The University of Sheffield Pension Scheme

Transcription

1 NEXT STEPS Newsletter Date Volume 1, Issue 1 The University of Sheffield Pension Scheme Pension Flexibilities 2015 SUPPLEMENTARY NEWSLETTER NOVEMBER 2015 You will have seen all the press commentary on the new options available for taking pension, including lump sum options. This newsletter tells you how it affects you. If you are in the Cash Balance section of the USPS, you will now have different possible ways of taking your benefit when you come to retire. If you are in the Final Salary section, you are not affected directly unless you choose to transfer out. You may have seen press reports about using pension funds "like a bank account" or taking more than one lump sum out of your pension. The USPS Trustee has decided that, if you wish to take advantage of these extended flexibilities, you will need to transfer out of the USPS. We explain more about transferring inside. SUMMARY: Schemes are not obliged to offer all of the flexibilities permitted by the new legislation. Specific flexibilities, as outlined in this newsletter, will be the only options available under USPS. You need to be aware of the consequences of any decision you take. Neither the University of Sheffield, nor the Trustee, can give you financial advice about the best course of action for you.

2 HOW WILL THE NEW FLEXIBILITIES AFFECT MEMBERS OF THE CASH BALANCE SECTION? Up to now, on retirement, you have been able to take up to 25% of your Retirement Account as a tax free cash sum and use the remaining amount to purchase an annuity from an insurance company. This option will still be available. However, after 6 April 2015, it will also be possible for you to instead take all of your Cash Balance funds and defined contribution AVC funds as a cash lump sum directly from the USPS. HOW WILL THE NEW FLEXIBILITIES AFFECT MEMBERS OF THE FINAL SALARY SECTION? HOW WILL THE NEW FLEXIBILITIES AFFECT MEMBERS WITH AVCS? If you have defined contribution Additional Voluntary Contributions (AVCs), the changes will apply to your AVC funds. Up to now, Final Salary members have been able to take up to 25% of their AVC funds as tax free cash and use the remainder to purchase an annuity. This option will still be available, however, after 6 April 2015, it will also be possible, provided you meet the conditions for payment, for you to instead take the whole of your AVC funds as a cash lump sum directly from the USPS. As a member of the Final Salary section of the USPS, the changes do not have any impact on your Final Salary benefits. With the exception of some changes to enable small value pensions to be paid as cash, the new flexibilities enabling benefits to be paid as cash do not apply to the Final Salary section. We explain more about the small lump sum options on the next few pages. As a Final Salary section member, the only way to access these new flexibilities would be to transfer your Final Salary benefits out of the USPS to a scheme (such as a personal pension scheme) which does permit these flexibilities. HOW WILL THE NEW FLEXIBILITIES AFFECT ME IF I HAVE BENEFITS IN BOTH THE FINAL SALARY SECTION AND THE CASH BALANCE SECTION? You will be able to use your AVC funds from the Final Salary section together with your Cash Balance funds to take a cash lump sum of the whole of those funds directly from the USPS if you wish. To be clear, you will also still be able to use your AVC funds and Cash Balance funds to purchase an annuity or transfer out of the USPS if you prefer. Your Final Salary pension will remain payable from the Final Salary section, unless you choose to transfer out of the USPS. 2

3 IMPORTANT FACTORS TO CONSIDER IF YOU WANT TO TAKE THE WHOLE OF YOUR CASH BALANCE BENEFIT AS A CASH LUMP SUM: TAX CONSEQUENCES PROTECTED TAX FREE CASH It is extremely important that you understand the tax consequences of taking all of your Cash Balance funds and/or AVC funds as cash in one go. If you choose to do this, under current tax rules, 25% of your cash payment will be tax free but the rest will be treated as income, with income tax payable on the amount you have taken. This could mean that you end up paying higher levels of tax on the lump sum, if you cross a tax threshold. For example, if you would not normally pay income tax at the higher rate (currently 40%), you would have to do so if your lump sum plus other income taken during that year was high enough. Therefore, when deciding how to use your Cash Balance and/or AVC funds you should carefully consider the tax consequences in weighing up the different options of: (a) (b) (c) (d) using all of your Cash Balance funds and/or AVC funds to buy an annuity from an insurance company, resulting in a pension that would be chargeable to income tax in each year that it is received; or taking up to 25% of your Cash Balance funds and/or AVC funds as tax free cash and using the rest to buy an annuity (with each year's pension chargeable to income tax); or taking up to 25% of your Cash Balance and/or AVC funds as tax free cash and taking the rest as cash chargeable to income tax; or transferring out to a commercial provider (such as an insurance company) who will allow you to withdraw smaller lump sums over time. In some rare circumstances there are certain categories of people for whom special rules apply and who therefore can't take their Cash Balance funds and/or their AVC funds as a lump sum under the new flexibilities on the basis set out above. If you are one of those people you will be notified when you take your benefits. THE TAX SMALL PRINT! If you begin to take your pension using the new flexibilities there are additional restrictions on the amount which can then be paid into a pension scheme without incurring additional tax charges. Your annual allowance reduces from 40,000 to 10,000. If you are continuing to pay into a pension arrangement, or could do so in the future (or example, the USS), you should consider whether this limit might affect you. In future this level could alter and you should therefore check this before drawing your benefits using the new flexibilities. LIFE EXPECTANCY On average, people aged 55 today can expect to live to their mid-to-late 80s. It is important not to underestimate your own life expectancy. You should carefully consider whether using either your Cash Balance funds and/or your AVC funds to provide cash rather than regular pension payments is appropriate for you. How and when you take your pension benefits could have an effect on the amount of any State benefits you receive, or subsequently become entitled to. Please see the leaflet from the Department for Work and Pensions (sent with this newsletter) that sets out how some State benefits could be reduced when you take your pension benefits. 3

4 IMPORTANT FACTORS TO CONSIDER IF YOU WANT TO TAKE THE WHOLE OF YOUR CASH BALANCE BENEFIT AS A CASH LUMP SUM: REDUCTION FOR EARLY PAYMENT AND CONSENT It is well known that if you take a benefit early from the Final Salary section, it is reduced for early payment. This also applies in the Cash Balance section too. If you are considering taking your Cash Balance funds after age 55 but before age 65, you should bear in mind that the rules of the Cash Balance Section provide that the amount of your Cash Balance funds account will be reduced to reflect the fact that you are taking those benefits early. In addition the consent of the University or the Trustee is required to take your benefits early. SMALL LUMP SUMS People with small amounts of benefit due from either the Final Salary or Cash Balance sections of the USPS may also have the option to take the benefit as a one off cash lump sum. The benefit must be worth less than 10,000, which applies to the capitalised value of your pension from the USPS, not the annual amount of pension due and includes all your benefits from the USPS. You can access this benefit from age 55. In addition, if you are aged 55 or over, if the total value of all of your pensions savings (across all of your schemes) is 30,000 or less then you can exchange all the benefits for payment of a one-off lump sum. 25% of any lump sum payment would be tax free and the remainder would be taxed at your marginal rate of income tax. Confirmation as to whether you can access a small lump sum is available on request from Capita, the USPS's administrator. Additionally, if your benefits fall within these limits, you will be notified at the time of retirement. 4

5 PENSION SCAMS PENSIONS LIBERATION If you are transferring to a different scheme, you need to be aware of pension scams (also referred to as 'pension liberation fraud'). Pension scams can take different forms. They involve individuals' pension benefits and savings being targeted improperly or for fraudulent purposes. Often this can involve inducing individuals to try to access their funds before they reach the age of 55. Individuals will quite often be targeted by , text or cold calls and, for example, may be promised 'one off pension investments', 'pension loans' or an 'upfront cash payment'. These arrangements can result in the individuals losing most, if not all, of their savings and the possibility of having to pay extremely high penal tax charges as well. To reiterate, you should only obtain financial advice from firms (or individuals) which are authorised by the FCA. As some fraudulent companies falsely advertise that they are regulated by the FCA, you can check the FCA's website to make sure that the company or individual you are dealing with is authorised by the FCA. The website address is: The FCA also provides information on which firms are unauthorised and individuals to avoid. The website is: -firms-to-avoid We have also circulated a copy of a leaflet produced by the Pensions Regulator 'Scamproof your savings' with this newsletter. TRANSFERRING OUT AND FINANCIAL ADVICE If you are considering transferring your Cash Balance or AVC funds to another arrangement, there is no legal requirement to obtain independent financial advice. However, the Trustee strongly recommends that you consider obtaining independent financial advice before you proceed with a transfer this is one of the most important financial decisions you will take. CAN I TRANSFER MY FINAL SALARY BENEFITS INTO A DEFINED CONTRIBUTION ARRANGEMENT? It is also possible that you could make a transfer out of the Final Salary Section to a defined contribution arrangement (e.g. a personal pension scheme) and access that part of your benefit flexibly. As this is such a big decision, legislation requires that any person whose transfer is more than 30,000 MUST have received independent financial advice from a financial adviser who is registered with the Financial Conduct Authority (FCA) and the Trustee must receive confirmation that this has been provided BEFORE a transfer will be paid. The Trustee very strongly cautions any member considering this route to think very hard about the benefit that is being given up. The USPS s administrator will let you know what you need to do if you wish to transfer your benefits from the Final Salary Section. We explain how you can find an independent financial adviser in "where do I go for advice?". 5

6 NEXT STEPS If you have any questions about any of the points in this newsletter, or you require further information, please or, telephone the pensions helpline on (internal extension 21397). The Trustee cannot provide you with personal financial advice or make any recommendation to you. This announcement is intended to be informative only and does not constitute personal financial, legal or tax advice or a recommendation as to what options are appropriate for you. You should also note that pension and tax rules may change in the future and this announcement is intended to provide a summary only. The USPS rules have been amended to allow the flexibilities outlined in this letter. This document is based on our understanding of the law as at the date of this document. This document does not override the USPS trust deed and rules. In the event of a conflict between this document and the USPS trust deed and rules, the provisions of the trust deed and rules shall over ride the provisions of this document. WHERE DO I GO FOR ADVICE? Pension Wise is a free and impartial online government service aimed at helping individuals (who have money purchase benefits) understand the options in relation to what you can do with your flexible benefits. The guidance may be accessed on the internet, by phone or face to face. Details are available at If you wish to speak to Pension Wise, or arrange an appointment for a face to face meeting, the telephone number is If you believe that the changes in how benefits can be taken might be beneficial to you, the Trustee strongly recommends you contact Pension Wise or an Independent Financial or Personal Tax Adviser. You can find an independent adviser in local area by using the Unbiased service: You should also check that your adviser is registered with the FCA Other sources of information are the Citizens Advice Bureau or the Money Advice Service. You should access the pensions guidance and consider taking independent advice to help you decide which option is most suitable for you. Administrator: Capita Employee Benefits The University of Sheffield Pension Scheme Hartshead House 2 Cutlers Gate Sheffield S4 7TL Telephone: Fax: uspspension@capita.co.uk Trustee Directors: Neville Peel (Chairman) (appointed 27 March 1997) Marcia Burke* (appointed 12 October 2012) Andrew Dodman (appointed 31 July 2011) Robert Rabone (appointed 5 July 2005) Marion Simkins* (reappointed 12 October 2012) Rosie Valerio (appointed 27 March 1997) *Elected by members Trustee Company Secretary: Joanne Viney Contact us: The Pensions Office The University of Sheffield Firth Court Western Bank Sheffield, S10 2TN Phone: (Pensions Helpline) Fax: pensions@sheffield.ac.uk