PENSIONS GUIDE 2019/20 - puzzled by pensions?

 
PENSIONS GUIDE 2019/20 - puzzled by pensions?
puzzled by pensions?

PENSIONS GUIDE
2019/20
PENSIONS GUIDE 2019/20 - puzzled by pensions?
PENSIONS GUIDE 2019/20 - puzzled by pensions?
introduction

Usdaw believes that all of our members have the right to
a decent standard of living in retirement. For this we need
a fair pensions system where both state and company
pensions play a part.

                               We know that to achieve good
                               company pensions we need
                               activists who understand how
                               pensions work so that we can
                               get pensions onto the bargaining
                               agenda and encourage other
                               members to take advantage of their
                               employer’s scheme.
                               This guide aims to explain the
                               different types of pensions available
                               to Usdaw members and how they
                               work and to help you understand
                               the technical terms used by pension
                               schemes.

                               Paddy Lillis
                               Usdaw General Secretary

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PENSIONS GUIDE 2019/20 - puzzled by pensions?
Contents
    Introduction                                    1
    1. Occupational Pensions                        5
       Types of pension scheme                      5
       Defined Benefit (DB)                         6
       Defined Contribution (DC)                  10
       Hybrid schemes                              17
       Ill-health retirement                       17
       Salary sacrifice                            18
       Leaving a scheme early                      18
       Transferring your pension                  20
    2. State Pensions                             23
       State Pension reforms                      23
       Who will receive the new State Pension     23
       How much you will get                      24
       Starting amount from April 2016            25
       When you will receive your State Pension   25
       Topping up your State Pension              26
       Deferring your State Pension               26
       Claiming from your spouse/civil partner    27
       Pension Credit                             28
       State Pension increases                    28
       The Pension Service                        28

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PENSIONS GUIDE 2019/20 - puzzled by pensions?
3. Your Pension Rights                                                                                     31
   Auto-enrolment – new pension rights from 2012                                                            31
   Tax rules about pensions                                                                                33
   The Pensions Regulator                                                                                  36
   Trustees                                                                                                36
   Master Trusts                                                                                           38
   What happens if your employer becomes insolvent?                                                        38
   Buyouts of pension schemes                                                                              41
   Transfer incentives                                                                                     41
   Pension Increase Exchanges                                                                              42
   Consultation on changing or closing a scheme                                                            42
   Making a complaint against your pension scheme                                                          43
   Your right to information about your pension scheme                                                     46
   Pension rights for part-time workers                                                                    48
   Tracking down a lost pension                                                                            48
   Divorce                                                                                                 48
   Access to impartial guidance                                                                            49
   Getting financial advice                                                                                49
   Pension Scammers                                                                                        52
4. Usdaw and Pensions: What We Do                                                                          55
   Pensions Awareness Campaign                                                                             55
   Pensions Online Home Study Course                                                                       56
   Usdaw Pensions Website                                                                                  56
   Usdaw’s Pensions Team                                                                                   57
5. Useful Information                                                                                      59
   Useful contacts                                                                                         59
   Pension statistics                                                                                      60

 Disclaimer
 The content of this publication is intended solely for educational and general information purposes. It does
 not constitute any form of advice or recommendation by Usdaw and is not intended to be relied upon
 by users making (or refraining from making) any specific financial or other decisions. Usdaw has used its
 reasonable endeavours to ensure the information contained in this publication is accurate and error-free.
 However, Usdaw cannot warrant that the information does not contain inaccuracies or typographical errors.
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PENSIONS GUIDE 2019/20 - puzzled by pensions?
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PENSIONS GUIDE 2019/20 - puzzled by pensions?
1. occupational
   pensions
Since auto-enrolment was introduced in 2012 all Usdaw
members will work for companies which offer a workplace
pension scheme for them to join.
This section explains the different types of occupational
pensions as well as personal pensions.

Occupational pensions are set up       Types of pension scheme
by employers to provide pension
benefits for their employees.          There are three main types of
                                       occupational pension scheme:
Usually both the company and
the employee make contributions        — Defined Benefit – where the
into the pension scheme. It is           benefits payable to you are
the company contribution that            clearly defined in the scheme’s
gives occupational pensions the          rules and are calculated based
advantage over personal pensions         on your salary and length of
and other ways of saving. It is also     service. Contributions are paid
the reason why Usdaw believes            into and benefits are paid out of
that occupational pensions are the       one large pension fund.
best way of achieving a decent         — Defined Contribution (also
retirement income on top of what         called money purchase) – where
you get from the state.                  each scheme member has their
                                         own individual pension pot.
                                         In these schemes only the
                                         amount of contributions being
                                         paid by the company and
                                         employee are defined. The
                                         amount of pension you get
                                         depends on the size of
                                         your pension pot when you
                                         retire.
                                       — Hybrid Schemes – these
                                         schemes pay benefits which are
                                         a mixture of Defined Benefit and
                                         Defined Contribution.

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PENSIONS GUIDE 2019/20 - puzzled by pensions?
Defined Benefit (DB)                  Final Salary Schemes

    Defined Benefit pension schemes       Final salary schemes are one kind of
                                          Defined Benefit scheme. They pay
    are considered the best kind to be
    in. This is because your pension is   you a pension based on your salary
    calculated based on your salary and   in the last few years before you
    service which makes it relatively     retire (your final salary) and the
    easy to predict how much your         number of years you’ve been in the
    pension will be.                      scheme (your pensionable service).

    The pension benefits you build up     The rate at which your pension
    are guaranteed and the company        builds up is called the accrual rate
    carries the risk of having to pay     and it is normally expressed as a
    extra contributions if there is not   fraction. A typical accrual rate is
    enough money in the fund to pay       1/60th. If you paid into a 1/60th
    out all the benefits promised.        scheme for 30 years before you
    Company contributions to DB           retire then your pension would be
    schemes are often at least twice      30/60ths – or one half – of your
    what the employee pays.               final salary.

    DB schemes often come with a          Lower accrual rates produce a lower
    number of additional benefits for     pension. So in a 1/80th scheme you
    members such as:                      would need to pay in for 40 years
                                          to achieve a pension of half your
    — Pensions for your spouse/           final salary.
      partner after you die.
                                          Different schemes have a different
    — Pensions for dependent children     definition of what counts as
      after you die.                      pensionable salary. In some
                                          schemes it might be the whole of
    — A lump sum payment if you die
                                          your pay where in others it might
      before you retire.
                                          be basic or contractual pay only.
    — Enhanced pension if you retire
      early due to ill-health.
    You also have the option of
    exchanging some of your pension
    for a tax-free lump sum when
    you retire (this is called cash
    commutation).
    DB schemes are always governed
    by a board of trustees who are
    legally bound to act in the best
    interests of the scheme’s members
    (see the section on Trustees).

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PENSIONS GUIDE 2019/20 - puzzled by pensions?
Career Average Revalued Earnings         CARE schemes are usually more
(CARE) Schemes                           affordable for companies than
CARE schemes are another kind            final salary schemes because the
of Defined Benefit scheme. Your          value of the pension you have built
pension is based on your average         up in previous years is linked to
salary during the time you are in the    inflation increases rather than wage
scheme rather than your final salary     increases and, over time, inflation
at retirement.                           tends not to rise as fast as wages.
                                         Plus the inflation increases are
For every year you pay into the          usually capped at 5% a year or less,
scheme you build up – or accrue          which also helps to control the cost
– an amount of pension. The              of the scheme.
scheme’s accrual rate will either
be a fraction (like 1/80th) or a         CARE schemes might provide a
percentage (like 1.5%) of your           better pension if you are likely to
pensionable earnings for each year.      earn more in the middle years of
                                         your career rather than the final
The pension built up each year is        years or if you are going to switch
then increased (revalued) for every      from full-time to part-time hours
subsequent year up until you get         towards the end of your working
to retirement age. Usually, your         life. They may also be more suitable
pension is revalued in line with rises   if you work variable hours, which
in inflation using either RPI or CPI     is why CARE schemes were
as a measure.                            originally set up for retail workers
                                         at companies like Tesco and The
                                         Co-operative Group.
                                         Final salary schemes provide a
                                         higher pension for people who have
                                         one or more promotions in their
                                         career and whose highest earnings
                                         are in the last few years before
                                         retirement.

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PENSIONS GUIDE 2019/20 - puzzled by pensions?
Cash Balance Schemes                    Integrated Schemes
    Sometimes called Retirement             Some Defined Benefit schemes take
    Balance Schemes, these schemes          into account your State Pension
    have features typical of both           when working out your pension.
    Defined Benefit and Defined             Schemes that do this are referred to
    Contribution schemes but they           as being integrated with the State
    are not treated as being a hybrid       Pension system.
    scheme.
                                            Some integrated schemes will
    The benefit promised by the             apply a deduction to the amount
    company is a cash sum at                of your earnings which are treated
    retirement.                             as pensionable. This can reduce
                                            the cost of the scheme for both
    The value of the cash sum is
                                            the company and employees
    calculated as a proportion of your
                                            but is often unfair on the lowest
    earnings in each year that you have
                                            earners whose pensions are
    been a member of the scheme.
                                            disproportionately affected
    A typical cash balance scheme           compared to their higher paid
    might provide a cash sum worth          colleagues.
    20% of your earnings for each year
                                            Other schemes will apply a
    of pensionable service.
                                            deduction to your scheme pension
    So after 30 years you would have        when you reach your State Pension
    a cash sum of 30 x 20% = 600% of        Age.
    your earnings or, in other words, six
    years’ earnings.                        Paying for the benefits – valuations
    Cash balance schemes split risk         Employees pay a fixed contribution
    between the company and the             to the scheme but the company’s
    employee. The company takes on          contributions can vary from time
    the risk of funding the scheme –        to time because they must pay the
    making sure that there is enough        balance of the cost of providing the
    money in the fund to provide the        promised benefits.
    cash sum promised. The employee         All the contributions are paid into
    takes on the risk that the cash sum     a single fund and then invested in
    may not be big enough to provide a      a range of assets including stocks
    decent pension.                         and shares (equities), government
    From April 2015, if you are aged        bonds (gilts), commercial property
    55 or over, you have total freedom      or foreign currency.
    over how you take an income or a        The law requires every Defined
    lump sum from your cash balance         Benefit scheme to undergo a full
    pension pot.                            valuation every three years. The
                                            results of the valuation show how
                                            much the scheme’s assets are worth
                                            and how much its liabilities – the
                                            pension promises – are.

8
If a scheme’s assets are greater
than its liabilities then the scheme
is said to be in surplus. These days
though a valuation is more likely to
show that the liabilities are greater
than the assets – in which case the
scheme is said to be in deficit.        Additional Voluntary Contributions
When there is a deficit the company     Members of Defined Benefit
must increase the contributions         schemes usually have the option of
that it makes to the scheme to          paying extra contributions on top of
make up the shortfall. A recovery       their regular scheme contribution in
plan will be put in place where the     order to achieve a bigger pension
company promises to pay so much         and tax-free lump sum when they
extra money to the scheme over a        retire. These are called Additional
period lasting maybe 10 to 15 years     Voluntary Contributions or AVCs.
to eliminate the deficit.
                                        AVCs are provided on a Defined
Often after a valuation the company     Contribution basis where the money
will also increase the employees’       is paid into an individual pension
contribution rate to help reduce the    pot of your own, kept separate from
deficit. They may make changes to       the main pension fund.
the scheme or decide to close it.
                                        These days it is no longer
                                        compulsory for occupational
                                        pension schemes to provide a
                                        facility for members to pay AVCs.

                                                                               9
Defined Contribution (DC)                decent income when you retire. The
                                              company’s only concern is to pay
     Defined contribution schemes             the contributions promised in full
     are also called money purchase           and on time.
     schemes.
                                              From April 2015 you can choose to:
     Unlike Defined Benefit schemes
     where the amount of pension you          a. Take the whole of your pension
     get when you retire is predictable,         pot in one go, 25% tax-free and
     the only sure thing in a DC scheme          the rest taxed as income.
     is the amount of contributions           b. Take smaller lump sums, as
     being paid into your individual             and when, with 25% of each
     pension pot.                                withdrawal tax-free and the rest
     The contributions paid are invested         taxed as income.
     in line with investment choices          c. Take up to 25% tax-free and a
     that you make when you join the             regular taxable income from
     scheme. The value of your pot will          the rest. The regular income
     rise or fall from time to time in line      can be drawn directly from
     with investments you have made.             your pension pot which remains
     The size of your pension at                 invested (drawdown) or by
     retirement depends on lots of               buying a secure income for life
     different factors. These are just a         (annuity).
     few of them:                             Sometimes there might be
     — The amount of contributions            additional benefits for employees
       paid in.                               who join their company’s DC
                                              scheme such as a lump sum
     — The amount deducted from your          payment on death before
       pot in management charges.             retirement.
     — How successful your investment
       choices were in helping your pot       The shift from DB to DC
       to grow.                               Over the last ten years, as Defined
                                              Benefit schemes have become
     — How long your pot has been
                                              more expensive and risky to run,
       invested for.
                                              many employers have made the
     — What the economic conditions           switch from DB to DC. DC is more
       are like when you retire.              affordable because the company
                                              usually pays a smaller contribution.
     — If you are considering buying a
                                              Also, in a DC scheme the risk of
       regular income (an annuity) the
                                              adequately funding pensions lies
       cost of this when you retire.
                                              with the employee instead of
     In a DC scheme it is the employee        the company.
     who carries all the risks – the risk
                                              The first step was for companies
     that your investments might not
                                              to close their DB schemes to new
     do very well or that your pot might
                                              joiners and start a new DC scheme
     not be big enough to provide a
                                              for new employees to join.

10
More recently, companies have          — Death benefits – joining the
closed their DB schemes to the           company DC scheme should
existing members too and switched        entitle you to a lump sum
them over to DC. Sainsbury’s closed      payment on death before
its DB scheme to future accrual in       retirement.
2013 and Tesco, The Co-operative
                                       — Ill-health benefits – joining the
Group and Morrisons all closed their
                                         scheme should entitle you to
schemes in 2015.
                                         some kind of protection if you
                                         are forced to stop working due
What makes a good DC scheme?
                                         to ill-health.
The key to a good DC scheme is the
amount of contributions being paid     — Trust-based – your company’s
in – and in particular the amount        DC scheme should be managed
that the company pays.                   by a board of trustees who will
                                         act in the best interests of the
Some companies offer to match            scheme’s members, or they
whatever the employee contributes        should have an independent
up to a certain level. More generous     governance committee.
companies will offer to contribute
more than the employee or will         Personal and Stakeholder pensions
make a contribution even if the
                                       Personal pensions are also Defined
employee pays nothing themselves.
                                       Contribution type schemes. These
In Usdaw’s opinion a good DC           are pensions that you can set up
scheme looks like this:                yourself with a bank, building
                                       society or insurance company.
— Adequate contributions – our
  view is that a total contribution    The downside to taking out your
  of 15% of earnings is needed to      own Personal pension compared to
  achieve a decent pension with        joining an occupational pension is
  10% paid by the company and          that there is no contribution from
  5% by the employee. The longer       your employer.
  contributions are paid the better.
                                       Also, the management charges in
  This is why it is important that
                                       Personal pensions tend to be higher
  we encourage young people
                                       than they are in company schemes.
  to join their workplace pension
  schemes as soon as they can.         Stakeholder pensions were
                                       introduced in 2001 as a more
— Pensionable earnings –
                                       affordable alternative to Personal
  contributions should be paid
                                       pensions. Stakeholder pensions
  on the whole of your earnings
                                       have to meet the following
  and not limited to basic pay or a
                                       standards:
  band of earnings.
                                       — A maximum annual management
— Low charges – if your DC
                                         charge of 1.5% dropping to 1%
  scheme deducts management
                                         after the policy is ten years old.
  charges from your pot these
  should be kept to a minimum
  (see the section on Charges).
                                                                              11
— A minimum contribution of £20       Making your investment choices
       a month.                            The contributions you and your
     — No charges for transferring         employer pay into your Defined
       your Stakeholder pension into       Contribution pension are invested
       another pension scheme.             in line with choices you make when
                                           you first join the scheme. The size
     — Offers you a default investment     of the pension you get from a DC
       option (see ‘Making your            scheme is largely influenced by how
       investment choices’).               successful those investments are in
     In recent years, companies have       growing the value of your pot.
     appointed a pension provider          The most common types of
     (usually an insurance company) to     investment fund you are asked to
     provide a Personal or Stakeholder     choose from when you join a DC
     pension for their employees rather    pension scheme are:
     than set up their own scheme.
     These arrangements are usually        — Stocks and shares (equities)
     called Group Personal Pensions or       in companies based in the UK
     Group Stakeholder Pensions.             or overseas. These are usually
                                             the most high risk investment
     Although your employer might            because the value of stocks and
     offer to make contributions to a        shares rise and fall on a daily
     Personal or Stakeholder pension for     basis. The trade off though is
     you, strictly speaking they are not     that, over a long period of time,
     occupational pension schemes.           investing in equities can produce
     Unlike an occupational scheme           the highest returns.
     set up by your employer, Personal     — Government bonds (gilts) are
     and Stakeholder pensions are            issued by the UK and overseas
     not governed by a formal board          governments who will pay a
     of trustees who act in the best         fixed amount of interest on
     interests of the scheme’s members.      them over a fixed period of
     Instead you are entering into a         time. Investing in bonds is less
     contract with an insurance company      risky than investing in equities
     exactly the same as if you had set      although the trade off is that
     the pension up on your own.             they may produce a lower
     The only differences are that your      return.
     employer is contributing too and      — Corporate bonds are essentially
     because the pensions have been          the same as government bonds
     arranged on a group basis to cover      but issued by companies instead
     the whole workforce the charges         of governments. Corporate
     are usually lower.                      bonds are a higher risk
                                             investment than government
                                             bonds because companies
                                             go bust more frequently than
                                             governments do.

12
— Investing in property – usually      In the lifestyle fund you are
  commercial property – is less        effectively leaving the investment
  risky but will produce a lower       decisions to the experts. They
  return.                              will start by investing your money
                                       in higher risk funds like equities
— Cash funds invest in bank
                                       which are expected to produce
  and building society deposits
                                       the highest returns. As you get
  and are one of the least risky
                                       closer to your retirement age they
  investments although they will
                                       will automatically switch your
  produce a far lower return.
                                       money into lower risk/lower return
The paperwork you get from the         investments like bonds and cash.
pension scheme when you join will      The idea is to try to make sure that
normally categorise the investment     there are no nasty surprises as you
choices as being high risk, medium     get closer to retirement such as a
risk or low risk.                      sudden drop in the value of your
                                       pot.
Even though you can change your
investment choices from time           Lifestyling may be suitable for you
to time, most people don’t feel        if you are intending to purchase an
confident making the decisions         annuity when you retire (ie swap
themselves. Because of this, most      your pension pot for a regular
pension schemes offer you a default    income for the rest of your life).
investment choice – usually called a   However, if you are considering
lifestyle fund.                        keeping your pension pot invested
                                       and to drawdown your income as
                                       and when, this may not be suitable.
                                       This is because moving your
                                       pension fund to less risky assets
                                       is likely to reduce the investment
                                       returns you will receive.

                                                                              13
Charges                                 Annuity rates change on an almost
     Personal pensions, which are            daily basis and can be influenced by
     usually provided by an insurance        a number of different factors. These
     company, carry an Annual                are just a few:
     Management Charge. This is the          — Interest rates – annuity rates
     pension provider’s fee for work           are less generous at times
     involved in handling and investing        when interest rates are low and
     your contribution money. The              become more generous at times
     AMC is usually expressed as a             when interest rates are higher.
     percentage which is deducted from
     the value of your pot every year.       — Life expectancy – how much
                                               income an insurance company
     Don’t underestimate the impact            is prepared to pay you depends
     high charges can have on a pension        on how long they think you are
     pot. A 1% charge might seem low           going to live for (in other words
     but if you are paying money in over       how long they are going to be
     25 years this means that you are          paying you for).
     having 25 x 1% = 25% of your money      — Where you live – insurance
     deducted in charges in that time.         companies can determine how
     Employers are usually able to             long they expect you to live by
     negotiate lower charges with their        your postcode. People who live
     chosen pension provider.                  in low income areas are likely to
                                               get a better annuity than people
     In April 2015 the Government              who live in higher income areas.
     introduced a cap on member
                                             — Your health and lifestyle –
     charges of 0.75% on the ‘default
                                               smokers may get a better
     funds’ available in Defined               annuity than non-smokers and
     Contribution schemes used to              people with serious health
     comply with the auto-enrolment            problems may also be offered a
     rules.                                    better rate.

     Annuities                               — Your age – naturally the younger
                                               you are when you choose to
     If you have pension savings in a          buy an annuity then the longer
     Defined Contribution scheme,              it is expected to be paid to you
     one of the options available to           for, which is going to result in a
     you at retirement is to convert           lower rate.
     your savings into a secure regular
     income, payable to you for the rest     Annuities can be tailored to suit
     of your life – in other words you can   your own personal circumstances.
     purchase an annuity.                    You can usually decide whether
                                             you want your annuity to increase
     Insurance companies sell annuities      in payment or not or whether you
     and set annuity rates – that is the     want to provide an income for your
     amount of income that they are          spouse/partner if you die before
     prepared to pay you in exchange         them.
     for your pension pot.

14
You have the right to ‘shop around’
for an annuity, so you don’t have to
accept the quotation which your
pension provider sends you.
Many people are unaware of this
option, which is known as the Open
Market Option. By shopping around
you can sometimes increase your
income in retirement by up to 40%.
Following the new choices available
from 2015 it is anticipated that
fewer people may want to purchase
an annuity.

Access to impartial guidance
From April 2015, the Government
has provided free guidance to
help individuals to understand
their options at retirement. For
more information please refer to
the section on ‘Access to impartial
guidance’ on page 49.
Alternatively, for more information
about the pension changes
please contact Usdaw’s Pensions
Department on 0161 224 2804.

Defined Benefit v Defined
Contribution
The table on the next page
highlights how the two main types
of pension compare with each
other.

                                       15
Defined Benefit                    Defined Contribution
     You know how much pension you         The size of your pension can’t
     will get – your pension is worked     be predicted – you know you are
     out based on your salary and          going to get some pension but
     service so you have a good idea of    the amount depends on a number
     how much it will be.                  of factors and can’t be accurately
                                           predicted.

     Your employer carries all the risks   You carry all the risks – if average
     – the risk that people live for       life expectancy goes up or the
     longer and pensions have to be        stock markets go down then it is
     paid for longer or that there isn’t   up to you to make up any drop in
     enough money in the fund to pay       the value of your pension pot.
     all the benefits promised.

     Your pension is linked to your        The size of your pension pot can
     earnings – your pension will be       vary depending on a number of
     worked out as a proportion of         factors:
     either your final salary or career    — How much you and your
     average earnings.                        employer paid in.
                                           — How much was deducted in
                                              charges.
                                           — Investment performance.
                                           — How long your money was
                                              invested for.
                                           — Economic conditions when you
                                              retire.
                                           — How you wish to access your
                                              savings when you retire.

     Additional benefits – DB schemes      No additional benefits – DC
     usually pay a lump sum on death,      schemes rarely come with
     pensions for your spouse/partner/     additional benefits.
     dependent children on death
     and ill-health pensions.

     Larger employer contributions –       Smaller employer contributions
     your employer is likely to pay at     – in the average DC scheme the
     least double what you contribute      employer will match your own
     to a DB scheme to meet the cost       contribution up to a certain level.
     of the benefits.                      In the best DC schemes the
                                           employer pays a better-than-
                                           matching contribution.

     At retirement you will have the       From April 2015 if you are 55 or
     option of taking a pension or a       over you will have total freedom
     reduced pension and a tax-free        over how you take an income or a
     lump sum, which is paid out of        lump sum from your pension pot.
     one large pension fund.
16
Hybrid schemes                          Ill-health retirement
Hybrid schemes offer benefits           Most occupational pension schemes
which are a mixture of Defined          – particularly Defined Benefit
Benefit and Defined Contribution.       schemes – provide a pension if you
                                        are forced to retire early due to
For example, a hybrid scheme
                                        ill-health.
might make you a salary-related
pension promise (Defined Benefit)       The pension scheme will only pay
but at the same time keep track of      you an ill-health pension if your
a notional individual pension pot for   condition is permanent and usually
you (Defined Contribution). If, when    only if your condition prevents you
you retire, the notional pension pot    from taking on any other job in
will produce a higher pension than      future.
the salary related promise then the
                                        Other schemes may offer a lower
Defined Contribution benefit will
                                        ill-health pension in cases where
apply. This is called a DC underpin
                                        you can no longer carry on doing
scheme.
                                        your job for your current employer
Other kinds of hybrid scheme will       but you might be able to do a
pay benefits on both a DB and DC        different job somewhere else.
basis. For example:
                                        Medical evidence of your incapacity
— Transfers into a DB scheme            will be needed and the pension
  may have been used to provide         scheme trustees will want proof
  extra benefits on a DC basis.         that your condition is permanent.
  Nowadays however, it is unusual       Sometimes the company’s consent
  for any DB scheme to accept a         is needed as well as the trustee’s.
  ‘transfer-in’ from an alternative
                                        In cases where the trustees have
  arrangement.
                                        turned you down for an ill-health
— Schemes which offer members           pension it is usually difficult to
  a choice between DB and DC            challenge their decision unless it
  sections.                             can be proved that they acted in an
                                        unreasonable way when arriving at
— Additional Voluntary
                                        their decision.
  Contributions to a DB scheme
  provided on a DC basis.               Some employers, instead of
                                        providing ill-health pensions,
— Schemes which pay DB benefits
                                        may set up a Permanent Health
  on earnings up to a certain level
                                        Insurance policy with an insurance
  and DC on all earnings above
                                        company that will pay you an
  that level.
                                        income whilst you are off sick.
                                        Some policies will provide cover
                                        up until your normal retirement

                                                                              17
date and some may restrict cover        designed to save money for both
     for a specified amount of time,         you and your employer by reducing
     for example three years. Some           the amount of National Insurance
     companies will provide a Critical       contributions you have to pay.
     Illness policy. Also taken out with
                                             You give up or ‘exchange’ an
     insurance companies these policies
                                             amount of your wages equal to the
     are usually more affordable for
                                             amount you regularly pay into the
     employers because they only pay
                                             pension scheme. Your employer
     out a lump sum in cases of the most
                                             pays your pension contribution for
     serious illnesses such as stroke or
                                             you as well as their own. Because
     cancer.
                                             NI contributions would normally be
                                             payable on the amount of wages
     Access to Medical Reports Act
                                             that you have given up, both you
     1988
                                             and your employer save money.
     Your employer, pension scheme or
     insurance company cannot apply          These arrangements have become
     to your own doctor for a medical        more common over the last few
     report about you without first          years as companies look for ways
     notifying you and telling you what      to reduce the amount they spend
     your rights are under this Act.         on pensions. Sometimes they are
                                             given a different name like SMART
     You have the right to see the report    Pensions.
     free of charge before it is sent. You
     can have your own copy of the           Usdaw has a factsheet about salary
     report for a reasonable charge. If      sacrifice. You can download it from
     you think anything in the report is     the Usdaw website or order it from
     inaccurate or misleading then you       the Union’s pensions team.
     can ask the doctor to change it.
                                             Leaving a scheme early
     If the doctor won’t change it then
     you can attach a statement to the       If you leave your company pension
     report giving your own opinion.         scheme before retirement age there
                                             are a number of options available
     The Act only applies to reports
                                             to you depending on what kind of
     requested from your own doctor
                                             pension scheme you are in and how
     and not to reports obtained from
                                             long you have been in it for.
     independent or company doctors.
     We advise you to make sure you          Occupational Defined Contribution
     ask for your own copy of any            (DC) schemes
     medical report made about you.          If you were paying into your
                                             employer’s occupational DC
     Salary sacrifice
                                             scheme prior to October 2015, for
     Salary sacrifice or salary exchange     less than two years you could still
     is an alternative method of paying      qualify for a refund of your own
     your regular contribution to the        contributions less tax.
     company pension scheme. It is

18
However, since October 2015           Refunds
members of Occupational DC            At some companies where salary
schemes may only have their           sacrifice arrangements have been
contributions refunded if they        introduced and you no longer pay
leave or opt out within the first     your own pension contribution then
30 days of joining the scheme.        the option of a refund may not be
Alternatively, your options on        available.
leaving are:                          Refunds cannot be paid if you have
— A deferred pension – the            transferred pension rights into the
  pension rights you have built up    scheme from a previous pension.
  so far remain in the scheme and     Refunds cannot be paid from
  are paid to you when you reach      Personal or Stakeholder pensions.
  retirement age.
— A transfer of your pension rights   Early retirement
  into another registered pension     If you are 55 or older you can apply
  scheme.                             to the pension scheme to start
                                      drawing your pension benefits
Defined Benefit (DB)                  immediately.
If you were contributing for less     Early retirement usually needs the
than two years but more than three    agreement of both the pension
months:                               scheme trustees and your employer.
— A refund of your own                Also, pensions paid early will usually
  contributions minus tax.            be reduced because they are going
— A transfer of your pension rights   to be paid for longer.
  into another registered pension
  scheme (including the value of      Personal and Stakeholder Pensions
  the contributions your employer     If you contributed to a Personal or
  made for you).                      Stakeholder pension provided by
                                      your employer then you have the
If you were contributing for less
                                      following options if you leave your
than three months you will usually
                                      job before retirement age:
be given a refund of your own
contributions minus tax.              — Stop contributing and leave your
                                        pension pot invested until you
If you were contributing for more
                                        are ready to start drawing your
than two years, your options on
                                        pension.
leaving are:
                                      — Arrange with the pension
— A deferred pension – the
                                        provider to carry on contributing
  pension rights you have built up
                                        to your pension either on a
  so far remain in the scheme and
                                        regular or one-off basis – but
  are paid to you when you reach
                                        obviously you will no longer
  retirement age.
                                        receive employer contributions
— A transfer of your pension rights     towards it.
  into another registered pension
  scheme.
                                                                               19
— If you are 55 or older you will      Transferring your pension
       have total freedom over how you
       take an income or a lump sum         It is usually possible for you to
       from your pension pot.               transfer pension rights from one
                                            scheme to another. There are a
     — If you start a new job with          number of reasons why you might
       a company that offers you            want to do this:
       membership of their pension
       scheme then you might be able        — You might believe that you
       to transfer your pension from          can get a bigger pension by
       your previous job into the new         transferring to a new scheme.
       scheme.                              — The benefits in your old scheme
                                              may not suit your personal
     Group Personal Pension Schemes           circumstances – for example, if
     (GPPS) and Group Stakeholder             your old scheme pays a pension
     Pension Schemes (GSPS)                   on death to your spouse/partner
     You will be entitled to the same         but you are single.
     options as before for Personal         — You might not be happy with the
     pensions or Personal Stakeholder         investment performance of your
     pensions.                                old scheme and think that your
     However, if you were automatically-      money will be better invested in
     enrolled into either a GPPS or           a new scheme.
     GSPS and you opt out or leave the
     company within 30 days you will be
     eligible to receive a refund of your
     contributions.

20
— You might want to merge             Transferring pension rights out
  several small pension pots from     of a Defined Benefit scheme is
  different jobs into one large pot   more complicated. The scheme’s
  for convenience or to pay lower     actuary works out the cost to the
  charges.                            scheme of paying your pension
                                      at your retirement age and this
— If you have a DB pension, the
                                      is the amount of money that is
  new rules introduced in April
                                      transferred.
  2015 do not apply. You might
  therefore want to transfer to a     Transferring pension rights out of
  DC pension pot to access the        a DB scheme is risky. If you are
  new DC choices.                     transferring into a DC scheme then
                                      you lose all guarantees about what
Whatever your reason, we advise
                                      your pension rights will be worth
you to get independent financial
                                      when you retire – they may be
advice because transferring
                                      worth more or less.
pensions can be complicated and
there is a risk that you might lose   If you are a member of a DB
money.                                scheme and the value of your
                                      benefits is more than £30,000, you
There has also been an increase
                                      are required to take advice from
in pension scammers and it is of
                                      an Independent Financial Advisor
paramount importance that you
                                      (IFA). The IFA will check that the
seek the advice of a registered
                                      transfer value you are offered
Independent Financial Advisor
                                      represents good value and the
(see the section on Getting
                                      transfer is in your interests.
financial advice).
                                      If your previous employer’s DB
Transfers between Defined
                                      scheme is currently underfunded
Contribution schemes are usually
                                      then the trustees can restrict your
straightforward. Your old pension
                                      transfer amount. For example, if the
provider disinvests your pension
                                      scheme is only 80% funded then
pot and pays the value to the new
                                      they might only pay 80% of your
pension provider who reinvests the
                                      full transfer value.
money. The risk is that there is a
delay between the disinvestment       Transfers into a DB scheme are
and the reinvestment of your          now very rare. Trustees of DB
money, which causes you to lose       schemes are reluctant to take on
out.                                  extra liabilities which might end up
                                      costing the scheme money and so
                                      they usually ban any transfers into
                                      the scheme.

                                                                             21
22
2. state
   pensions
This section explains your State Pension, which is a regular
payment from the Government that you can claim when you
reach your State Pension Age.
Your State Pension is important because it forms the
foundation of your retirement income.

To qualify for a State Pension        For an introduction to the new
you must have paid or been            State Pension please access
credited with National Insurance      the link www.usdaw.org.uk/
contributions.                        StatePensionChanges
The State Pension was reformed on     To find out your State Pension
6 April 2016 and this section looks   Age go to www.gov.uk/
at what the changes mean, who is      calculate-state-pension
entitled to them and when they are
payable.                              Who will receive the new
                                      State Pension
State Pension reforms
                                      The new State Pension was
The State Pension changed on          introduced for people who reach
6 April 2016.                         State Pension Age on or after
The State Pension is a regular        6 April 2016.
payment from the Government           You will be affected by the changes
which you can claim when you          if:
reach your State Pension Age.
                                      — You are a man born on or after
Not everyone has the same State         6 April 1951.
Pension Age and not everyone will
receive the same amount of State      — You are a woman born on or
Pension.                                after 6 April 1953.

Your State Pension Age depends on     If you were born before these
when you were born and how much       dates you will not be affected and
you receive will depend on your       will continue to receive your State
National Insurance record.            Pension under the current scheme
                                      rules.

                                                                            23
How much you will get                    If you do not have the maximum
                                              amount of Qualifying Years and
     Existing pensioners                      you were contracted out of the
                                              additional State Pension prior to
     If you have already reached your
                                              6 April 2016 (or both), your ‘starting
     State Pension Age and you are in
                                              amount’ will be less than the full
     receipt of your State Pension you
                                              new State Pension.
     will continue to receive this in line
     with the present rules. You will
                                              Qualifying Years
     continue to get both your Basic
     State Pension and any additional         From April 2016 you will need 35
     State Pension (this could be State       Qualifying Years to get the full
     Graduated Pension, SERPS or State        amount of the new State Pension.
     2nd Pension) which you are entitled      Furthermore if you reach State
     to. This will also apply to anyone       Pension Age after April 2016, for
     who has reached their State Pension      the first time, you will need to have
     Age on or before 6 April 2016.           a minimum of 10 years National
                                              Insurance contributions or credits
     Furthermore, if your current             to qualify for a State Pension.
     pension entitlement is more than
     the new full single tier pension, your   Contracting Out
     pension will NOT be reduced.
                                              If you have previously been a
                                              member of a workplace pension
     New pensioners
                                              scheme which was ‘contracted-out’
     For any man born on or after             of the State Additional pension,
     6 April 1951 and any woman born          (you will have paid reduced rate
     on or after 6 April 1953 you will        National Insurance to enable you
     be affected by the reforms and           to contribute to your workplace
     your pension will be calculated in       pension) there is a possibility
     accordance with the new rules.           that you will not qualify for the
     The full level of the new State          full amount of the new single tier
     Pension will be £168.60 each             pension. (This will depend on how
     week however, not everyone will          long you were contracted out for).
     automatically qualify for this
     amount.
     The amount you receive will be
     based on your National Insurance
     record.
     Your new State Pension will be
     based on how many ‘Qualifying
     Years’ you have on your National
     Insurance record and whether you
     have previously been ‘contracted-
     out’ of the additional State Pension
     at any time prior to 6 April 2016.

24
Starting amount                        When you will receive
from April 2016                        your State Pension
From April 2016 the Government         You can only claim your State
will look at how many existing         Pension when you have reached
Qualifying Years you have and if       your State Pension Age and this will
you have a contracting out record,     depend on your date of birth.
which will determine your ‘starting
                                       Historically the State Pension was
amount’.
                                       60 for women and 65 for men. This
If your starting amount is less        started to change in April 2010 as
than the new full State Pension of     women’s State Pension Age began
£168.60 a week, each qualifying        to increase – in stages from 60 to
year you add to your National          65 to bring them in line with men.
Insurance record, after April 2016,
                                       Between 2018 and 2020 men’s and
will start to build up an additional
                                       women’s State Pension Age will
amount up until you reach the full
                                       increase from 65 to 66 and from
level of the new State Pension or
                                       2026 to 2028 the State Pension
when you reach your State Pension
                                       Age will rise to 67 for everyone.
Age – whichever happens first.
                                       The Government announced that
If your starting amount is more
                                       it will review the State Pension
than the full State Pension you will
                                       Age every five years. The review
receive this higher amount when
                                       published in 2017 recommended
you reach State Pension Age. This
                                       that the State Pension Age should
will occur if you have built up a
                                       be increased to age 68 for all
certain amount previously in the
                                       between 2037 and 2039.
additional State Pension.

                                                                              25
If you do not qualify for the new
                                           full State Pension there are ways in
                                           which you can increase it up to the
                                           full amount:
                                           — You can continue to work
                                             and pay National Insurance
                                             contributions up to your State
                                             Pension Age and this will boost
     Topping up your                         your starting amount from
     State Pension                           6 April 2016.

     The new State Pension won’t be        — You may find that you have
     the same for everyone. What you         gaps in your National Insurance
     get will be based on your National      record and you may be eligible
     Insurance record.                       to claim credits for these.

     From 6 April 2016, for the first      — You can elect to pay voluntary
     time you will also need a minimum       National Insurance contributions
     of at least 10 Qualifying Years to      to increase your State Pension.
     be eligible to receive any State      — If you have already reached
     Pension.                                your State Pension Age you can
     You can get a new online State          delay claiming your pension and
     Pension statement at www.gov.uk/        over a period of time your State
     state-pension-statement You can         Pension will increase in value.
     also complete Form BR19 if you
                                           Deferring your State Pension
     are unable to access this online.
     Contact the Future Pension Centre     You don’t have to claim your State
     on 0800 731 0175 for a form. This     Pension as soon as you reach State
     will estimate what your new State     Pension Age.
     Pension will be based on your
                                           You can delay (or defer) claiming
     National Insurance contributions
                                           your State Pension which means
     to date. This will be your starting
                                           that you will get extra State
     amount in the new system.
                                           Pension when you do claim it. The
     In most cases this is the lowest      extra amount will be paid as extra
     amount you could expect to receive    pension (not as a lump sum) but
     at your State Pension Age.            remember it may be taxable.

26
How much extra pension depends          Inheriting State Pension from your
on how long you delay claiming it.      husband/wife or civil partner
The longer you leave it the more        You may be able to inherit an extra
you will get.                           payment on top of your new State
You will need to delay at least         Pension if you are widowed or a
nine weeks – your State Pension         surviving civil partner. The extra
will increase by 1% for every nine      payment may consist of additional
weeks that you put off claiming.        State Pension or a ‘protected
This works out at just under 5.8%       payment’ (if any).
for every full year that you put off    This will depend on whether the
claiming.                               deceased:
After you claim, the extra amount       — Reached State Pension Age or
you receive will usually increase         died before 6 April 2016; or
each year in line with inflation.
                                        — Died under State Pension Age
Claiming from your spouse/                after 5 April 2016.
civil partner                           You might also be able to inherit
                                        extra State Pension or a lump sum
Receiving State Pension from your       payment if your late spouse or civil
husband/wife or civil partner           partner reached State Pension Age
If you reach State Pension Age on       before 6 April 2016 and put off
or after 6 April 2016, your State       claiming their State Pension.
Pension will be based on your
National Insurance record only.         If you remarry or form a new civil
There is one exception to this –        partnership
if you are a married woman or           If you are under State Pension
widow who has opted to pay              Age you won’t be able to inherit
reduced rate National Insurance         anything from your deceased
contributions. This is called a         spouse or civil partner if you
Reduced Rate Election (or perhaps       remarry or form a new civil
most commonly known as ‘Married         partnership before you reach
Women’s Stamp’).                        State Pension Age.

If you made this choice in the past     If you get divorced or dissolve
you may get a new State Pension         your civil partnership
based on different rules, if these
will give you more than the amount      The courts can make a ‘pension
of the new State Pension that you       sharing order’ if you get divorced
would have otherwise got from           or dissolve your civil partnership. If
your own National Insurance record.     this happens the court can decide
                                        if you must share your additional
If these rules do apply to you, you     State Pension or protected
will not need the qualifying 10 years   payment with your former
of your own in order to get any         husband, wife or civil partner.
State Pension.

                                                                                 27
Your State Pension will be reduced      Triple Lock Guarantee
     accordingly and your former             Your State Pension should increase
     husband, wife or civil partner          each year by the highest of:
     will get this amount as an extra
     payment on top of their State           — Inflation (Consumer Prices
     Pension.                                  Index); or
                                             — National Average Earnings; or
     Pension Credit
                                             — 2.5%.
     If you only qualify for a small
     amount of State Pension or no
     State Pension at all, you may be        Getting a State Pension Statement
     eligible to claim Pension Credit.       The application for a State Pension
                                             Statement is called BR19 and we
     Pension Credit is an income-related     would encourage all our members
     benefit that tops up your weekly        to apply for this Statement so that
     income to a guaranteed minimum          they have an expectation of what
     amount if you have reached the          they might receive once they have
     Pension Credit qualifying age. If you   reached their State Pension Age.
     are a couple, the amount you get
     will depend on your joint income        The Statement will also help
     and capital (this will include your     identify if there are any current
     savings and investments).               gaps in your National Insurance
                                             records so that you can challenge
     State Pension increases                 whether this is correct and if so, you
     Every year your new State Pension       can consider how the shortfall can
     should go up in line with the           be addressed by paying additional
     triple lock guarantee until 2022        voluntary NI contributions.
     (the date scheduled for the next        The Pension Service
     General Election), and at least with
     the growth in average earnings          The Pension Service is part of the
     thereafter.                             Department for Work and Pensions
                                             and provides customers with
     If you have extra State Pension         pensions, benefits and retirement
     or a Protected Payment (over the        information. They can:
     full State Pension entitlement of
     £168.60) it will not increase at        — Work out the amount of State
     the same rate. This part of your          Pension and Pension Credit that
     State Pension will increase in line       you are entitled to.
     with inflation (Consumer Prices         — Pay your entitlements to you
     Index-CPI).                               and answer your questions over
     If you live outside the UK, your new      the phone, by post or by email.
     State Pension may not go up every       — Tell you how to access other
     year.                                     pension-related entitlements
                                               and services.

28
The Pension Service has a network
of pension centres supported by a
local service.
For more information search for the
Pension Service at www.gov.uk or
phone the national helpline on
0800 731 7898.

More Information
For more information on all these
issues go to www.usdaw.org.uk/
pensions

                                      29
30
3. your pension
   rights
This section explains some of the laws which govern our
pensions system (pensions laws, tax laws and employment
laws), the organisations which have a role to play in the
system and the rights you have as a member of a pension
scheme.

Auto-enrolment – new                    Employers must tell their employees
pension rights from 2012                about the pension scheme, deduct
                                        contributions from wages and
Since 2001 the only legal obligation    forward those contributions to the
on employers to provide pensions        pension scheme within statutory
was a requirement for them to           timescales.
choose a Stakeholder pension for
their employees to pay into.            Most Usdaw members already
                                        have the opportunity to join a
This rule only applied to employers     pension scheme which meets the
who employed five or more people        minimum standard. At the moment
and there was no requirement            it’s up to you whether you join or
for the employer to pay into the        not. Following the 2012 reforms, if
Stakeholder pension themselves.         eligible, you will be automatically
However, new laws were introduced       enrolled into your employer’s
in 2012 that now affect all employers   pension scheme with the option
and give workers a new set of           to opt out of it if you want to.
pension rights.                         Auto-enrolment has been
                                        described as the most radical
Auto-enrolment                          change for working people since
Between 2012 and 2017 all UK            the introduction of the National
employers started automatically         Minimum Wage and it will help
enrolling their employees into a        millions of workers on low to middle
workplace pension scheme of a           incomes to save for retirement.
minimum standard. This is called        Usdaw supports auto-enrolment as
auto-enrolment.                         it helps thousands more workers to
Also, for the first time employers      save for retirement who otherwise
must make a compulsory minimum          might not have done so.
contribution towards their
employees’ pensions.
                                                                               31
Who qualifies?                        When did auto-enrolment start?
     If you are not already paying into    The timetable for employers to
     your employer’s pension scheme        stage for auto-enrolment started to
     then you will qualify to be auto-     take place over a five year period
     enrolled if you meet all of the       between October 2012 and October
     following criteria:                   2017.
     — You are between age 22 and          Every employer has a staging, ie a
       State Pension Age.                  start date, by which they must have
                                           begun auto-enrolment. The start
     — You earn more than the
                                           date is based on how many people
       minimum earnings threshold,
                                           they employ. The process started
       which is currently £10,000 a
                                           with the biggest employers and left
       year (£192.00 a week).
                                           the smallest until last.
     — You work in the UK.
                                           The Pensions Regulator will notify
     You can opt out of auto-enrolment     every employer of their start date 12
     but your employer will have to keep   months in advance.
     re-enrolling you every three years
     until you reach State Pension Age.    Auto-enrolment     Number of
                                           start date         employees
     Young workers aged between 16
     and 22 and older workers aged         October 2012       120,000 or more
     between State Pension Age and
                                           November 2012      10,000 – 120,000
     75 don’t have to be auto-enrolled
                                           – March 2013
     but can opt in and are entitled
     to the same employer pension          April 2013       1,250 – 9,999
     contribution as everybody else.       – September 2013
     People currently earning between      October 2013       250 – 1,249
     £6,136 and £10,000 a year don’t       – February 2014
     have to be auto-enrolled but can
                                           April 2014         50 – 249
     opt in and are entitled to the same
                                           – April 2015
     employer pension contribution as
     everybody else.                       June 2015          Less than 50
                                           – April 2017
     People earning less than £6,136
     a year don’t have to be auto-         May 2017         New employers
     enrolled. You can opt in but your     – September 2017 set up between
     employer does not have to make a                       April 2012
     contribution for you.                                  and 2017
     The earnings thresholds above are     October 2017       New employer
     reviewed by the Government every      onwards            set up from
     year.                                                    October 2017

32
Minimum pension scheme                 In simple terms, in general any
standards                              part of an employee’s income that
The new minimum standard               is paid into a registered pension
of workplace pension will be a         scheme is untaxed, with the amount
Defined Contribution scheme with       that would have been taken in tax
a minimum total contribution of        instead going into the pension
8% of your wages from April 2019.      scheme.
Your employer will be required to      For basic rate taxpayers this means
contribute a minimum 3% of the         that every £1 you pay into your
total 8%.                              pension only costs you 80 pence.
Contributions only have to be          Before April 2006 you weren’t
deducted from a band of earnings       allowed to contribute more than
– currently between £6,136 and         £15,000 a year towards a pension.
£50,000 a year.
                                       This limit was abolished and
Basic pay, commission, overtime,       replaced with an Annual Allowance
bonus, statutory maternity,            and a Lifetime Allowance. These
paternity and adoption pay must        new allowances only really affect
count towards pensionable pay.         very high earners.
Contributions don’t have to be split   The Lifetime Allowance is the
this way. Your employer might offer    amount of pension benefits that
to pay more than the minimum or        you can build tax-free over your
even pay the whole contribution.       working life. The Lifetime Allowance
Similarly, you can pay more than the   is currently £1,055,000 (2019/20).
minimum employee contribution if
you want.                              The Annual Allowance is the
                                       amount of pension benefits you can
Usdaw has a separate guide on          build up with tax relief in a single
auto-enrolment which you can           tax year. The Annual Allowance is
download from the Usdaw website        currently £40,000. From 6 April
or order from the Union’s pensions     2016 those with an income of
team.                                  over £150,000 will be subject to
                                       a tapered annual allowance which
Tax rules about pensions
                                       could reduce to just £10,000.
The Finance Act 2004, which
                                       From 6 April 2017, the annual
became law in April 2006 made
                                       allowance will be reduced to
far-reaching changes to the tax
                                       £4,000 if you have withdrawn
treatment of pensions.
                                       more than the 25% tax-free lump
                                       sum from a Defined Contribution
Tax relief
                                       pension pot. This is known as the
Contributions paid to a registered     Money Purchase Annual Allowance.
pension scheme receive tax relief      (MPAA)
from the Government up to certain
limits.

                                                                              33
In a single tax year you can have        Contributing to more than one
     tax relief on contributions to your      pension
     pension of whichever is the lower of     Before 2006 you were only allowed
     100% of your annual earnings or the      to contribute to one pension at a
     annual allowance.                        time. You can now contribute to
     Your own company pension scheme          as many pensions as you like as
     may have limits on the amount you        long as you don’t exceed the tax
     can pay in that are more restrictive     allowances described above.
     than the above allowances.
                                              AVCs
     If you don’t have any earnings (for
                                              Before 2006 AVCs could only be
     example if you don’t work) or if you
                                              used to provide extra pension.
     earn less than £3,600 each year,
                                              Now when you start drawing your
     you can make gross contributions
                                              pension benefits you can choose to
     of up to £3,600 each year to a
                                              take some or all of your AVCs as a
     Personal pension, Self Invested
                                              tax-free lump sum instead.
     personal pension or a Stakeholder
     pension, receiving basic tax relief at
     currently 20% of your contribution.

     Tax-free lump sum on retirement
     When you start to draw your
     pension benefits you can take up to
     25% of the value of your benefits as
     a tax-free lump sum – sometimes
     called a Pension Commencement
     Lump Sum.
     Again, your own company pension
     scheme rules might be more
     restrictive than this.

34
Flexible retirement                     From April 2015 new legislation has
Since 2006 you can start drawing        allowed more flexibility on how you
your company pension and carry          access your Defined Contribution
on working. This can be attractive      pension pots. As long as you are
for people who want to ‘phase           aged 55 or over you will be in
in’ retirement by receiving their       a position to take as little or as
pension and reducing the hours          much of your pension pot as cash
they work. It is up to your employer    (subject to taxation), irrespective of
whether they have a flexible            the size of your pot.
retirement policy and what terms        For Defined Benefit schemes
and conditions they attach to it.       however, Trivial Commutation will
                                        still be possible after 5 April 2015.
Small pensions – Trivial
Commutation                             You may be able to take the whole
                                        of your Defined Benefit pension as
If your pension pot at retirement
                                        a Trivial Commutation lump sum if:
is quite small, up to now you have
been able to take all of it as a cash   — You’re aged at least 55, or you’re
lump sum subject to certain criteria.     retiring at an earlier age because
This is what Trivial Commutation          of ill-health, and the value of
means.                                    your defined pension benefits
                                          (ignoring any State Pension)
From April 2015 Trivial
                                          when added together do not
Commutation no longer applies to
                                          exceed £30,000 in total.
Defined Contribution pots (unless
the 12 month commutation period
commenced before 6 April 2015).

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