Talking Pensions Scheme Guide. The Gallaher A and M Pension Schemes

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1 Talking Pensions Scheme Guide The Gallaher A and M Pension Schemes 1

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3 Contents Key features at a glance 4 Introduction 5 Retirement benefits 6 Looking after you and your family 11 Pensions and divorce 15 Leaving 16 Further information 18 3

4 Key features at a glance... retirement pension for life right to a tax-free cash sum in exchange for part of your pension pension for your surviving partner and children if you die while still working for the Company pension if you have to retire through illness pension for your family following your death during retirement chance to retire early or late if you wish option to transfer your pension to a new employer or personal pension plan at any time prior to retirement your beneft entitlement is not affected by short-term market interest rate changes or fluctuations in the stock market 4

5 Introduction This Guide is designed to set out all you need to know as a member of either the Gallaher A Pension Scheme or the Gallaher M Pension Scheme ( the Scheme ). All the information in this Guide applies equally to the A Scheme and the M Scheme, which operate in exactly the same way. The only difference relates to the calculation of Final Pensionable Pay, as defined on page 6. Nature of the Scheme The Scheme is closed to future accrual with effect from 31 st December 2017 and employees were enrolled in the JTI UK Retirement Savings Scheme. If you are one of these members then your benefits under the A or M Schemes are deferred as at 31 st December Because of this a number of references will be made throughout this booklet to the corresponding booklet for the JTI UK Retirement Savings Scheme which can be found on the relevant section of the Talking Pensions Website. The A and M Scheme are known as defined benefit (DB) or final salary schemes, which means that your benefits are based on your earnings at the time that you became a deferred member. We ve aimed to keep this Guide as free of jargon as possible, but we ve had to use a few pensions terms to describe your benefits. So we ve included some jargon buster panels throughout, which explain what these terms mean. If, after reading this Guide, you have any further questions, please contact the Pensions Department at the address below. Contact your Pensions Department ukpensions@jti.com Pensions Manager Members Hill Brooklands Road Weybridge Surrey KT13 0QU Visit the Pensions Department (Weybridge 2N) 5

6 Retirement Benefits Your retirement date Under the Scheme, your Normal Pension Date is the last day of the month in which you have your 60th birthday. However, you can retire at any time after your 50th birthday. You can also defer your retirement beyond age 60. To do so you need to make this request in writing at least six months prior to your 60th birthday. Your pension amount The pension you receive at retirement is worked out using your Pensionable Service and your Final Pensionable Pay as at 31 st December 2017 or your date of leaving if earlier. If you retire after age 60 your pension will be: Example 1/60th x your Final Pensionable Pay x your Pensionable Service If a member with Final Pensionable Pay of 22,000 retires after 30 years in the Scheme, their pension will be: 1/60th x 22,000 x 30 = 11,000 a year In addition, you will receive your Basic State Pension from the State. The deferred pension is revalued from the date of leaving (or 31 st December 2017 if later) to the date of retirement for each complete year. The GMP part of your pension will be increased each year by a fixed percentage in line with current legislation. The remainder of the pension will be increased in line with statutory requirements up to a maximum of 5% each year for service accrued to April 2009 and by 2.5% each year for service accrued after that, over the period to Normal Pension Date. Jargon Buster Pensionable Service The length of time in complete years and months during which you have been a member of the Scheme, plus any service credited to you for transferring benefits from a previous pension arrangement to the Scheme. Final Pensionable Pay Your Annual Basic Pay over the 12 consecutive months up to your date of leaving (if you left before 31 st December 2017). An uplift is applied of 3% for the A Scheme and 5% for the M Scheme. Pensionable Shift Premium is also applied as a percentage increase. If it would produce a greater amount, the equivalent 12 month period in any of the four previous years may be used for this calculation. If your pensionable service ceased when the Scheme closed to future accrual on 31 st December 2017, your actual pensionable pay at 31 st December 2017 will be used (or the last 12 months pensionable pay if greater). The same uplifts will be applied as above. Payment of your benefits Your pension will be paid in monthly installments, in advance, directly into your Bank or Building Society account. Pensions are taxed as earned income, using the tax code notified to us by the tax office. 6

7 Options on Retirement Tax-free lump sums No matter when you retire or for whatever reason, you will be able to exchange part of your pension entitlement for a tax-free cash sum. A BACS payment paid directly to your bank account will be made shortly after you retire. You can take up to 25% of your total pension benefits as a tax-free cash sum. Your total pension benefits at retirement will include your pension from the Scheme, any AVCs you have, any pensions you still have from previous employers schemes, and any personal pension plans you have. The only limitation on this is if you have already taken benefits from other pension arrangements which have restricted your Lifetime Allowance. Generally, if you have paid AVCs through the Company arrangement, these will be counted first in working out your total lump sum, which means that more of your Scheme benefits will be available to take as pension than might otherwise have been the case. Transferring your DC Fund into the A or M Scheme If you were a member of the A or M Scheme as at 31 st December 2017 and are retiring from active service, then the DC fund you have built up in the JTI UK Retirement Savings Scheme can be transferred into the A or M Scheme. It will be treated in exactly the same way as an AVC fund and will form part of your tax-free cash, providing it is within the maximum you are permitted to take. 7 Transferring out to another Pension Scheme You have the option to transfer all or part of your benefits to an external pension scheme, providing you have not attained State Pension Age and your pension is not yet in payment. In order to elect this option, it is a legislative requirement that you must receive financial advice and be able to evidence that you have received financial advice before the transfer can proceed. If you would like to partially transfer your fund there are certain critieria that apply please contact the pensions department for further details.

8 Timing for Retirement Early retirement You can take early retirement at age 50 or over as long as you leave employment. Your benefits will be calculated using your Pensionable Service to the date of leaving and your Final Pensionable Pay at that date. However, this amount will be reduced by a rate set by the Actuary to take account of early payment. The amount of the early retirement pension reduction depends on your age at retirement, and the current rates are shown in the table below. Retirement Age Reduction to be applied 7% 14% 20% 25% 31% 35% 40% 44% 47% 51% The reduction is adjusted proportionately to take account of complete months in your age at retirement. For example, the reduction for a member aged 54 years and six months at retirement would be 33%. The Trustee has discretion as to the factors applied and the factors are usually reviewed after each actuarial valuation (every three years). Example If a member retires at age 56 with Final Pensionable Pay of 20,000 and 30 years Pensionable Service, the amount of pension will be reduced by 25% on early retirement. 1/60th x 20,000 x 30 = 10,000 x 75% = 7,500 a year If you take early retirement, you may still choose to give up part of your pension to provide extra benefits for your dependants and/or take a tax free cash sum (see page 7). Also, your pension will increase in the same way as described on page 9. Please note that any benefits within the JTI UK Retirement Savings Scheme can be taken from 55 onwards (if taken independently from the A or M Schemes). Late retirement You can choose whether to take your benefits at Normal Pension Date or to defer drawing them until you actually retire. 8

9 Your Pension in payment Before State Pension Age All pensions in payment up to State Pension Age will be increased on 1 st April each year in line with the Retail Prices Index over the 12 months to the previous December, up to a maximum of 5%. The first increase following retirement will be proportioned for the amount of month you have been retired up to April. After State Pension Age Your pension in excess of Guaranteed Minimum Penson (GMP) will be increased on 1 st April each year in line with the Retail Prices Index over the 12 months to the previous December, up to a maximum of 5%. The GMP part of your pension is increased by the Scheme. The portion built up after 5 April 1988 is statutorily increased by the Scheme in line with the rise in the Consumer Price Index up to a maximum of 3% a year. Any GMP accrued prior to 5 April 1988 will not be increased. These increases do not apply to any benefits bought with Additional Voluntary Contributions. The Trustee keeps pensions in payment under regular review and has the discretion to pay extra increases on top of the guaranteed amount, with the Company s agreement. Jargon Buster Guaranteed Minimum Pension (GMP) A pension equivalent to the State Second Pension (or S2P, formerly known as SERPS) which you would have received from the State have you not been contracted-out of S2P. Any time between 6 th April 1978 and 5 th April 1997, your pension must be at least equal to the GMP, as advised by HMRC. State Pension Age (SPA) The age at which you may start to draw your State Pension. You can check your state pension age here: Depending on when you were born your State Pension Age may have changed over the last few years and it is worth checking where you stand. Extra cover for dependants You can exchange part of your pension to provide extra cover for your dependants when you die. No medical evidence of your state of health is required if you wish to provide additional pension for your partner. Full details are available on request from the Pensions Department. 9

10 The Lifetime Allowance (LTA) Since 6 April 2006, pension schemes no longer have to restrict the level of benefits paid to members. Instead a new Lifetime Allowance (LTA) is measured against the value of your benefits from all pension arrangements you belong to. Your total pension benefits at retirement will include your pension from the Scheme, any AVCs you have, any pensions you still have from previous employers schemes, and any personal pension plans, but will not include the State pension. The LTA is now 1 million. Please note the LTA is due to increase each year in line with CPI from the tax year. This means the LTA with effect from April 2018 will be 1.03 million. An example of the way it is calculated is shown in the box below. As the LTA has been set at a high level, very few people are likely to be affected by it. If your total benefits do add up to more than the LTA, you will have to take this excess as a lump sum when you retire, which would then be taxed at the rate of 55% at the time of payment. It is your responsibility to let the Pensions Department know of all your pension arrangements to help with the LTA calculation when you retire. Example of LTA Calculation A member has two company pension plans, one is a DB (Final Salary) Scheme and the other is a DC Scheme. Value of pensions at retirement DB Scheme 7,000 pa Fund Value of DC Scheme 60,000 To check if the LTA has been exceeded: Multiply the DB Scheme pension by 20 7,000 x 20 = 140,000 Add this total to the DC Scheme Fund Value 140, ,000 = 200,000 Since the value of the pensions does not exceed the LTA of 1m, there is no LTA tax charge due. However, pension income is subject to income tax. 10

11 Looking after you and your family Benefits whilst employed by JTI UK For details regarding the following whilst still employed by JTI, please refer to the JTI UK Retirement Savings Scheme booklet: Maternity Leave Paternity Leave Sick Leave Ill health retirement If you have to give up work because of serious ill health or disability and, in the opinion of the Company and the Trustee upon receipt of medical evidence, you will be unable to work again, you may be entitled to receive an ill health retirement pension. Unlike a normal early retirement pension this benefit is not reduced to allow for the fact that it is being paid early, although the pension may be reduced or suspended if your health improves. There are two ways of calculating the ill health early retirement pension and you would receive whichever works out to be the greater. These are: 1/60th x your Final Pensionable Pay at 31/12/2017 x your Pensionable Service at 31/12/2017 or 50% x 1/60th x your Final Pensionable Pay at 31/12/2017 x your prospective Pensionable Service up to age 60 Your prospective Pensionable Service is the total of your Pensionable Service to 31/12/2017 plus a credit in the form of additional years of Pensionable Service that would have been completed up to your Normal Pension Date. This credit is added to your actual Pensionable Service when working out your ill health early retirement pension. 11

12 Example For a 45 year old member with Final Pensionable Pay of 20,000 (at 31/12/2017) and 20 years pensionable service at 31/12/2017, the ill health early retirement pension would be the greater of: 1/60 th x 20,000 x 20 = 6,667 pa Or 50% of 1/60 th x 20,000 x 35* = 5,833 pa (*20 years pensionable service plus 15 years service to normal retirement date). Therefore, 6,667 pa would be payable. If you are granted an ill health early retirement pension, you may still choose to give up part of your pension to provide extra benefits for your dependants and/ or take a tax-free cash sum (see page 7). Also, your pension will increase in the same way as described on page 9. If you should die while receiving an ill health early retirement pension, the same benefits become payable as on death in retirement (see page 14). Death in Service Cash sum Please refer to the JTI UK Retirement Savings Scheme booklet for information on lump sum payments due if you die whilst still employed with the company. Pension for your partner In addition to the lump sum payable from the JTI UK Retirement Savings Scheme, your partner will receive a pension equal to half the pension you would have received had you been able to continue working up to your Normal Pension Date, based on your Final Pensionable Pay at 31 st December Your partner s pension will be increased each year in the same way as described on page 9. This pension would be payable for life. If your partner is more than 10 years younger than you, the pension will be reduced to allow for the fact that it is likely to be paid over a longer period. The reduction is 1.25% for each year of age difference over 10 years. For example, if your partner is 11 years younger than you, his/her pension would be 48.75% of your pension at retirement. However, the pension payable to your partner will never be less than the minimum required for contracting-out. If your marriage or civil partnership took place less than six months before your death, your partner s pension may be restricted to the minimum required for contracting-out. 12

13 Children s pensions Your children will also receive a pension for as long as they are under the age of 18. The Trustee has discretion to approve payment to children up to the age of 23, for instance if they are in full-time education or full-time vocational training. Children s pensions will be increased each year in the same way as described below. Children s pensions are calculated as percentages of the pension you would have earned at retirement, assuming you had continued working up to your Normal Retirement Date. The amounts are as follows: Number of Eligible Children 1 2 or more Child s pension if spouses pension is in payment 25% 50% Child s penson if no spouses pension is in payment 37.5% 75% 13

14 Death in retirement Five year guarantee If you die within five years of retirement, the unpaid instalments of your pension due in that five year period will be paid out as a tax free cash lump sum. Example You retire on a pension of 6,000 a year ( 500 a month) and die after receiving it for 9 months. The lump sum payable will be: Total Pension payable = 60 months x 500 = 30,000 Less pension already paid = 9 months x 500 = ( 4,500) Lump Sum payable = 25,500 Pension for your partner If you die after retiring, your partner will receive a pension of half of your pension, including the pension equivalent of your retirement cash sum, along with any increases granted between date of retirement and date of death. If your partner is more than ten years younger than you, the pension will be reduced to allow for the fact that it is likely to be paid over a longer period. The reduction is 1.25% for each year of age difference over 10 years. For example, if your partner is 11 years younger than you, his/her pension would be 48.75% of your pension at retirement. However, the pension payable to your partner will never be less than the minimum required for contracting-out. If your marriage or civil partnership took place less than six months before your death, your partner s pension may be restricted to the minimum required for contracting-out. Children s pensions Your children will also receive a pension for as long as they are under the age of 18. The Trustee has discretion to approve payment to children up to the age of 23, for instance if they are in full-time education or full-time vocational training. Children s pensions are calculated in the same way as for death in service, as described at the top of this page Children s pensions will be increased each year in the same way as described on page 9. Civil Partnerships & Same Sex Marriage With effect from 13 th March 2014, the Marriage (same sex couples) Act 2013 was introduced and from 29 th March same sex marriages could legally take place. With effect from 9 June 2014, death benefits payable from the Scheme to same sex spouses are exactly the same as those provided for heterosexual spouses. If a same sex marriage comes to an end, the ex-spouse is treated in the same way for pension sharing as in a heterosexual marriage. 14

15 Pensions and divorce In many cases, divorcing couples choose to offset any pension benefits that either party may have against other assets, such as the matrimonial home. This is clearly the more simple approach. Alternatively, it may be necessary, or mutually agreed, that a Pension Sharing Order (an Order) be enforced. Orders have become much more common lately. An Order divides between the two parties, the pension benefits which have been built up. The way in which they are divided will depend on your status: Pensioner member Your pension in payment is reduced by the proportion stipulated in the Order, such as 50:50. Your ex-spouse is then provided with a benefit equivalent to the pension taken from your benefit. However, the Scheme does not allow former spouses to retain their newly created benefit within the Scheme. A transfer value of the cash equivalent of their entitlement is paid to another approved pension arrangement, while your benefit is reduced accordingly, with your future annual increases based only on your remaining pension. Deferred member Your deferred pension is reduced by the proportion stipulated in the Order, such as 50:50. Your ex-spouse is then provided with a benefit equivalent to the reduction of your pension. However, the Scheme does not allow former spouses to retain their newly created benefit within the Scheme. A transfer value of the cash equivalent of their entitlement is paid to another approved pension arrangement, while your deferred beneft is reduced accordingly, with your future annual deferred pension increases based only on your remaining pension. 15

16 Leaving the Company If you leave the employment of the Company, please refer to the JTI UK Retirement Savings Scheme booklet for information on how this will affect your active pension savings. As the DB Schemes were closed with effect from 31 st December 2017, you already have a deferred pension. There are however some other changes to death benefits on the DB Schemes when you leave employment. Death before payment of deferred pension If you should die before your deferred pension comes into payment, provided that your benefits remain in the Scheme, your partner (spouse or civil partner) will receive 50% of the deferred pension, plus an allowance for the increases between the date of leaving and the date of death. If your partner is more than 10 years younger than you, the pension will be reduced to allow for the fact that it is likely to be paid over a longer period. The reduction is 1.25% for each year of age difference over 10 years. For example, if your partner is 11 years younger than you, his/her pension would be 48.75% of your pension at retirement. However, the pension payable to your partner will never be less than the minimum required for contracting-out. If your marriage or civil partnership took place less than six months before your death, your partner s pension may be restricted to the minimum required for contracting-out. Contributions made before 1 January 1988 If you die before retirement and if no partner s pension is payable, a refund of these contributions becomes payable. This will equal the full value of any normal contributions you paid, plus the value of contributions you would have paid had you still been required to contribute to the Scheme, with interest. If your partner s pension is restricted to the minimum required for contractingout and the value of this pension is less than the refund described above, the difference will be refunded as a cash sum. 16

17 Transfer of benefits If you are under State Pension Age and your pension is not yet in payment, you may request details of the amount that is available to transfer outof the Scheme to one of the following pension arrangements: a new employer s pension scheme a personal pension plan an insurance company buy-out policy You have the right to transfer your benefits at any time (including when you are in employment with the Company as your DB Scheme is deferred with effect from 31 st December 2017), providing your pension is not yet in payment. The amount of transfer value is calculated as the current value (the cash equivalent ) of the alternative deferred pension. The transfer value is based on assumptions such as investment returns and price inflation, which are set by the Scheme Actuary. These assumptions make full allowance for pension increases in line with the RPI up to a maximum of 5% a year. The transfer value reflects investment market conditions at the time of calculation. Transfer calculations will not only reflect the guaranteed benefts from the Scheme, but also the value of any discretionary benefts which the Scheme historically awards. The transfer value is guaranteed to be not less than the minimum payment established under the Pensions Act As such a decision could prove vital for your future financial well-being, it is important that you compare the benefits being offered with those of the Scheme which you would be giving up and, where possible, seek independent financial advice (see page 19). If you wish to investigate this option, you will be provided with a statement of the transfer value and instructions on how to proceed. You then have up to three months from the date of the quotation to exercise the option. If you decide to take a transfer, you will not be entitled to any further benefits from the Scheme You are also permitted to take a partial transfer of your benefits although certain criteria applies. Please contact the pensions department for further details. You may request a transfer value statement from the Pensions Department once every 12 months, free of charge. Requesting more than one transfer value in a 12 month period will incur an administration fee. 17

18 Further information How the Scheme is run The Scheme is set up under Trust and its assets are entirely separate from the assets of the JTI Group of Companies. The Trustee The Trustee Company is called Gallaher Pensions Limited. The Trustee consists of the board members of the Trustee Company. The names of the current directors can be found in the Annual Report and Accounts, available on the website at The Trustee is responsible for making sure that your interests are protected and that the Scheme is run according to the Trust Deed and Rules, the legal document governing the provision of benefits and setting out the Trustee s responsibilities and duties in detail. A copy is available for you to look at, if you wish. Some tasks are delegated to external professional managers and advisers, including investment managers, auditors, solicitors and actuaries. Details can be found in the Annual Report and Accounts. The Scheme is approved by HM Revenue & Customs (HMRC) as a registered pension scheme under Chapter 2 of Part 4 of the Finance Act Registration brings favourable tax treatment, but the Scheme must abide by HMRC rules. The Scheme is regulated by the Pensions Regulator. Investments All contributions are paid into a Trust Fund that is kept totally separate from the Company s assets. The assets of the Fund are invested on the Trustee s behalf by the investment managers, who are set clear performance targets by the Trustee and are closely monitored. Protecting your interests Safeguards are in place to protect against mismanagement. For example, no single director of the Trustee Company can make a decision affecting the allocation or transfer of funds, the benefits provided, or changes to the Trust Deed and Rules. The Company has every intention of continuing the Trust, but it does have the legal right to discontinue it. The Trustee also has the power to alter the terms of the Scheme. This power is, however, subject to certain restrictions designed to protect you. The Trustee cannot use this power to reduce benefits you have already built up in the Scheme. You may not charge, assign or otherwise dispose of your benefits under the Scheme to another individual. Data Protection All information concerning you and your dependants will be treated by the Company and Trustee as confidential. The Company and the Trustee may process data which relates to you during the course of your membership of the Scheme in order to carry out their respective functions. The Company and the Trustee may record and hold such data and make it available to third parties in the ordinary course of those functions. The Company and the Trustee and any such third party will comply with the underlying principles of the Data Protection Act If you do not wish the Company or Trustee to use your data for the purposes of administering the Scheme, then you should inform the Trustee immediately. In this case, the Trustee may regard you as having opted out of the Scheme. Otherwise you will be assumed to have consented to the use of your data for Scheme purposes. 18

19 Financial Advice By law, neither JTI, nor the Trustee, nor anyone employed by them may give you personal financial advice. This is why we frequently recommend that you should seek independent financial advice before taking decisions that could affect your financial security in the future. If you would like financial advice you should contact an Independent Financial Adviser (IFA). Further information can be found by contacting IFA Promotion on or visit Internal Disputes Resolution Procedure The Scheme has an internal procedure for resolving any disputes which may arise. The procedure is intended to ensure that any dispute is properly investigated and, where possible, resolved to the satisfaction of the parties. An outline of the procedure is available on request from the Pensions Manager. If you wish to take advantage of the procedure, you should apply to the Scheme Secretary at the following address: Members Hill Brooklands Road Weybridge Surrey KT13 0QU Other information available to members At any time you can ask to see: the Trustee s Annual Report and Accounts (available on our Talking Pensions website) the latest actuarial valuation report the Trust Deed and Rules Henry VIII is said to have put Weybridge (where you will find JTI s UK office) on the map when he built a palace here for his fourth wife. 19

20 Other useful organisations The Pensions Advisory Service (TPAS) TPAS is an independent, voluntary body that gives free advice to members of the public on any pension matter. It can help members and benefciaries to resolve any difficulty which they have failed to resolve with the Trustee or administrator of the Scheme. The Pensions Advisory Service 11 Belgrave Road London SW1V 1RB Telephone: Pensions Ombudsman If TPAS is unable to help, you can contact the Pensions Ombudsman, who can investigate and determine any complaint or dispute of fact or law. The Pensions Ombudsman 11 Belgrave Road London SW1V 1RB Telephone: ombudsman.org.uk Pensions Regulator On 6 April 2005 the Pensions Regulator was established as the new regulator of work based pensions in the UK, having wider and more flexible powers under the Pensions Act It is able to intervene in the running of pension schemes where trustees, employers or professional advisers have failed in their duties. The Pensions Regulator Napier House Trafalgar Place Brighton BN1 4DW Telephone: Pension Tracing Service The Pension Tracing Service (which is managed by the Department for Work and Pensions) enables members who lose contact with pension schemes of previous employers to trace their benefits. Pension Tracing Service The Pension Service Tyneview Park Whitley Road Newcastle upon Tyne NE98 1BA Telephone: Crewe photos by kind permission of Cheshire East Council Weybridge photos by kind permission of Mark Nolan at 20

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