Police Pension Scheme Road Map to Retirement Click below to register your place at a PMM Retirement Seminar in your location www.policemoneymatters.com Copyright: Police Money Matters 2012.
Contents 3 Foreword by David Campbell 4 Why this booklet? 5 Pension Scheme membership? 6 Your PPS retirement benefits and options 11 Lead-up to retirement 13 Preparing to manage finances after retirement 14 Police Money Matters roadmap to successful retirement 15 Successful investment 16 Advice and recommendation 17 Ongoing regular client reviews 18 Annex A While every effort has been made to make references to the Police Pension Scheme 1987 and to the Police Injury Benefits Scheme as accurate as possible, the information contained in this booklet is essentially for the general information of officers nearing retirement and is not for the purpose of providing you with specific details about your own situation. For specific and authoritative information about your membership of the Police Pension Scheme 1987, your current or potential benefits under that scheme, or about the injury benefits scheme you should contact Police Money Matters who will be happy to contact the pensions administrator for your Force on your behalf.
Foreword by David Campbell Police Money Matters Retirement may present a number of challenges particularly with so many officers retiring at a younger age. The contents of this booklet are designed firstly, to help you understand a little bit more about your pension scheme and secondly; explain to you the risks surrounding investment, and some of the options open. You may consider yourself to be part of a work hungry generation; you may be ready to embrace retirement on a part-tirement basis; or indeed you may be planning to start a new career. On the other hand some people relish the idea of long days playing golf, socialising, going on extended holidays or taking up a new hobby. However one thing is certain most Police retirees are now facing a challenging landscape of retiring earlier and living longer. Some retirees may think they could give a graduate a run for their money while others believe they would be more confident in the work force now than in their earlier working life. Some might relish the opportunity to replace someone younger in the UK work force should they be given the chance and some may think they would dedicate more time to a career than their younger counterparts. Whatever, your Police career could soon become a distant memory and therefore the decisions you make approaching and early on in retirement could prove to be the most important decisions of your entire career. 3
Why this booklet? The chances are that you have been too busy doing your job to pay much attention to pension issues. This booklet has been compiled to help police officers, like you, who are nearing retirement and starting to focus on the pension and investment decisions and choices that will face them before and after they retire. Please take time to have a good look at this booklet since your retirement is too important a step to take without thorough preparation after all you wouldn t launch a complex police operation without planning. This booklet is written for you if you are a member of the Police Pension Scheme 1987 (the PPS), whether you are paying your monthly contributions into the PPS as an active member or whether you have stopped your contributions but have kept your pension benefits frozen with the Force for drawing when you retire or reach 60. If you are a member of the New Police Pension Scheme 2006, please ask Police Money Matters for their booklet specific to that scheme. 4
Pension Scheme membership The Police Pension Scheme 1987 (the PPS) is the occupational pension scheme which was open to all serving officers who commenced their police service before 1 April 2006. The PPS was closed to new members on 1 April 2006. Entrants on and after that date became members of the New Police Pension Scheme 2006. Membership of the PPS on joining a Force (before 1 April 2006) was automatic, with your pension contributions as a scheme member deducted at source from your salary by the Force. Although the great majority of officers remain members of their pension scheme, you can elect to leave the PPS, and your continuity of PPS scheme membership can be affected by breaks in police service. If you are in any doubt about your PPS membership status, you should contact Police Money Matters. Police Pension Scheme Seminars Click below to register your place at a PMM Retirement Seminar in your location Register your interest in attending one of our Police Pension Scheme Seminars by completing our online seminar registration form at: www.policemoneymatters.com www.policemoneymatters.com We will contact you shortly to confirm your attendance. 5
Your PPS retirement benefits and options Q. When should I retire? A. This must be a choice you make for yourself and in the light of your own circumstances and plans. There are a number of issues you will need to consider, but a key one is have you built up the full 30-year pension? Q. What benefits can I expect from PPS after 30 years? A. If you have served full-time throughout the 30 years and have paid your pension contributions during that time you can retire from the Force with an immediate police pension. Your police pension will be based on 1/60th of your average pensionable pay (broadly speaking your final salary) for each year of pensionable service up to 20 years and 2/60ths of your average pensionable pay for each year over 20 years up to a maximum of 40/60ths (ie two thirds of your average pensionable pay). The pension will be payable for life and you can commute (exchange) up one quarter of your pension for a tax-free lump sum. Q. I have not served full-time throughout my career. What are the options? A. You can still retire after 30 years and receive an immediate pension but it will almost certainly be smaller than the pension you would have received, had you served full-time throughout. You could continue in service and build up further pension benefits, either to qualify for a maximum pension or at least a larger one than that on offer after 30 years. 6
Q. How can I check how much pension I have built up? A. Force pensions administrators normally issue officers with an annual benefits statement. This is a letter setting out details of the pension benefits an officer has already built up and includes an estimate (not a guarantee) of the amount of pension they can expect after 30 years. Check your latest annual benefits statement or ask the pensions administrator for your Force for a specific pension forecast if you need more up-to-date information. The pensions forecast should include information about the lump sum you can receive if you commute part of your pension in exchange for such a payment. Q. I am approaching/have got 30 years. What issues should I be aware of when considering retirement? A. If you have built up a full 30-year pension or are about to reach that point, confirm with the pensions administrator for your Force: How much pension you stand to receive; When it can be paid from; The lump sum you will be able to take from your pension when it comes into payment, and when annual pension increase (to keep it in line with inflation) will apply to your pension. Also, list and consider the pros and cons of retiring at the point you reach 30 years. Arguments for staying on and putting off taking your pension could include: Job satisfaction you are not ready to retire; too many outgoings to be able to afford to retire yet; Prospect of a higher salary, whether on promotion or through pay increases. 7
Your PPS retirement benefits and options continued... Arguments for retiring and taking your pension could include: Staying on means you may be effectively be working for half pay; Staying on delays access to your possible lump sum; Staying on means that the age-related factors for calculating your lump sum become less favourable as you grow older; Retirement frees you up for taking a new job or starting a new business; You may even be able to work for the police again. Q. I have not got 30 years in yet, but want to consider retirement from the force? A. If you have not built up a full pension, check with the pensions administrator for your Force: How much pension you stand to receive; When is the earliest it will be paid from; Will the pension come into payment later than if you stayed on for 30 years; The size of the lump sum you will be able to take from your pension when it comes into payment, and How much less the pension and lump sum would be than a full 30-year pension and lump sum. Also consider: What benefits will you expect to get from earlier retirement to compensate for losing your police salary and, later, a full police pension? Will any work or business activity you propose to take on in retirement enable you to build up more pension or another source of income as reliable as a pension and, if so, how much will that be and payable from when? If you are in any doubt about the pros and cons, speak to a financial adviser before retiring early. 8
Q. If I retire and take up a new job, can I keep drawing my police pension? A. Generally speaking, you will be able to take any job outside the police or in the police as a member of police staff and keep drawing your pension. If you want to return to work as a member of police staff you should, however, check whether you need to wait a month before being engaged as such. If you want to return specifically to serve as an officer, you should check whether that is possible and, if so: Whether you need to wait a month before being re-engaged; and: Whether your monthly pension payments will be affected. (Please note that the police authority which is making regular pension payments to you may at their discretion withdraw the whole or part of those payments during any period in which you serve in any force as a regular police officer. This is known as abatement.) If you want to return to work for another policing or border-force organisation in the UK you should check to with your Force and that organisation to confirm there are no tax or abatement issues. Q. I am thinking of opting out because of the cost of my contributions. I have not yet built up a full 30-year pension. A. Opting out before you have built up a full 30-year pension is a very serious step to take, and you should consider the issue very carefully before doing so. Please turn to Annex A for more details on this issue. 9
Your PPS retirement benefits and options continued... Q. I have served for 30 years but want to stay on. Should I opt out of the PPS, now that I have built up a full 30-year pension? A. Even with a full 30-year pension, opting out could turn out to be a false economy. It depends on your situation and expectations. You should give this decision careful consideration. See Annex A for more details of the issues involved, especially the following specific issues: The increase in your salary may be smaller than you think Pay expectations Promotion expectations The risk if you are retired on grounds of ill-health The risk to your family, should you die in service, in not receiving the PPS lump-sum death grant. It is possible to take out insurance cover for death while in service, but please consider the issues about such insurance in Annex A. Police Pension Scheme Seminars Click below to register your place at a PMM Retirement Seminar in your location Register your interest in attending one of our Police Pension Scheme Seminars by completing our online seminar registration form at: www.policemoneymatters.com www.policemoneymatters.com We will contact you shortly to confirm your attendance. 10
Lead-up to retirement Q. What key decisions do I need to take in the lead-up to my retirement and is there a timetable to bear in mind? A. Things to consider/do straight away: Will your pension be enough? Use the PMM pension calculator to give you an idea of the sort of pension income you should be aiming for in retirement in order to maintain a fulfilling and enjoyable lifestyle, not just in your fifties but later as well. Get a pension forecast from the pensions administrator for your Force. Bear in mind that you will also be entitled to a State Pension when you reach State Pension Age your Force pensions administrator should be able to give you a combined police/state pension forecast. The combined forecast should confirm whether you are on track for a full State Pension. Check with the Department for Work and Pensions if you are in any doubt: If you will not be able to build up a full 30-year pension by the age of 55, you may qualify for purchasing increased benefits under the PPS (in the form of added 60ths to top up your police pension). You should ask your Force pensions administrator for more information. Whether or not you can purchase increased benefits, do you want to top up your police pension by means of a Stakeholder or other form of personal pension? Are you saving enough? Are there home improvements you should get done while you have a police salary? Is your partner eligible to receive a survivor s pension should you die? Remember, the PPS pays an adult survivor s pension only if they are the spouse or the registered civil partner of the deceased officer or deceased retired officer. 11
Lead-up to retirement continued... Things to consider/do in the run-up to retirement: Decide whether you want to exchange part of your pension for a lump sum (commute part of your pension) and how much lump sum you want to take. If you are eligible for a lump sum based on one quarter of your pension, confirm with the pensions administrator for your Force whether you will be able to take all of it without a tax charge. If commuting a quarter of your pension would attract a tax charge, ask your Force pensions administrator, if they have not done so already, to quote you the maximum sum that would escape the charge, so that you can make an informed choice. If you do want a lump sum, make sure you make an election to commute with your Force pensions administrator before your pension is due to come into payment. Also: Go on a PMM pre-retirement course. Assess how retirement will change your every day life. Make sure as far as you can that you are planning for a healthy retirement. Are you lining up a job after you retire? What volunteering or leisure activities will you want to do? 12
Preparing to manage finances after retirement Do you want to keep your lump sum for investment or do you have to clear debts? Have you got a strategy for your retirement income stream and level of savings throughout the stages you are planning for or may encounter? Active, still in work and earning money Active, not earning but going on Later retirement when you may not be so fit Managing your property and savings to guard you against: Inflation Financial down-turn Illness Your present house being too much for you to keep up Need for care Planning to pass on your wealth Inheritance tax Making a Will.* * Please note that advice given in relation to making a Will, is separate and distinct from those offered by Police Money Matters or St. James s Place. 13
Police Money Matters roadmap to successful retirement Our first contact will likely be your attendance at one of our highly informative retirement seminars. At that seminar we will discuss a wide range of retirement factors; the main factor is likely to be the substantial step change from full salary to half salary. Having attended one of our bespoke seminars we will arrange an initial meeting with you and your Spouse/Partner. The first meeting will be focused on establishing your current financial position and discussing your goals, aspirations and your ongoing lifestyle in retirement. Some of the things we will look at will include: Your Income and Outgoings. How your Income and Outgoings will change when you retire given the reduction in your household s income from salary to pension. Immediate lump sum expenditure such as; clearing your mortgage and other debts, much anticipated retirement holiday, home improvements, change of car etc. 14
Successful investment Successful investment is crucial to your financial wellbeing and has significant potential for increasing wealth. However, investing is inherently risky. Most investors accept that they need to take some risk in order to have the best chance of achieving their longer-term goals Therefore, when developing your investment strategy, it is important to understand the reason for making each investment, your capacity to withstand losses over both the short and longer term, and the extent to which you are prepared to risk such losses in return for the gains you might make. At St. James s Place our approach to investment advice is based around the following key principles: Ensure you have sufficient cash easily available to meet your short-term needs, including allowances for emergencies. Take a clear view of the timeframe for which you are able to invest your money. Don t overlook the impact that inflation can have on the spending power of your money. Spread your investment across a number of different asset classes and investment managers, to reduce the danger of all your investments falling in value at the same time. 15
Advice and recommendation After our initial meeting to identify yours financial goals and objectives we will meet to discuss our recommendation for the solutions that will best help you to achieve those goals and objectives. This may include: Income producing investments (such as Investment Bonds) that can be used as a secondary form of income and which could be added to your pension income in order to help you maintain your lifestyle throughout retirement. Investment for growth such as ISAs, Unit Trusts etc that can be used to help you achieve your medium to long term financial objectives and future financial security. Cash deposit accounts that give you instant access to your money at all times which could also be used to provide for any future emergencies or unexpected events that may arise. A financial plan to help you minimise the tax you pay. Policies that can be used for Inheritance Tax planning. Protecting your family in case of your premature death. 16
Ongoing regular client reviews Having put in place the solutions to achieve your financial goals we will agree an ongoing level of service specific to your requirements. This may include some or all of the following: Annual face to face review meetings. Online access to all your plans and fund values. Telephone access to your personal financial planner as needed. Regular updates on your plans via Wealth Account. Invitations to future seminars. Referral service should any of your friends or family require our expertise. 17
Annex A Opting out of the PPS I m thinking of opting out because of the cost of my contributions. I have not yet built up a full 30-year pension. Stopping your contributions now could turn out to be a false economy and a step you may come to regret later. If you opt out now you stand to lose the opportunity to get a pension of up to two thirds of your final pensionable salary. Depending on when you joined the service and your current age, you may lose the opportunity of retiring with an immediate pension, and instead have to wait for your pension to come into payment when you reach 50, or even 60 if you opted out with less than 25 years service. You will also lose the PPS safety-net of an enhanced ill-health pension should you be forced to retire because of disablement, and your family would not receive payment of a lump sum of twice your pensionable pay if you died in service. If you are still inclined to opt out make sure that the pensions administrator for your Force gives you a full briefing on the implications and of the risks you are taking. If go ahead with opting out, you can expect the pensions administrator for your Force to give you a declaration to sign to say that you have had the risks explained to you. What other issues should I bear in mind if considering opting out. You should give full weight to the following advantages of the PPS in taking your decision: security of benefits, value of pension benefit, value of a pension linked to final salary, 18
high level of employer s contribution, administrative costs, commission etc. SPECIFIC ISSUES IN DETAIL How much more salary will I get by opting out? If you stop paying pension contributions, please be aware that you will pay higher tax and National Insurance contributions. At the moment you pay contributions towards the cost of your pension rate (2012/13) being 13.5 % if pensionable income is between 27,000 and 59,999 and 14 % if pensionable income is 60,000 or more (less than 1p a week). In PPS, members contributions meet about 35% of the being met by police authorities and central government). Contributions are deducted from pay before it is assessed for INCOME TAX, so you will automatically receive full income tax relief at the highest rate of pay. In addition, as the scheme is contracted-out of the State Second Pension arrangements, you pay a lower rate of National Insurance Contributions. What are my pay and promotion expectations? Don t forget the link between your pension and your salary. Even if you have got 30 years pensionable service and cannot accumulate more disadvantages of your pension no longer increasing in line with your pay after you opt out. 19
Annex A continued... SPECIFIC ISSUES IN DETAIL If you were to opt out of the pension scheme, the level of your final pensionable pay used in the calculation of your pension on eventual retirement will be based on your salary at date of leaving the PPS as opposed to your actual leaving date. If you remain a contributor to the PPS, your final pensionable pay will increase annually in line with any increases to your salary (excluding nonpensionable allowances). If you stop paying contributions, your pension, which is being preserved for you, will be up-rated in line with inflation increases in the Consumer Prices Index (CPI). You will need to decide whether the amount of money saved by not paying contributions makes up for any increases in your pension that you forgo by losing the link to your salary. What is the risk of my being retired on grounds of ill-health? If you are assessed as permanently disabled for the ordinary duties of a member of the police force, the Police Authority for your Force has the discretion to retire you on medical grounds. If you have opted out of the PPS you will not be eligible for an ill-health pension. A member of the PPS with at least two years pensionable service you would be entitled to an immediate ill-health pension and lump sum. The ill-health pension is enhanced as follows: Pensionable Service 2 years to less than 5 years 5 to 10 years 10 to 13 years More than 13 years Ill Health Pension 1/60 per year (No enhancement) 2/60 per year 20/60 per year 7/60, plus 1/60 for each year up to 20 years pensionable service. 2/60 for each year over 20 years pensionable service up to the limit of 40/60. 20
If medically retired after opting out of the PPS, you would receive an immediate pension based on the PPS service you had built up and retained, provided you had at least two years service in the scheme. BUT your pension would not have the enhancements that you could have received with an ill-health pension. If medically retired after opting out with a full 30-year pension, your pension would be 40/60ths of your final pensionable pay, which is also the limit for an ill-health pension. BUT there may still be a difference in the amount of pension because of the size of your final pensionable pay as the result of opting out see above. In addition to the risk of a smaller pension than an ill-health pension, there is the risk of not having your pension index-linked (subject to annual rises to keep up with inflation). Unlike an ill-health pension, your pension (whether a full 30-year one or smaller) would not be index-linked unless and until you were: - either 55 years of age; - or assessed as being permanently disabled for regular full-time employment. 21
What is the risk to my family, should I die in service, in not receiving the PPS lump sum death grant? If you die in service when you have opted out of the PPS, no lump sum death grant is payable. I am concerned about this. Can I reduce that risk by taking out insurance? The PPS benefit is twice your pensionable pay at the time of death. This is a valuable benefit for your family, but it is possible to take out private insurance so that they still will receive a lump sum in the event of your death in service. It would be up to you to decide whether you would want to insure for the equivalent of that amount or for more. Unlike the lump sum death grant, a private insurance policy may exclude death as the result of police duty, or make such coverage more expensive. There is provision under the Police (Injury Benefits) Regulations 2006 for the Force to pay a lump sum if you should die as the result of an injury received without your default in the execution of your duty. Such a payment, if made, would be at least as much as the lump sum death grant and would not depend on your membership of the PPS, but it is not payable to your estate in the absence of a dependent spouse or civil partner etc, in the way that the lump sum death grant is. Before making a final decision, please check with the pensions administrator for your Force the details of the death gratuity, as it is called, since there may be gaps between what it would cover and what a personal policy would cover. It would be for you to decide whether any remaining gaps pose a risk which is acceptable. 22
Police Federation Northern Ireland Police Federation National Detective Forum CNC Welfare Ltd Scottish Police Federation Telephone: 0844 381 4280 Email: pmm@campbellfm.com Website: www.policemoneymatters.com Police Money Matters is a trading name of Campbell Financial Management and represent only St. James s Place Wealth Management plc (which is authorised and regulated by the Financial Services Authority) for the purpose of advising solely on the Group s wealth management products and services, more details of which are set out on the Group s website www.sjp.co.uk/products. GL7 1FP, United Kingdom. Registered in England Number 2627518. 2012 Police Money Matters. All rights reserved. Police Money Matters and the Police Money Matters Logo are trading styles of Police Money Matters Ltd.