Appendix - The Annual Allowance and the Wrigley Deferred Cash Credit Promise ( Wrigley DCC Promise )

Transcription

1 Appendix - The Annual Allowance and the Wrigley Deferred Cash Credit Promise ( Wrigley DCC Promise ) Introduction Wrigley pensions - a quick reminder The Wrigley Pension Plan (the Plan) is a final salary scheme where benefits are linked to your final pay and length of service. You may also pay Additional Voluntary Contributions (AVCs). These are additional money purchase contributions which you can choose to make. Benefits depend on how much you pay, investment returns and, if you decide to buy an annuity, the rate at which the fund is converted to a pension. These pension arrangements are registered with Her Majesty s Revenue & Customs (HMRC). The Annual Allowance This is the maximum amount you and Wrigley can save towards Registered Schemes in any tax year without incurring a tax charge (known as the Annual Allowance Tax Charge). The Annual Allowance for the tax year 2014/15 is 40,000. The Government looks at the increase in the amount of Plan pension you ve earned over each year (with an allowance for inflation) and increases this figure by 16 so earning an additional 1,000 of pension uses up 16,000 of your Annual Allowance Any pension savings above the Annual Allowance in any year will be taxed as additional pay at your marginal rate of income tax (i.e. 20%, 40% or 45% - see example on page 4). Any unused Annual Allowance can be carried forward for up to three years. Please note that the Annual Allowance applies to all your pension benefits under Registered Schemes and not just to Wrigley benefits under the Plan. Will the reduction in the Annual Allowance affect me? The reduction in the Annual Allowance may have an impact on you if the value of your total pension saving in pension arrangements registered with HMRC in a single tax year is more than the Annual Allowance ( 40,000). When considering this in any single year, you need to include: The value of the increase in your pension from the Plan. Any AVCs paid by you or Wrigley to the Plan. Contributions paid to any pension arrangements outside of Wrigley or the Plan.

2 Valuing Pension Saving for the Annual Allowance How do I work out the value of my pension saving? Pension Input Period This is the period over which your pension saving for each of your pension arrangements registered with HMRC is measured. It can vary for different pension arrangements. Your Pension Input Period for the Plan and for any AVCs runs from 6 April to 5 April each year i.e. the tax year. If you have contributed to a pension arrangement registered with HMRC outside Wrigley you can find out what the Pension Input Period is by contacting the administrator of that arrangement. Value of pension saving - AVCs Working out the value of your pension saving for defined contribution arrangements such as AVCs is straightforward. You simply take the total gross contributions paid in by you and Wrigley over the Pension Input Period i.e. the tax year. Value of pension saving in the Plan Calculating the value of your pension savings for final salary schemes such as the Plan is more complicated. You need to compare the amount of the pension built up at the beginning of the Pension Input Period with the amount at the end. Further, benefits built up at beginning of the Pension Input Period (i.e. the value at the end of the last Pension Input Period) are allowed to increase in line with inflation (as measured by the Consumer Prices Index (CPI) as at the previous September) before you need to measure the benefit for the purpose of the Annual Allowance. The difference between the pension built up at the beginning and end of the Pension Input Period (with the inflation allowance) is then multiplied by 16 to give the value. The example below shows how this works. Example Say your Plan pension at the start of the year (6 April 2014) is 45,000 pa Adjusting this for inflation (of 2.7%) increases this to 46, 215 pa If, say, your Plan pension grew at the end of the year (5 April 2015) to 49,000 pa then the growth in your pension above inflation would be 49,000 less 46, 215 i.e. 2,785 pa The value of this for Annual Allowance purposes is 16 times this figure i.e. 44,560 This is over the 40,000 Annual Allowance 2

3 Carrying forward unused Annual Allowance What if my pension saving exceeds the Annual Allowance? You can carry forward unused Annual Allowance from the previous three years. So if in one year your pension saving is unusually high you may have some carry forward allowance to reduce or remove the Annual Allowance Tax Charge. You may also have some unused Annual Allowance to enable you to make additional contributions in 2014/15 and subsequent years. Example (based on current HMRC guidance) Pension Saving Deemed Total unused Total carry Annual allowance in forward to Allowance tax year 2014/15 Tax year 2011/12 50,000 50, Tax year 2012/13 20,000 50,000 30,000 30,000 Tax year 2013/14 60,000 50,000 ( 10,000) ( 10,000) Total to carry forward to 2014/15 20,000 Notes 1. To work out if you have any Annual Allowance to be carried forward from previous years you need to value your pension saving in those years using the HMRC rules and compare it with the Annual Allowance of 50,000 (the figure that applied in the three years before 2014/15) 2. In 2012/13 pension saving used 20,000 of the Annual Allowance, leaving a balance in that year of 30, In 2013/14 pension saving was 60,000 which is 10,000 more than the Annual Allowance for that year. This means that 10,000 of the 2012/13 balance is used up which reduces the balance to carry forward from 2012/13 to 20, This gives an effective Annual Allowance of 60,000 for 2014/15 ( 40,000 for 2014/15 plus 20,000 carried forward from 2012/13). 5. Unused Annual Allowance can be carried forward for up to three years so if the remaining 20,000 from 2012/13 is not used in or before the end of 2015/16 it will be lost. 3

4 The Annual Allowance Tax Charge How do I find out if I have to pay an Annual Allowance Tax Charge? You are responsible for finding out if you are due to pay an Annual Allowance Tax Charge. If the value of your pension saving in the Plan exceeds the Annual Allowance we will provide you with a statement after the end of the tax year. If you have made contributions to any pension arrangement(s) outside the Plan you can ask the administrator of that arrangement to tell you how much pension saving you have made for the tax year in that arrangement. If my pension saving is more than the Annual Allowance (including any allowance carried forward from earlier years), how is the Annual Allowance Tax Charge calculated? The amount of the Annual Allowance Tax Charge you will pay depends on how much taxable income you have and the amount by which your pension saving exceeds your effective Annual Allowance (including any carried forward allowance). To work out the Annual Allowance Tax Charge you need to add the value of your pension saving in excess of the Annual Allowance to your taxable income - this determines the rate of income tax payable. This rate is then applied to your excess pension saving. Example Value of pension saving over the Annual Allowance (after using any available carry forward) 4,560 Taxable income 55,000 Total taxable income including the saving over the Annual Allowance 59,560 Marginal rate of income tax (based on 59,560) 40% Annual Allowance Tax Charge due 4,560 x 40% = 1,824 Who is responsible for paying the Annual Allowance Tax Charge? You are responsible for reporting pension saving in excess of the Annual Allowance via your self assessment tax return. If your Annual Allowance Tax Charge is less than 2,000 you must settle this yourself from your own resources. If your Annual Allowance Tax Charge is 2,000 or more in relation to any one scheme, you can ask that scheme to pay it on your behalf subject to your benefits in that scheme being reduced. If you incur an Annual Allowance Tax Charge of 2,000 or more in respect of pension built up in the Plan we will write to you with details of the Scheme Pays option at that time. Is there any action I can take to make sure that I will not incur an Annual Allowance Tax Charge in the future? You can opt to become a Protected Member of the Plan from 6 April In simple terms, if you do this the amount of pension you build up in the Plan will be capped each year to make sure that it doesn t exceed the Annual Allowance of 40,000 in 2014/15 (or a different figure if the Annual Allowance goes up or down). At the end of each year we will calculate your capped pension from the Plan and what your Plan pension would have been if you were not a Protected Member (your target Plan pension). The difference between the two is provided by the Wrigley DCC Promise and would be paid out as a cash sum when you leave Wrigley. If there is no difference (because your target Plan pension is the same as your capped Plan pension) the whole benefit will be delivered from the Plan. You should also consider any amounts you build up under other pension arrangements and review any AVC contributions being made. 4

5 Overview of the Wrigley DCC Promise What is the Wrigley DCC Promise and how is it set up? The Wrigley DCC Promise is a contractual promise from your employer to provide you with a cash sum. It is not a registered scheme and does not benefit from the tax advantages of a registered pension arrangement. Its main advantage is that credits built up under the Wrigley DCC Promise do not count towards the Annual Allowance. To maintain the tax effectiveness of the Wrigley DCC Promise Wrigley cannot fund the benefits or allocate any assets to back the Wrigley DCC Promise. The Wrigley DCC Promise will however be recorded in the Company accounts and there will be formal documentation recording the benefits payable. How do tax and National Insurance treatment of the Plan and Wrigley DCC Promise compare? The tax and National Insurance treatment of the Plan and the Wrigley DCC Promise are likely to change over time in line with legislation. Currently, the tax and National Insurance treatment of the Plan and the Wrigley DCC Promise are as follows: Plan Wrigley DCC Promise Annual Allowance Tax Charge Applies to pension build up Not applicable above the Annual Allowance Tax-free cash Broadly 25% of the benefit can Not applicable, as all DCCP benefits be taken as tax-free cash are subject to tax Income tax on benefits paid Pension payments are taxed at The credit in the DCC Promise is your marginal rate of income tax paid as a lump sum which is taxed at your marginal rate of income tax National Insurance Not applicable The credit in the Wrigley Contributions on benefits DCC Promise is paid as a lump sum and National Insurance contributions are deducted How do I join the Wrigley DCC Promise? If you become a Protected Member of the Plan and in any year the increase in your Plan pension would exceed the amount of the cap, you will automatically build up a credit in the Wrigley DCC Promise. If I decide to become a Protected Member of the Plan will I have to stop paying AVCs? As a Protected Member of the Plan you still have the option of paying AVCs but you should bear in mind that if the total value of your pension saving (including capped Plan build up) exceeds the Annual Allowance you will incur an Annual Allowance Tax Charge. We will inform you after the end of the year if you have exceeded the Annual Allowance. How are my credits in the Wrigley DCC Promise worked out? Your Wrigley DCC Promise credit is a balancing amount. In simple terms, it is calculated as the difference between the pension you have built up as a Protected Member of the Plan and the Plan pension you would have built up if you had not become a Protected Member of the Plan. When you leave Wrigley the credit is converted to a lump sum and paid to you. Where benefits are paid in special circumstances from the Plan (e.g. death benefits whilst you are employed by Wrigley, ill-health early retirement pensions) no credit will be paid under the Wrigley DCC Promise. Please see page 7 for further details. 5

6 What is the cap on my Plan pension? If you elect to be a Protected Member of the Plan from 6 April 2014 the amount of pension that you build up each year in the Plan will be the lower of: 1. The amount such that you do not incur an Annual Allowance tax charge for that year. For 2014/15 this will usually be 2,500 plus an inflationary increase (CPI) on the Plan pension you had built up at the end of 2013/14, where 2,500 is determined by the Annual Allowance divided by the HMRC factor (i.e. 40,000/16). If you have available carry-forward from previous years, it will be possible to use the carry forward to increase this figure; and 2. The Plan pension you would need to build up to bring your total Plan pension up to the amount it would have been if you had not become a Protected Member. Please note that if the amount you can build up within the Annual Allowance in any year increases in future, the maximum described in 1 above will increase but only in those future years. Similarly if the Annual Allowance reduces in the future, there will be no automatic corresponding reduction in the maximum which applied for previous or future tax years. Would my Wrigley DCC Promise credit vary from year to year? Yes, because the amount payable under the Wrigley DCC Promise is a balancing item. At the end of each Pension Input Period (or leaving service/retiring as appropriate) we will calculate: Your capped pension from the Plan; and What your Plan pension would have been if you were not a Protected Member (your target Plan pension). The difference between the two amounts becomes your new Wrigley DCC Promise credit, replacing any existing DCC Promise credit you may have had previously. If there is no difference between the two amounts the whole of your benefits are delivered from the Plan and your Wrigley DCC Promise credit is zero. When you leave Wrigley any Wrigley DCC Promise credit is paid as a cash lump sum. 6

7 Payment of Wrigley DCC Promise credits How are my Wrigley DCC Promise credits paid out? When you leave Wrigley employment any Wrigley DCC Promise credit held for you is converted into a cash sum and paid to you after deduction of tax and National Insurance contributions. This cash sum is paid out regardless of whether you take your Plan benefits. Where benefits are paid in special circumstances from the Plan (e.g. death benefits whilst you are employed by Wrigley, ill-health early retirement pensions) no credit will be paid under the Wrigley DCC Promise. Please see below for further details. Once your credit is paid to you, you will have no further rights to any payments under the Wrigley DCC Promise.. How is the Wrigley DCC Promise credit converted into a cash sum? When you draw your benefits under the Plan you have the option of swapping part of your Plan pension for a tax-free cash lump sum. The amount of cash sum you get for each 1 of pension given up is determined by factors which are set by the Trustees of the Plan after taking actuarial advice. Wrigley has decided to use the same basis for the factors used to convert your Wrigley DCC Promise credit into cash as is used for the Plan. Examples of the current factors that would apply are at age 55 and at age 60. These factors are subject to change and will be reviewed in the event that the factors in the Plan are reviewed and changed. Wrigley also reserves the right to change the basis of the factors under the Wrigley DCC Promise. Leaving the Wrigley DCC Promise before Normal Retirement Age What happens if I take early retirement? If you take early retirement your Plan pension is normally reduced to reflect the fact that it is likely to be paid for longer. If this happens it may be possible to pay a larger proportion of your target Plan pension out of the Plan which would reduce any Wrigley DCC Promise credit or possibly remove it altogether. What happens to my Wrigley DCC Promise if I leave Wrigley before I draw my benefits from the Plan? If you leave Wrigley your target Plan pension and capped Plan pension are calculated at your date of leaving. The Wrigley DCC Promise would be paid to you as a cash sum subject to income tax and National Insurance deductions regardless of whether you draw your benefits from the Plan. If you leave the Plan because you have left the UK to work elsewhere in Wrigley, your capped Plan pension and Wrigley DCC Promise credit would be calculated at the date you leave the Plan. Your Plan benefits would then be revalued between date of leaving the Plan and the date you draw your benefits in accordance with the Rules of the Plan. Any credit under the Wrigley DCC Promise be revalued between the date of leaving the Plan and the date you leave Wrigley, and would would then be paid to you on leaving Wrigley. If I m unable to work due to ill health would any benefits be paid from the Wrigley DCC Promise? If you qualify for an ill health early retirement pension from the Plan it will be calculated as if you did not become a Protected Member of the Plan and so there would be no payment from the Wrigley DCC Promise. 7

8 Benefits payable on death If I die whilst employed by Wrigley would the Wrigley DCC Promise pay any benefits to my dependant(s)? In the event of your death benefits paid from the Plan are not tested against the Annual Allowance. Therefore if you were to die whilst employed by Wrigley, benefits would be paid to your dependant(s) from the Plan as if you had not become a Protected Member and so there would be no payment from the Wrigley DCC Promise. If I die after leaving Wrigley would the Wrigley DCC Promise pay any benefits to my dependant(s)? No. When you leave Wrigley your Wrigley DCC Promise credit is converted to a cash sum and paid to you. The factor used to convert your Wrigley DCC Promise credit to a cash sum includes an allowance for dependant(s) pension. Therefore payment of the cash sum terminates liability to make any payments under the Wrigley DCC Promise to you or your dependant(s). Any dependants pensions attaching to the capped Plan pension would still be paid from the Plan. The Wrigley DCC Promise documentation and the Plan Trust Deed and Rules Where are the legal documents that govern my entitlement? The information provided here sets out a general explanation of the Wrigley DCC Promise and Protected Members entitlements under the Plan. The Wrigley DCC Promise is recorded in a legal document which gives Protected Members enforceable legal rights. Formal amendments may also be made to the Plan Trust Deed and Rules. Associates entitlements are governed by those documents and they over-ride any other information about the Wrigley DCC Promise and Plan. These documents contain provisions regarding amendment, termination and forfeiture. Where can I get a copy? If you would like a copy of the Wrigley DCC Promise document or the Plan Trust Deed and Rules, you should contact Paul Martin, Rewards Advisor, P&O Dept, The Wrigley Company Limited, Estover Industrial Estate Plymouth, Devon, PL6 7PR (tel: ; Paul.Martin@Wrigley.com). This Appendix is intended to provide a high level overview of changes to pension taxation. Neither the Company nor the Plan Trustees are able to give individuals advice in relation to their pension arrangements. It is therefore essential that you seek independent financial advice before taking any irreversible actions in relation to your pension benefits. 8