity. That s why we have drawn up a policy to deal with any conflicts of interest. If you would like to know the full details of our Conflict of Interest Policy, please contact our Customer Service Team on 0800 000 000. Law The law and courts of England and Wales will decide any dispute. FCA Registration Prudential Assurance Company Limited is entered on the Financial Conduct Authority (FCA) Register, Firm Reference Number 139793. The FCA Register is a public record of all the organisations that the FCA regulates. You can contact the FCA at: The Financial Conduct Authority 25 The North Colonnade Canary Wharf London E14 5HS Telephone: 0800 111 6768 or 0300 500 8082 Prudential Regulation Authority contact details: The Prudential Regulation Authority Bank of England Threadneedle St London EC2R 8AH Telephone: 020 7601 4878 Email: enquiries@bankofengland.co.uk 20 Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme
Compensation We are covered by the Financial Services Compensation Scheme (FSCS). You may be entitled to compensation from the Scheme if we cannot meet our obligations. This depends on your eligibility, the type of business, the fund/s invested in or the funds selected and the circumstances of the claim. For more information on the FSCS and examples of limits in the scope of FSCS for your plan, please go to the webpage www.pru.co.uk/about_us/fscs for more details. For further information contact: The Financial Services Compensation Scheme 10th Floor Beaufort House 15 St Botolph Street London EC3A 7QU Telephone: 0800 678 1100 or 0207 741 4100 www.fscs.org.uk Prudential policyholders are not protected by the FSCS against the insolvency of other companies within the Prudential group or an external company. This means that the FSCS does not provide protection: (i) for Prudential unit-linked funds which are invested solely in funds operated by another company within the Prudential group (for example, unit trusts or Open Ended Investment Companies operated by another company within the Prudential group); or (ii) for externally-linked funds. However, it should be noted that the money policyholders invest in a fund is kept separate from the assets of the actual company that manages the fund. This is often known as ring fencing of assets. The liabilities of these funds are normally limited to the assets owned by the fund, so the likelihood of insolvency is very low. Unit prices may fluctuate in line with the value of the assets owned by the fund, but this is normal investment risk. Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme 21
If another company from within the Prudential group or an external company becomes insolvent and we cannot recover the full value of the units, Prudential will not be liable for the shortfall. Prudential s liability Our liability under any fund that we make available under the NHS Additional Voluntary Contributions (AVC) Scheme cannot exceed the value of the assets underpinning that fund, whether these assets are actual assets, an interest in another fund (whether managed by a company within the Prudential group or by an external company) or an interest in a reinsurance policy effected by us to reinsure our liability under a fund. In particular, for the type of funds listed in one and two above, our liability is limited to the amount we can claim from the relevant company. So, for example, if the external company or the other company within the Prudential group, were to become insolvent, we could only pay the amount, if any, which we could collect under the insolvency in respect of the units allocated to the plan. In addition, we are not liable for any losses caused by the acts and omissions of an external company in respect of its own fund and/or the externally-linked fund. 22 Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme
Thank you for taking the time to read this document. We d love to know what you think of it. Was it easy to understand? Could we make it better? Please take a few minutes to let us know at www.pru.co.uk Key Features of the NHS Additional Voluntary Contributions (AVC) Scheme 23
www.pru.co.uk Prudential is a trading name of The Prudential Assurance Company Limited, which is registered in England and Wales. This name is also used by other companies within the Prudential Group. Registered office at Laurence Pountney Hill, London EC4R 0HH. Registered number 15454. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. AVCK0433 04/2016