Friends Life Stakeholder Pension Change of Default Fund

Transcription

1 Friends Life Stakeholder Pension Change of Default Fund Gary Hague Deputy Director of Finance University of Leicester Kevin Senior Financial Education Consultant Aviva Friends Life April 2016

2 Important information Please note that the following presentation should not be regarded as giving any form of financial or investment advice. You should not make your decision on the basis of this presentation alone. If you require advice you should contact a financial adviser. You can find one at This presentation is based on our interpretation of present law and HM Revenue & Customs practice for the tax year 2016/2017. The tax benefits may change at any time and their value depends on your personal circumstances. The value of an investment can fall as well as rise and it is not guaranteed. You may get back less than you invest.

3 So where are we going today? 1. An overview of the scheme including contributions 2. Retirement Options 3. Investments and the change to the University s default fund 4. Common Questions and next steps

4 A great way to save could be through your company pension scheme

5 The great thing is it s A tax efficient way to save University Of Leicester pays in too It s your pension. If you leave the University of Leicester, you can take it with you It s flexible Choose how much you contribute Decide where you invest. Default investment solution or another fund(s) You can normally access your pension savings from age 55

6 Pensions in a nutshell Or a combination of the above The value of investments can fall as well as rise and is not guaranteed - this means that you could get back less than you invest.

7 Contributions

8 University of Leicester contributions table Employee Employer Contribution Total Contribution 3.0% 5.0% 8.0% 4.0% 7.0% 11.0% 5.0% 9.0% 14.0% 6.0% 11.0% 17.0% More than 6% 11.0% 17.0% + Figures are gross and based on pensionable salary which is defined as basic salary and contractual overtime/allowances

9 Contributions Example - Based on Gross pensionable salary (basic pay) of 15,000 per annum Employee Deductions 3.0% total employee contribution 6.0% total employee contribution Gross salary per month 1,250 1,250 Income tax per month National Insurance per month Net monthly cost of pension contribution Net monthly income after pension contributions 1, , Pension Contributions per annum Annual employee pension contributions (inc tax relief) Annual employer pension contribution 750 1,650 Total Annual Pension Contribution 1,200 2,550

10 Your scheme offers Smart Pension. What s that? Smart Pension is when you exchange part of your salary in return for a benefit from your employer.

11 Smart Pension Employee Non-Smart Pension Smart Pension Annual salary 15,000 14,100 Monthly salary 1,250 1,175 Example employee contribution before tax relief 60.00* 0 Tax National Insurance ** Take home pay** Employer Contribution Total invested per month *Net contribution **Take home pay is 9 per month greater under Smart Pension

12 Important information about Smart Pension Smart Pension is a change to your contract of employment and an arrangement between you and your employer. Some contracts will only allow you to change your contribution levels during certain periods. University of Leicester will continue to use your notional salary (this is your basic salary before any adjustments for Smart Pension) when calculating all other salary-related benefits (e.g. salary increase, overtime, bonus payments, life assurance). High and additional rate tax payers effectively receive immediate full tax relief and no longer need to claim through self-assessment. You can't use Smart Pension if it will take your income below the minimum wage. If you claim tax credits, you need to check what impact Smart Pension may have on your claim; in most cases there will be no impact. No impact on new State Pension, generally minimal impact on State Second Pension (S2P, formerly State Earnings Related Pension Scheme (SERPS)). Smart Pension may impact on how much you are able to borrow, the size of any income protection payments and access to certain statement benefits.

13 Retirement Options

14 You can normally take your benefits as early as age 55 The University of Leicester Stakeholder Pension Scheme normal retirement age is 65

15 The Government s Pension Freedoms and why the University has changed the Default Investment Fund Gary Hague Deputy Director of Finance

16 The introduction of the Government s Pension Freedoms Up to April 2015 At retirement you could take up to 25% of your pension pot as tax free cash and for most people the remainder being used to purchase an annuity Budget The Government introduced pensions freedoms legislation which, from April 2015, allows you to withdraw the whole pot in cash (although 75% of this would be taxable) or cash sums in segments from your pension pot (Income Drawdown) Annuities remain available and can give you a guaranteed regular income may still be a good option but choosing how to take your pension is a major decision Currently, for most members of the University s Stakeholder Pension Scheme, the investment arrangements in place are geared to the purchase of an annuity.

17 What is a Default Investment Fund Typically, DC Pension schemes offer several investment funds into which members can invest their contributions. These funds typically carry differing levels of risk and potential investment returns. However, because most members tend not to wish to make a choice, pension schemes therefore also have a Default Investment Fund which is chosen by the employer and which aims to offer the best average outcome.

18 Your current Default Investment Fund Unless, in the past, you have made choices about your investment funds, your contributions will currently be invested in the Baillie Gifford Managed Fund as this was the University s Default Investment Fund up to 31 st December 2015 The Baillie Gifford Fund has generally done well Top Quartile Fund But : it is geared towards the purchase of an annuity, rather than offering flexibility and charges are quite high at 0.63% p.a.

19 Review of the Default Investment Fund Summer 2015 University commissioned KPMG to undertake a review of the Default Fund arrangements Reported in September 2015 to University Group which comprised University Treasurer; Director of Finance; Director of HR and the Trade Unions (Chris Marlow of Unite played a significant role in this)

20 Details of the new Default Investment fund the Friends Life My Future Fund Following the review the Group recommended that the University choose the FriendsLife My Future Fund as the best option for a new Default Investment Fund because: It offers flexibility members can target: The purchase of an annuity at retirement Withdrawal of entire pot as cash at retirement Drawdown of cash from the pot in segments following retirement whilst leaving the pot invested Waiting until retirement to make a decision (a default option in the Default Fund) The option to take 25% of your pension pot as tax free cash at retirement remains in all the above options The My Future Fund has a lower charge of 0.43% p.a.

21 Options at retirement Potential Investment growth You can normally take up to 25% of your pot tax free Contributions are paid in Your pension pot Purchase a fixed income for life with a lifetime annuity. Take your whole pension pot as a cash sum Charges deducted Take a flexible income via cash or drawdown withdrawals. As this is from your remaining pension pot, its value can still fall as well as rise. You don t have to choose one option as you could combine them and you don t have to take any benefits until age

22 Options at retirement continued You can normally take a tax free lump sum of 25% from your pension pot. All other money taken is taxable through PAYE and how much you pay will depend on your personal income tax circumstances. Annuity Once an annuity has started, you can t change your mind after the 30 day cancellation period. There are different types of annuities covering a lifetime or a fixed period. Some annuities can provide additional benefits, such as death benefits or joint life but with this your income will be lower. You could receive an increased income depending on your health and lifestyle with an enhanced annuity. Taking a cash sum(s) or withdrawals from the pension pot You need to be aware that your retirement provision needs to last a lifetime, so its important to regularly review your financial position. If your money remains invested charges will continue to be taken and you may wish to consider if where you are invested is still right for you. Taking cash sums or withdrawals will affect your annual allowance. If you take large sums from the pension pot this could push you into a higher tax bracket. It s important to shop around other providers and obtain quotes to compare the different levels of income you could receive. Also check your existing pension(s) to make sure you don t lose any valuable benefits or guarantees. Be aware that pension scams are on the increase in the UK. 117

23 Six months before you will receive a letter and a brochure explaining the process 6-8 weeks before Unless you decide to delay retirement, we will send you a reminder letter Retirement Benefits are selected

24 The importance of reviewing your benefits Pension Wise is a free and impartial government service if you are near, or at retirement, that helps you understand your pension options - We strongly recommend that you seek financial advice if you are unsure which options may be right for you. There may be a charge for this advice Obtain a forecast of your new State Pension entitlement from Further information can also be accessed from the Money Advice Service at *These websites may not be regulated by the Financial Conduct Authority, and as they are not operated by Friends Life we cannot be liable for their content. 120

25 Investments

26 The money you save into your pension is invested to help it grow The value of investments can fall as well as rise and is not guaranteed - this means that you could get back less than you invest.

27 There are four main investment types

28 Risk ratings Risk rating Risk rating description 7 Highest volatility 6 High volatility 5 Medium to high volatility 4 Medium volatility The historical performance of funds with this risk rating has typically experienced the highest volatility of all the funds Friends Life has rated. This means that these funds have the highest potential for substantial changes in value compared with other Friends Life funds. The historical performance of funds with this risk rating has typically experienced high volatility compared with other funds Friends Life has rated. This means that these funds have a high potential for substantial changes in value compared with other Friends Life funds. The historical performance of funds with this risk rating has typically experienced medium to high volatility compared with other funds Friends Life has rated. This means that these funds have a medium to high potential for substantial changes in value compared with other Friends Life funds. The historical performance of funds with this risk rating has typically experienced medium volatility compared with other funds Friends Life has rated. This means that these funds have a medium potential for substantial changes in value compared with other Friends Life funds. 3 Low to medium volatility The historical performance of funds with this risk rating has typically experienced low to medium volatility compared with other funds Friends Life has rated. This means that these funds have a low to medium potential for substantial changes in value compared with other Friends Life funds. 2 Low volatility 1 Lowest volatility The historical performance of funds with this risk rating has typically experienced low volatility compared with other funds Friends Life has rated. This means that these funds have a low potential for substantial changes in value compared with other Friends Life funds. The historical performance of funds with this risk rating has typically experienced lowest volatility compared with other funds Friends Life has rated. This means that these funds have the lowest potential for substantial changes in value compared with other Friends Life funds. Please note: Friends Life calculates the risk ratings of funds using historical performance data, based on methods now set by European Union rules. Following a review of funds, our risk ratings now range from 1 to 7. These investment risk ratings are based on our interpretation of investment risk and are only meant as a guide. These levels of investment risk are not guaranteed and may change in the future. The colours in this table may be different to those used online: however, the ratings and approach to investment risk remain the same.

29 Default investment solutions charges range from 0.43% to 0.63% This covers costs such as setting up the plan, fund management and ongoing administration. If the default contains more than one fund, they may each have different annual management charges as they may have different fund management costs. Annual management charges in the full fund range start from 0.43% For information on the fees and charges, please refer to your investment brochure

30 Chosen for you If you joined the pension prior to 01/01/2016 and haven t made a choice, your contributions are invested in the University of Leicester s previous Default Investment Solution FL Baillie Gifford Managed Lifetime Programme. If you joined the pension on or after the 01/01/2016 and haven t made a choice, your contributions are invested in the new Default Investment Programme, My Future. The default automatically manages your investments in the run up to retirement and has been designed for the majority of members, however this may not suit your personal circumstances and retirement aims. For more information on the default and the other fund options available please refer to your Investment brochure. The value of investments can fall as well as rise and is not guaranteed - this means That you could get back less than you invest.

31 Percentage fund allocation Joiners before 01/01/2016 FL Baillie Gifford Managed lifetime programme Years to selected retirement age... FL Baillie Gifford Managed (0.63% AMC) FL Pre-Retirement Fixed Interest Fund (0.43% AMC) FL Cash Fund (0.43% AMC)

32 Investment choices Default option from 01/01/2016 My Future - A investment programme for those that have not yet decided how they wish to take their pension benefits (the default option) Also allows you to choose between options that have different consolidation profiles depending on your retirement plans My Future Target Annuity Option My Future Target Cash Lump Sum Option My Future Target Drawdown Option

33 Joiners from 01/01/2016 My Future investment programme The My Future investment programme has an annual management charge of 0.43% The lifetime investment programme fund names are not an indicator of future performance or investment return and should not be used as a basis for your decision to invest.

34 Pensions in a nutshell Or a combination of the above The value of investments can fall as well as rise and is not guaranteed - this means that you could get back less than you invest.

35 Frequently asked questions What happens if you leave your employer? What happens when you die? Can I transfer money in?

36 Next steps Things to consider: Before making decisions you need to ensure you have read your scheme literature documents. Are you saving enough for retirement? Have you reviewed your fund choice? Do you know the options available to you? Do you wish to change your retirement age? Do you need to complete your nomination form? Do you need to change your nominated beneficiaries?

37 Pension Microsite

38 Membersite

39 Steps you will need to take if you decide to change your investment fund(s) From 1 January 2016, new members of the Stakeholder Pension Scheme have been automatically put into the Friends Life My Future investment programme unless they have made investment choices BUT as an existing member you will need to take action if you wish the changes to apply to your pension pot the University cannot make these changes for you You can make investment choices for your accumulated pot or for future contributions or both, however you can only select one investment programme If you decide that you wish to change your current investment fund(s) you can do this: Online at By calling Friends Life on

40 Thank you for listening Any questions? Friends Life and Pensions Limited An incorporated company limited by shares and registered in England and Wales, number Registered office: Pixham End, Dorking, Surrey RH4 1QA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Telephone calls may be recorded. Friends Life is a registered trade mark of the Friends Life group.