PLAN AHEAD INSIDE. UK Retirement Benefits Plan PENSION PLAN. Chairman s update. Accounts. Funding check

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1 PLAN AHEAD August 2014 UK Retirement Benefits Plan PENSION PLAN INSIDE Chairman s update Accounts Funding check Topping up your pension savings Count down to retirement Greater flexibility with your benefits Meet the Trustee Team

2 Chairman s update Miles Buckinghamshire Accounts Welcome to Plan Ahead The last few years have seen the pension s landscape change quite dramatically. The recent Budget announced a shakeup to the rules for how individuals can take benefits at retirement. Although the changes have the greatest impact on defined contributions pension savings (which are not the main benefits provided by the Eaton Plan), the changes will bring greater flexibility to members boosting their pension with additional voluntary contributions (AVCs) or who have a Money Purchase Account (MPA). See page 7 for more about the changes introduced by the Budget and how they affect you. Funds at 1 January 2013 Contributions received during the year Return on investments plus less 274.2m 14.7m 26.3m Your Eaton UK Retirement Benefits Plan pension is a very valuable benefit. The Trustees regularly check that Eaton is willing and able to support the Plan. It is a big commitment for Eaton both in terms of time (potentially more than 40 years into the future) and money. As Eaton is an international corporation we benefit from extra support from outside the UK, and the Plan has a guarantee from Eaton Manufacturing GmbH whose financials are reviewed by the Trustees each year. The Eaton Plan will be paying benefits for many years to come and one of the Trustees main tasks is to ensure that the Eaton Plan has enough money to cover its commitments both now and into the future. We recently completed our annual funding check of the Eaton Plan s assets against its current and future commitments. The figures show that the Eaton Plan s deficit dropped from 57 million at 31 December 2012 to 40 million at December This is very good news for the Plan, and is due to both the Company s ongoing Recovery Payments and slightly better than expected investment performance over the last year. More details are on the next page. Remember this is your newsletter, so if you have a question, or suggestion for how we tell you about the Plan, please let us know your feedback is always very welcome! Miles Buckinghamshire Trustee Chairman Total outgoings during the year Funds at 31 December 2013 Auditor s report Ernst & Young has issued an unqualified opinion on the full financial statements for the year ended 31 December Unqualified means that the audit did not find any significant errors in the Plan s financial records. equals The total cash received by the Plan during the year included Eaton s contributions of 13.6m and employees normal contributions of 1.1m (of which 1.0m was paid by Eaton). 12.4m 302.8m You can see a copy of the full report and accounts on the Plan s website 2 w: t:

3 Funding check Richard Akroyd, Plan Actuary The value of the Plan s assets and the expected cost of its commitments both change over time. This is because estimates of investment returns, interest rates, life expectancy and inflation are all revised regularly. As a result, regular funding checks are needed. This statement covers the final salary part of the Plan but not AVCs or MPAs. Funding position The results for 31 December 2011, 2012 and 2013 are: m 303m 271m 328m 299m 339m Recovery Plan The Recovery Plan sets out the extra contributions needed to make good the shortfall. Following the Recovery Plan means the Company pays extra contributions of around 10.1 million a year into the Plan. These extra contributions are expected to make good the Plan s shortfall by the end of December The funding level of 88% at 31 December 2013 is slightly ahead of the Recovery Plan which expected funding to be 87% at that date. The guarantee agreed between Eaton and the Trustees that contributions are paid will be in place until 2021 by which time the Plan should be fully funded. Other ways of valuing the Plan (or wind-up position) At the end of 2012, the estimated funding level if it was assumed that the Plan wound up was 60%. This had improved to 68% at the end of The wind-up figures exclude AVCs and MPAs. The Trustees are required by law to include the wind-up figures and they do not mean that Eaton or the Trustees are thinking of winding up the Plan. Payments to Eaton and directions from the Pensions Regulator There have been no payments to Eaton from the Plan in the 12 months prior to this Statement. The Pensions Regulator has powers to impose funding plans or modify plans. No such directions have been made for the Plan. Who s in the Plan 56m 57m 40m Active members % funded 83% funded 88% funded Assets Amount needed to provide benefits Shortfall The main reasons for the improvement in funding level since the end of 2012 are: the Company s ongoing Recovery Plan payments, and the Plan s investments giving slightly better returns than anticipated during Deferred members Pensioners and dependants ,214 2,285 2,521 2,500 w: t:

4 Topping up your pension savings AVC funds and performance Paul Black (LCP) If you want to top up your pension, then you can use Additional Voluntary Contributions, or AVCs. If you are already paying AVCs, you can check on their performance to the right. AVCs are very flexible you can choose how much money you put in and when you want to put the extra money in. They also benefit from tax relief so every 10 only costs you 8 or 6 depending on your income tax rate. You can choose where you would like your money invested from a range of funds with Standard Life. It is important to think about the different funds you are invested in. As well as the range of funds to the right, you could also invest in a Lifestyle strategy. This is a strategy which invests in riskier assets initially and then switches into less risky assets as you get closer to retirement. Funds included in the Lifestyle strategy are marked in the table with an asterisk. It is important to think about the risk levels of each fund, for example equities are a riskier investment than bonds. If you would like to start paying AVCs or would like to move existing funds, you should contact the Plan s administrators Towers Watson (details on back page). Over the past year, the Trustees have been working with their advisers LCP to simplify the Plan s AVCs. As a part of this, there was a transfer from an older arrangement with L&G to Standard Life. This took place in May 2014 and all affected members have been informed. You can find out more information on AVCs, the risk levels of different funds and the fund options available to you including the Lifestyle options at where you will find a link to the AVC section of the member booklet. You can also find out more about AVCs at Standard Life s new website You now have more flexibility about how you use AVCs at retirement as a result of the Budget announcements earlier this year. Please see page 7 for details. If you are retiring soon, you may like to consider delaying taking your AVCs to take advantage of this extra flexibility. Remember the Trustees and their advisers cannot provide financial advice, so please consult a financial adviser if you are close to retirement and would like help. Equitable Life AVCs Members invested in the Equitable Life With-Profits Fund should have received a letter from Equitable Life outlining the increased capital distribution to 25% and removal of the 5% exit charge. 4 w: t: Performance (after fees) to 31 December 2013 AVC fund performance 1 year % 3 years % a year Fund Description Fund Benchmark Fund Benchmark Global Equity (50:50) (Active) Global Equity (50:50) (Passive)* Shares (equities) split between UK and overseas markets. Its goal is to outperform the benchmark. Shares (equities) split between UK and overseas markets. Its goal is to perform in line with the benchmark UK Equity Select UK shares (equities) World Equity Overseas shares (ex UK) Index (equities). Annuity Purchase* Gilts with the aim of tracking the cost of buying an annuity. Index-linked* Inflation-linked gilts Corporate Bond* UK corporate bonds Deposit and Treasury* Global Absolute Return Strategies* A mix of cash deposits and other short term cash investments. A mix of shares (equities), bonds and alternative assets with the aim of providing positive investment returns in all markets. Past performance is not a guide to future performance. * Fund included in the Lifestyle strategy Please note that the Global Absolute Return Strategies fund has a target return of LIBOR + 5%. So the 1 year target return is 5.7% and the 3 year target return is 6.0%.

5 Countdown to retirement MPA Fund performance You may have a Money Purchase Account, or MPA, with Standard Life. This is a pot of money from which you will be able to buy a pension when you reach retirement and you may also take some or part of it as a cash lump sum. The fund range available to members with MPAs is the same as for members with AVCs, so please refer to the table on page 4 for the performance of these funds. If you would like to move existing funds, you should contact the Plan s administrators, Towers Watson. Beware of pension liberation fraud! Be very wary of pension offers claiming that you can access the cash part of your pension before age 55. These can be called pension liberation schemes and are often scams and we would urge you to be wary of offers such as these. The potential consequences of these offers include: A poorer retirement because a smaller part of your funds will be available to you as a result of the liberation scam (it is common for you only to be offered access to 50% of your fund) Unexpectedly high fees with commission typically in the region of 20% to 30% Significant tax charges on unauthorised payments of up to 55% You may not see the balance of your funds because they are often invested in risky offshore funds Please speak to a financial adviser before considering offers such as this. The Pensions Regulator has some very useful information on their website about pension liberation: If you are planning now for your retirement, then here are some things to consider. Deciding when to retire It is normally possible to retire from age 55, if your pension at least covers that set by the Government because the Plan is contracted-out of the State Second pension. If you are planning to retire early, you should check when your State pension will start and by how much your Plan pension will be reduced (because it is likely to be paid for longer). On the other hand you may choose to retire later. In this case you will need to let us know. The recent Budget has introduced changes that you may wish to take advantage of, so you may wish to delay your retirement (if it is imminent) until next year. Speak to your local HR or Towers Watson about how to do this. If you need advice we recommend you talk to a financial adviser. You can find out how to find one at: Setting up an annuity using your AVCs or MPA If you decide to set up an annuity, contact Towers Watson for the forms and remember to allow plenty of time. Pre-retirement checklist We normally send a retirement quotation when you are six months from your normal retirement age, which for most members is 65 under the Plan. If you are thinking of retiring early contact Towers Watson for a quotation, preferably six months before you plan to retire. Complete an Expression of Wish Form if your circumstances have changed Find out how much State pension you can expect at and when it will start at: Towers Watson can also help you set up your annuity and provide comparisons between different annuity options. w: t:

6 How your pension works There are two main types of pension: Plan Pension (Final Salary or Defined Benefit or DB for short) You build a pension based on your salary close to retirement and how long you ve been a Plan member. DB pension does not depend on the performance of the stock market Defined Contribution (DC) or Money Purchase Pensions If you pay Additional Voluntary Contributions (AVCs) or have an MPA, then part of your pension savings is `DC. DC depends on what you pay in and the performance of your investments on the stock market YOUR FINAL PENSIONABLE SALARY x 1.5% X YEARS OF PLAN MEMBERSHIP STATE PENSION ALLOWANCE x 1.25% x YEARS OF PLAN MEMBERSHIP DB rule of thumb calculation Suppose you have 20 years service and earn on average 24,000 a year over the three tax years before you retire. Your pension is calculated as: ( 24,000 x 1.5% x 20 years) ( 5,542 x 1.25% x 20 years) = 7,200 1,386 = 5,814 a year Please note: we have simplified the terms and figures to show how DB pensions work. 6 w: t: This allows for your State pension. Your pension statement is a good place to see how much pension you would get at retirement we sent you one in July. Contributions are paid into an account on your behalf and invested in your chosen funds. Over time the funds, in which you have invested, are expected to grow in line with investments. At retirement, your account can be used to buy an annuity and/or tax-free cash. Recent Budget changes mean that you may have more flexibility when you retire, which may allow you to take all your DC pot as cash (some of which would be taxed). See next page for more about this. Current cost of DC pensions Suppose you have a total AVC fund of 50,000, are a male non-smoker, want to retire at 65 with a pension that increases at 3% a year and want to provide a pension for your spouse when you die. Using figures* at 27 June 2014 you could buy a pension of 1,863 a year. *Figures taken from the Money Advice Service website The actual amount would depend on a number of factors. If you have a full National Insurance record, you would get a Basic State Pension as well, currently 5,881 a year. What is an annuity? An annuity provides a regular income for the rest of your life. You would buy one from an insurance company. The insurance company takes a lump sum payment and uses investment returns and your life expectancy to calculate the level of income it will pay you.

7 Greater flexibility with your benefits In his March Budget the Chancellor announced a shake-up of UK pensions giving pensions savers greater flexibility over how they draw their savings. Some of these changes apply now, with others due from April The table below summarises the current rules and the proposed new flexibility (the Government is consulting on the details of the changes). Current rule Pension savers over age 60 with a pension fund (in any one arrangement) worth less than a cash value of 2,000 may take that fund as a lump sum regardless of their total pension savings. Pension savers, over age 60 who have overall pension savings (excluding State pensions) worth less than a cash value of 18,000, can take it all as a lump sum. Pension savers with a secured income of 20,000 a year in payment can draw the remainder of their pension savings as taxed cash. The secured income includes the Scheme pension and State pension. You have to buy an annuity with any proceeds of AVCs or DC savings remaining after drawing up to 25% of your total pension as tax-free cash. New flexibility From 27 March 2014, the pension value increased to 10,000. From 27 March 2014, the overall pension savings value increased to 30,000. Available from age 55 from 2015 From 27 March 2014, the secured income individuals need to have will be reduced to 12,000 a year. From April 2015, you will have complete freedom in how you draw any defined contribution savings. In the 2014 Queen s Speech, it was confirmed that individuals would, if they want, be able to take all of their DC savings as cash in one go. Currently 25% would be tax free, with the rest taxed at your marginal rate. In July the Government said that it will consult further on DB flexibility. Although it is too early to say what this might mean in practice, the Government has confirmed that transfers from DB to DC will still be allowed. However, from April 2015 members will have to show that they have taken financial advice. The Trustees will review the Plan rules and the AVC funds on offer in light of the changes introduced by the 2014 Budget. We will update members if there is any change to their options. In the meantime, you can find out more at: Can I cash in my small pension? If you have a small pension in payment from the Plan or are due one and are over age 60, you may be able to take it as a cash lump sum. Depending on the size of your pension, you may be able to exchange your pension for a cash lump sum of up to 10,000 (if you have retired then all of this cash lump sum will be taxable, if you have not retired 25% would be tax-free). If you are aged around 60, you can broadly work out the cash value of your pension by multiplying it by 20. So a pension of 200 a year is worth 4,000. If you are older the value of a 200 pension will be lower as it is not expected to be paid for as long. Remember that you currently need to be over age 60 to take advantage of this flexibility. Slightly different rules may apply if you are receiving a widow s or widower s pension. Members with AVCs will also be able to access independent guidance when they approach retirement to help them understand their options. 5 things you need to know and how to find them out if you don t Plan contacts. Contact Towers Watson if you have any queries about the Plan or your benefits. What is on our website. Remember that has loads of information about the Plan and your benefits. How to protect your dependants. Complete a Nomination Form and keep it up to date. This lets the Trustees know who you d like to receive any benefits payable. Who to tell if you move. Remember to let us know if any of your details change. Please contact the Plan s administrators, Towers Watson. Who to ask for help. Remember that local HR are happy to help you with your pension forms. Sources of help and advice You can talk or web chat with the Pensions Advisory Service who can help with pension questions; contact them at The Money Advice Service can also help If you require financial advice or are planning to retire soon, then we strongly recommend you talk to a financial adviser. For information about choosing one, go to or Track down any old pensions by contacting the Pension Tracing Service: The Pension Service 9, Mail Handling Site A, Wolverhampton, WV98 1LU Telephone: w: t:

8 Meet the Trustee team Want to know more about the Plan? You can ask for copies of the documents listed below from the administration team or download them from The Statement of Funding Principles The Recovery Plan The Schedule of Contributions Report and Accounts at 31 December 2013 The Actuarial Valuation at 31 December 2011 The Actuarial Reports at 31 December 2012 and 31 December You can find out about the Pension Protection Fund at: From left to right: Brian Longworth, Nick Dupenois, Tony Kilshaw, Miles Buckinghamshire, John Ireson (Missing Shaun Garratt) The Trustee Board is made up of up to seven Trustee Directors including the Chairman. There are currently four Company Nominated Trustees (CNTs) and two Member Nominated Trustees (MNTs), with one MNT position vacant. We re on the lookout! Currently there is a vacancy in the Eaton Electric constituency. If you are interested in becoming a Trustee and representing this constituency please contact the Plan s administrators, Towers Watson. Help with your pension If you have a question about your pension or would like a copy of any Plan documents, please contact the administration team: eatonpensions@towerswatson.com Phone: Post: Web: Towers Watson PO Box 545 Redhill RH1 1YX Who advises the Trustees? Actuary and administrator: Towers Watson Limited Investment adviser: Lane Clark & Peacock LLP Auditor: Ernst & Young LLP Investment managers: BlackRock Advisors (UK) Limited F&C Investments Standard Life Investments Legal adviser: Baker & McKenzie LLP 8 w: t: Keep us up to date if you move Remember to contact Towers Watson to let us know if any of your details change.