Pension. Pension Same benefit, less tax. Your guide to

Transcription

1 Your guide to Pension Welcome to Pension, a new way of paying pension contributions into your UPM UK Pension Scheme that will save money for both you and the Company. Simply put, it will reduce National Insurance contributions you pay, therefore increasing your take home pay. It s the same Pension Scheme, but with a plus attached! This leaflet explains how Pension works and gives answers to what we think are the most likely questions. If you still have queries after reading the leaflet, feel free to the helpline on pensionplus@upm.com or to contact your local HR Manager. Pension Same benefit, less tax

2 2 How does Pension work? Currently, both you and the Company pay contributions into the Scheme. Your contribution is deducted from your pay before tax, so you don t pay tax on it; BUT the amount of National Insurance (NI) you pay is based on all of your earnings, including your contributions to the Scheme. Paying through Pension+ means you keep the income tax saving AND you pay less NI here s how: You stop paying into the Scheme Your earnings will be reduced by the amount you used to contribute; for most employees it s 5% The Company increases its contributions by the amount of earnings you have given up Employee contributions cease ƒ Salary is reduced (by amount previously paid in employee ƒ contributions) Employer contribution increases (by amount of salary given up) Employee contributions become Employer contributions Which means: The total paid into the Scheme on your behalf is unchanged Your net take-home pay goes up because you haven t paid NI on your contribution to the Scheme The Company will also make NI savings Am I eligible? All Scheme members are eligible to contribute through Pension+, unless contributing via Pension+ reduces their pay below 14,000 or they are already above State Pension age. This threshold level is in place to ensure employees don t fall below the National Minimum Wage limit or lose out on State benefits. If you are not eligible, you will not be invited to participate. Because we believe all eligible members will benefit from Pension+, you will automatically contribute through Pension+ from October 2011 unless you opt out by Friday 2nd September. See page 3 for details. What are my potential savings? The NI savings you will make depend on how much you contribute and how much you earn. For the current tax year the NI rates for employees have been set at: 12% of earnings between 7,225 and 42,475 2% of earnings over 42,475 For example, if your earnings are 25,000 p.a. and you pay 5% pension contributions, you will save 150 NI per year and your S2P will reduce by 2.55 per year (see below). Impact on State benefits While you will make NI savings through Pension+, there may be a small reduction in your State Second Pension (S2P). There are two parts of the State Scheme: 1. the Basic State Pension (BSP), which is a flat rate retirement pension paid to everyone who has paid sufficient National Insurance contributions. Your basic state pension will be unaffected by Pension+; and 2. the State Second Pension (S2P), which is an additional pension, currently related to your earnings. By opting to pay contributions via Pension+, you are reducing your gross taxable pay and therefore your S2P entitlement will drop slightly.

3 What else do I need to know? 3 Your other pay-related benefits Reducing your pay through Pension+ will not affect how any pay-related benefit is calculated e.g. overtime, shift allowances, bonuses or pay increases. Your contributions Unless you opt out, all contributions to the Scheme will be made through Pension+, including Additional Voluntary Contributions (AVCs). You will not be able to choose to pay your regular contributions through Pension+ and AVCs directly from pay. Lock-in Period Schemes such as Pension+ have to be approved by HMRC (Her Majesty s Revenue & Customs) and follow certain guidelines. Once in Pension+ you can only change your level of contributions (or leave Pension+ altogether) once a year on the Scheme anniversary, 1st October. Exceptions to this are allowed by HMRC if you have a major change in your personal circumstances such as: Maternity/Paternity leave Marriage or Divorce Reduction in pay or hours Birth or death in your family Redundancy of a partner The eligibility threshold of 14,000 is designed to prevent employees participating in Pension+ if by doing so their pay would drop below the National Minimum Wage or to less than the National Insurance Lower Earnings Limit ( 5,304 in the 2011/12 tax year). This is to make sure that your entitlement to State benefits (such as statutory sick pay and job-seekers allowance) is not affected. UPM Pension benefits Pension+ will not affect your UPM pension benefits. Pensionable Salary used in the calculation of your pension contributions and benefits will not be affected by participating in Pension+. Your Pension Contributions will continue to be based on your pre Pension+ salary. None of your Death-in-Service Benefits (including Life Assurance, Dependants Pension and other benefits) will be affected by participating in Pension+. Members who are entitled to a deferred DB pension should note that these benefits will be unaffected. Absence Maternity/Paternity/Adoption leave: There are no changes to current policies; however, AVCs entered into during the 12-month period before the Expected Week of Childbirth (EWC) will not be continued under Pension+. This applies to female employees taking a period of maternity leave and male employees who take a period of additional paternity leave. Ill health/unpaid absence: There are no changes to current policies. Opting out If you don t want to participate in Pension+ you can opt out by completing and returning an opt-out form by Friday 2nd September You can download the form from the pension website at and select the Pension+ menu option on the left hand box on the home page or write to the: Payroll Team, HR Country Services, Caledonian Paper, Meadowhead Rd, Irvine, Ayrshire, KA11 5AT. Important note: if you have already chosen to swap pay for Child Care Vouchers or the Cycle2Work scheme, your earnings will already have been reduced. If the additional reduction for Pension+ then takes your pay to below 14,000, your participation in the Child Care Vouchers or Cycle2Work arrangements will take precedence over Pension+, so you can continue to benefit from those but you will not be eligible for Pension+.

4 4 From the table below, find the annual earnings figure nearest to your own and your contribution rate (3, 4 or 5%) to see how much your pay will increase and the impact on S2P: Earnings before Pension+ 15,000 17,500 20,000 22,500 25,000 27,500 30,000 32,500 35,000 37,500 40,000 42,500 45,000 47,500 50,000 52,500 55,000 57,500 60,000 3% contribution into Pension ,050 1,125 1,200 1,275 1,350 1,425 1,500 1,575 1,650 1,725 1,800 Annual NI Saving (Equals your increase in take home pay) Annual Reduction in State Second Pension (S2P) % contribution into Pension ,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 1,900 2,000 2,100 2,200 2,300 2,400 Annual NI Saving (Equals your increase in take home pay) Annual Reduction in State Second Pension (S2P) % contribution into Pension ,000 1,125 1,250 1,375 1,500 1,625 1,750 1,875 2,000 2,125 2,250 2,375 2,500 2,625 2,750 2,875 3,000 Annual NI Saving (Equals your increase in take home pay) Annual Reduction in State Second Pension (S2P) % basic & 5% AVC into Pension ,000 1,125 1,250 1,375 1,500 1,625 1,750 1,875 2,000 2,125 2,250 2,375 2,500 2,625 2,750 2,875 3,000 Annual NI Saving (Equals your increase in take home pay) Annual Reduction in State Second Pension (S2P)

5 5 Questions and Answers Why is the Company introducing Pension+? Following the closure of the DB scheme, at the request of the unions, the Company undertook to investigate the implementation of Pension+. This method of paying pension contributions is well-established and has become increasingly used by employers as a way of offering employees savings, while maintaining benefits and also saving money for the employer. As you know, we continually look for ways to manage resources efficiently and responsibly. It is common sense to introduce Pension+ for the cost savings it offers to all concerned. Is this a new pension scheme? This is NOT a new pension scheme; it is just a different way of paying pension contributions. The Company already offers the opportunity to exchange pay for benefits currently for Child Care Vouchers and Cycle2Work. For more information on S2P, please visit: For a forecast of your State pension, please visit: What happens if I am contracted out of S2P on a personal basis? Some employees may be contracted via Appropriate Personal Pensions (APPs) i.e. personal stakeholder pensions. From 2012 the ability to contract out of S2P will no longer be available; the Pensions Act 2007 included provisions to abolish contracting out on a defined contribution (DC) basis and the abolition date has now been confirmed as 6 April This means that individuals with APPs will continue to pay full-rate NI contributions, but the APP will no longer receive rebates from HMRC. Members will, therefore, start to build up S2P in the normal way and payment of pension contributions via Pension+ will affect S2P benefits, as explained in the previous Q&A. What s the catch? There are no catches with Pension+. It really is a win-win situation! If you wouldn t be better off by participating you won t be invited to do so. If your pay drops below the 14,000 threshold in future you will be notified and your contributions will be deducted directly from your earnings as at present. Does the Company benefit from Pension+? Yes, the Company s savings will depend on the number of employees who contribute through Pension+. The savings generated will be used to offset the considerable running costs of the pension scheme, which currently stands at around 1M per year. This does not include the employer DC pension contributions of over 5M per year. How is S2P affected? Your State Second Pension (S2P) may be affected, because Pension+ will reduce your gross annual pay between an earnings band set by the Government and may result in a small reduction in the amount of S2P you could receive. For eligible members, the savings you make should more than compensate for this reduction. If you are concerned about this reduction, then paying additional contributions of the amount of your NIC saving is likely to be more than sufficient to replace any reduction in your S2P entitlement. The value of any S2P reduction and the potential to replace it by making additional contributions is dependent on factors such as future earnings and investment performance. Can Additional Voluntary Contributions (AVCs) be paid through Pension+? Basic contributions and AVCs will be combined and paid via Pension+ unless you opt out. Bonuses can also be paid into the Scheme via Pension+. If you wish to know more about this, please pensionplus@upm.com or contact your local HR Manager. Members wishing to reinvest the NI savings as AVC are able to do so and these will be invested tax efficiently as per existing member contributions. Will my other pay-related benefits (e.g. overtime/ bonus/pay rise) be based on my reduced contractual pay after contributing through Pension+ or my original contractual pay? None of the earnings-related benefits you receive as part of your Company benefits package will be affected. They will continue to be based on your pre Pension+ salary. The definition of Pensionable Salary in the Pension Scheme will be your pre Pension+ salary and this will be used to calculate life assurance and other pension-related benefits. How often can I change my level of contributions through Pension+? You will normally only be able to increase or decrease the amount of your contribution once a year, at 1st October renewal, unless you have experienced a significant life event, see page 3 for more details. You may make additional contributions anytime to the

6 6 pension scheme outside of Pension+. These contributions will default into Pension+ at the next renewal. As my earnings are reduced under Pension+, will this affect the amount of mortgage or loan I could receive? No. Reference letters provided by the Company for mortgage or loan purposes will refer to your earnings before any adjustment for Pension+. Historically lenders have been happy with this approach. The State Pension age has started to gradually increase from 60 to 65 for all women born after 5 April Once you reach your State Pension age you will no longer be liable to pay National Insurance Contributions and therefore will not make any savings via Pension+. To find out more about future changes to the State Pension age for both men and women you can visit: Pensionsandretirementplanning/StatePension/DG_ Calculating your State Pension age What if I don t want to contribute via Pension+? While we believe all eligible employees will benefit, if you don t want to contribute through Pension+ you don t have to. However, you won t make any NI savings so your take home pay won t increase. You must complete and return an opt-out form by Friday 2nd September; you can download a form from the pension website at by selecting the Pension+ menu or write to the: Payroll Department, Caledonian Paper, Meadowhead Rd, Irvine, Ayrshire, KA11 5AT. What will happen if I leave the Company Pension Scheme with less than two years of service? Pension+ members who leave with less than 2 years pensionable service will be entitled to a deferred benefit or can elect to take a cash transfer sum to another pension arrangement - refunds of contributions are unlikely to be available due to current HMRC restrictions. I am on maternity leave am I eligible for Pension+ on my return? Yes, you will be eligible for Pension+ on your return as long as your annual salary is not less than 14,000. How will my payslips change? The before and after payslips on the opposite page show how Pension+ increases take home pay. Your basic salary remains unchanged and your payslip will reflect the Pension+ salary together with the increased level of employer contribution. How long will Pension+ be available? The intention is for Pension+ to remain in place indefinitely. However, as Company circumstances and legislation may change, we reserve the right to withdraw Pension+ without notice or compensation, and reintroduce employee pension contributions. In this event, your contractual earnings would be increased accordingly and your contributions will be deducted from earnings and paid into the scheme. By when do I need to make a decision? If you want to join Pension+ you need to do nothing more. All eligible Scheme members will be automatically enrolled in the Scheme; Pension+ will take effect from October What if I have any questions? This leaflet is intended to provide as much information as possible, but if you still have questions, feel free to the helpdesk on pensionplus@upm.com or contact your local HR Manager. We will put updated questions and answers on the pension website, so please check it regularly. If you are unsure about whether or not you should participate in Pension+, please note that the Company is not authorised to give you individual financial advice and this announcement does not do so. If you require advice, you can find details of your nearest independent financial adviser at More information about State pension benefits can be found at under Pensions and Retirement Planning. I am over State Pension age, am I eligible for Pension+? You pay National Insurance Contributions from age 16 until you reach your State Pension age. This is currently 65 for men.

7 7 Before Employee Name Mr J Bloggs Company Name UPM-Kymenne (UK) Ltd Employee No. Pay Group No. Pay Date Pay Method Cost Code th April 2011 Credit Transfer 0103 Tax Code Tax Reference Contribution Letter N.I. Number 747L 961/ A AB123456A Sort Code Account No Pay & Allowancees (& = Non taxable) Deductions (R = Refund) Balance & totals to date (R = Refund) SALARY Income Tax Income Tax (5 x 18.48) CALL OUT NAT INS UPM PEN% (ERS PEN ) NAT INS Taxable Gross EE PENS ERS PEN Ann. SAL Total Total Net Pay Messages Mr J Bloggs After UPM-Kymenne (UK) Ltd Please note the overtime payments remain the same before and after Pension+. SALARY: This is your original salary before pension deductions are sacrificed. This is the figure used to calculate overtime rate, unpaid leave etc Pension+: is deducted from basic pay before tax and NI is calculated, thus reducing the NI liability to the employee Employee No. Pay Group No. Pay Date Pay Method Cost Code th April 2011 Credit Transfer 0103 Tax Code Tax Reference Contribution Letter N.I. Number Sort Code Account No. Pay & Allowancees (& = Non taxable) Deductions (R = Refund) Balance & totals to date (R = Refund) SALARY (5 x 18.48) CALL OUT PENSION Income Tax NAT INS 747L 961/ A AB123456A Income Tax NAT INS Taxable Gross Pension+ TOTPENS+ YTD SALARY YTD O/T 1.5 YTD CALL OUT YTD Taxable Gross = BASIC PAY STAND IN + CALL OUT - PENSION+ TOTPENS+:= Total employee & employer pension contribution National Insurance Normal pay Pension+ pay Difference Total Total Net Pay Messages If you are paying AVCs, please refer to the pension website to see comparative example payslips. Log onto and select the Pension+ menu.

8 Key Facts, Pension Your pay will be reduced by the amount of your Scheme contributions regular and AVCs. In return, the Company will increase its contributions into your Personal Account by an amount equal to the reduction in your pay. As your Pension+ salary will be lower, you will pay lower National Insurance contributions (NICs). You currently pay your pension contributions from pay before tax is deducted, so your income tax is unaffected. Pension Same benefit, less tax Designed and produced by Mercer Limited 9306_2011