ALLEN & OVERY PENSION SCHEME. Defined Benefit Section - Explanatory Booklet

Transcription

1 ALLEN & OVERY PENSION SCHEME Defined Benefit Section - Explanatory Booklet

2 Defined Benefit Section - Explanatory Booklet C O N T E N T S Page No. Introduction... 1 Glossary... 1 Contributions to the Defined Benefit Section of the Scheme... 2 Miscellaneous... 3 Retirement Benefits... 3 Part-time Benefits... 4 Early Retirement... 4 Late Retirement... 5 Tax Free Cash Sum... 5 Dependant s Option... 5 Death in Employment... 5 Death after Retirement... 6 Payment of Lump Sum Death Benefits... 6 Leaving the Scheme... 7 Pension Increases... 8 State Benefits and Allen & Overy s Scheme... 8 Information about benefits... 10

3 Introduction This booklet describes the Defined Benefit section of the Allen & Overy Pension Scheme. If you are a member of the defined contribution section, your benefits are set out in a booklet entitled "Defined Contribution Section Explanatory Booklet", a copy of which can be obtained from the Policies Section of the Intranet. The Scheme is designed to provide a secure income in retirement. Benefits are also paid on a member s death in Allen & Overy s employment or after retirement. The Scheme is set up as a trust fund, so its assets are kept separate from those of Allen & Overy. The Trustee of the Scheme is Allen & Overy Pension Trustee Limited and its directors are currently Charles McKenna, Jonathan Goodwin, Kathryn Greaves, who are appointed by Allen & Overy and Julian Tutty and Dominic Selwood, who are appointed following a nomination process involving Scheme members. Retirement benefits payable from the Scheme are funded in advance; investments are managed on behalf of the Trustee by a specialist pension fund investment manager. The Trustee has set out the principles adopted in a Statement of Investment Principles which is available from the Scheme Administrator in the Human Resource Department on request. Lump sum death in service benefits are currently insured with a leading life assurance office. The Scheme is a registered pension scheme under the Finance Act This means that the Scheme s investments receive valuable tax advantages from HMRC and members contributions currently receive full tax relief. The Scheme is not contracted-out of the State Second Pension (S2P), previously called the State Earnings Related Pension Scheme (SERPS). This means that the benefits you receive from the Scheme will be in addition to any benefits paid by the State. It must be remembered that it is the Scheme s Trust Deed and Rules, which govern its provisions. This booklet is for general guidance and information only and is overridden by the Trust Deed and Rules if it is inconsistent with them or there is uncertainty as to any entitlement. The Trust Deed and Rules are available from the Scheme Administrator in the Human Resource Department on request. If you have any questions about the Scheme or your entitlements to benefits please address them to the Scheme Administrator in the Human Resource Department at Allen & Overy LLP, One Bishops Square, London E1 6AO. Membership of the Defined Benefit section of the Scheme is now closed. Glossary "Annual Allowance" in the context of a defined contribution arrangement, this is the maximum total annual contribution that can be paid to all your pension schemes by you or on your behalf without incurring a tax charge. For the tax year 2006/07 this is 215,000, increasing each tax year to reach 255,000 by "Earnings Cap" for members who joined the Scheme after the 31 st May 1989 the amount of your Pensionable Salary is capped. The amount of the cap is a notional amount based on the Earnings Cap set by HMRC in tax years up to 5 April This is reviewed annually and for the tax year 2006/07 is 108,600. "Final Pensionable Salary" is your Pensionable Salary on the 1st January before your Pensionable Employment ends. 1

4 "Lifetime Allowance" This is the overall amount of pension benefits an individual can have without triggering a special tax charge. Benefits built up across all of an individual's registered pension arrangements not just the Scheme - will count towards this limit. The benefits that count towards the limit will be valued in different ways, depending on the kind of arrangement in which they have been built up and whether or not the benefit is already in payment. The lifetime allowance starts at 1.5 million for the tax year 2006/07 and will rise in specified steps laid down by HMRC to 1.8 million by 2010/11. Individuals may build up benefits in excess of the lifetime allowance but the excess value will be subject to an effective tax charge of 55%. "Normal Retirement Date" is your 62nd birthday. "Pensionable Employment" is your total number of years and months as a member of the Defined Benefit section. "Pensionable Salary" is fixed on each 1st January for the following twelve months and is your planned pay on 1st January. If you are on maternity/paternity/adoption leave on 1 January your Pensionable Salary will be the planned pay you would have been receiving had you not been on maternity/paternity/adoption leave. All other kinds of emolument, including overtime and any form of fluctuating pay, are excluded from Pensionable Salary. If you are on unpaid leave (including unpaid maternity, paternity, adoption or parental leave) on 1st January or are receiving benefits under Allen & Overy's Permanent Health Insurance scheme, special provisions apply. For members who joined the Scheme after 31st May 1989, your Pensionable Salary each year must not exceed the Earnings Cap in force on that 1st January. Details can be obtained from the Benefits Team on ext "State Pension Age" is currently 65 for a man and 60 for a woman. Starting in 2010,the State Pension Age for a woman is to be increased. This will be on a progressive sliding scale for women born between 6th April 1950 and 5th April For all women born on 6th April 1955 or later State Pension Age is 65. Contributions to the Defined Benefit Section of the Scheme Your contribution to the Defined Benefit section of the Scheme is five per cent of that part of your Pensionable Salary which exceeds the Upper Earnings Limit. Contributions are deducted from earnings before income tax is calculated, so the net cost to you is reduced. Allen & Overy pays the balance of the cost of providing the benefits. You can make Additional Voluntary Contributions (AVCs) to secure additional benefits. AVCs can be paid up to a maximum of 100% of your total gross earnings from Allen & Overy in each tax year. AVC payments are processed through the payroll in order for you to receive your full tax relief at your highest marginal rate. Restrictions may apply to ensure you leave enough pay to cover your other statutory deductions such as National Insurance. Allen & Overy has a group arrangement for additional voluntary contributions with Prudential and through the Standard Life Fund Platform. For further information about making additional voluntary contributions contact the Scheme Administrator in the Human Resource Department. 2

5 Allen & Overy pays contributions at a rate calculated by the Scheme Actuary in order to fund the benefits of the Scheme. The contribution rate is set out in the Scheme annual report and accounts, a copy of which is available from the Benefits Team of the Human Resource Department on request. Miscellaneous Maternity, Paternity, Adoption leave and other temporary absences Your membership of the scheme will continue during the paid period of maternity, paternity or adoption leave; this will be for the relevant statutory period (for details contact Human Resource). You will not be required to contribute to the Scheme during that period, but you can pay voluntary contributions during the period of your statutory leave. If you are entitled to unpaid maternity, paternity or adoption leave (for details contact Human Resource) your Pensionable Employment will end when the statutory period referred to above expires. You will remain a member for the purposes of the death in service benefits the Scheme provides until the earliest of: 1. the date you tell Allen & Overy you are not returning to work; 2. the date you rejoin the Scheme on returning to work; 3. the date you lose the right to return to work. If you return to work and your Pensionable Employment re-commences, the two separate periods of Pensionable Employment will be counted as being continuous for the purpose of calculating your Scheme benefits. Subject to Allen & Overy s discretion, paid temporary absence which is not maternity, paternity or adoption leave will normally count for pension; however, unpaid absence will not normally be counted. Career Breaks Your Pensionable Employment is suspended and no contributions are payable. However, you remain a member of the Scheme for the purpose of Death Benefits on the basis set out in the terms of your Career Break confirmation letter. Transfers into the scheme A transfer may be accepted into the Scheme under the AVC arrangement. Members interested in this option should apply to the Scheme Administrator. Retirement Benefits Your pension payable from the Defined Benefit section of the Scheme at Normal Retirement Date will be one sixtieth of your Final Pensionable Salary at the date you retire for each year of your Pensionable Employment, less an amount to take account of your pension under the State Second Pension. This State Second Pension deduction is described later in the booklet. Please note that this deduction is applied to your Allen & Overy Pension at your retirement date irrespective of your eligibility to claim your State Second Pension. In addition to the Scheme pension you will also maintain any entitlement you may have to a State pension from your State Pension Age. 3

6 If your Scheme benefits, when they come into payment, are worth more than the Lifetime Allowance applicable at the time of your retirement, you will be subject to a recovery charge on the excess. This charge will be 25% of the benefit if the excess is paid to you as a pension (which will also be subject to Income Tax on the balance), or 55% if it is paid as a lump sum. Part-time Benefits If you work for Allen & Overy part-time, the period of your Pensionable Employment will be adjusted to achieve its notional full-time equivalent. For example, if you work 50 per cent. of the fulltime hours for the job you do, over a period of 4 years when you are in the Pension Scheme the period of Pensionable Employment used in calculating your pension will be 2 years. If your Pensionable Employment consists of full and part-time working, a separate calculation of Pensionable Employment will be made relating to each period of service. The aggregate of all the periods of Pensionable Employment is used in the pension calculation. An example of the amount of Pensionable Employment used to calculate your pension at Normal Retirement Date if your pensionable service consists of periods of full and part-time service is as follows: 5 years at 100% of full-time hours 2 years at 50% of full-time hours 3 years at 100% of full-time hours 5 years at 30% of full-time hours The period of Pensionable Employment would be: 5 + (50/100 x 2) (30/100 x 5) = = 10.5 For the purposes of calculating your pension your Final Pensionable Salary will be converted to its notional full-time equivalent. For example, if you work 50 % of the full-time hours for the job you do your Final Pensionable Salary will be multiplied by two. Early Retirement If Allen & Overy agrees, you can retire at any time after your 50th birthday with an immediate pension. It will be based on your Final Pensionable Salary and Pensionable Employment completed at the date of retirement and will be reduced to allow for its longer period of payment on a basis advised by the scheme actuary. From April 2010, as a result of a change in legislation, the earliest age at which you may retire will be at age 55. If you joined the Scheme on or before 1st January 1992, and retire on or after your 60th birthday, you do not require the consent of Allen & Overy to take early retirement and your pension will not be reduced. Early retirement on grounds of ill health can be at any age and the pension is calculated in the same way as for normal early retirement. Evidence of ill health satisfactory to Allen & Overy must be produced. 4

7 Late Retirement It is possible, if the Trustees and Allen & Overy agree, for you to choose to have your pension and tax free cash sum paid on or after Normal Retirement Date whilst you are still employed by Allen & Overy. If you continue to be employed by Allen & Overy and do not wish to have your pension paid, your contributions will stop at Normal Retirement Date and your pension benefit will become deferred until you leave Allen & Overy. Benefits paid after Normal Retirement Date will be increased to take account of their postponement on a basis advised by the scheme actuary. Tax Free Cash Sum Under current HMRC rules, you can exchange part of your pension for a tax free cash sum at the date it starts to be paid. The cash sum must not normally exceed 25% of the fund value of your pension, (where the fund value is broadly calculated to be 20 time your annual pension). The amount of pension given up to pay for the cash sum is decided by the Trustee on actuarial advice. You may also take a tax free cash sum of 25% of any AVCs you have paid. Please note that if you started paying AVCs prior to 17 March 1987 you may take 100% of your benefit as a cash lump sum. If the value of your pension benefits (from all sources) are worth less than 1% of the Lifetime Allowance when they come into payment, you may be able to receive the whole of your Scheme benefit as a cash sum. This equates to an annual pension of 750, or total value of 15,000 in the tax year 2006/07. Please be aware that no lump sum can be paid before you become entitled to payment of your pension. You will also be asked to provide the Trustee with details of the amount of the Lifetime Allowance available to you. Dependant s Option The Scheme provides a spouse or civil partner s pension on your death after retirement, but you may wish to increase its amount or provide a pension for another dependant. This can be done, if the Trustee agrees, by giving up part of your own pension on retirement. The total pension payable to a dependant must not be more than the pension you keep for yourself (before you exchange any part of it for cash). The amount of pension given up to provide a dependant s pension is decided by the Trustee on actuarial advice. Death in Employment If you die in employment on or before Normal Retirement Date there will be payable: a cash sum equal to any contributions you have paid to the Scheme; and four times your Salary (see below) at the date of your death, with the exception of death occurring during a Career Break see above; and a pension for life to your spouse or civil partner equal to 50% of the pension you would have received (based on Final Pensionable Salary at the date of your death) if you had stayed a Member until your Normal Retirement Date, the spouse or civil partner's pension will be increased by the amount of pension which a single premium equal to your Salary at death will secure, with the exception of death occurring during a Career Break see above 5

8 "Salary" is the annual amount of your planned pay at the date of your death. Your Salary may be subject to an earnings cap. The cash sums are paid as described under "Payment of lump sum death benefits". If you die in employment after Normal Retirement Date the benefits payable will be those which would have applied if you had retired on the day before your death. If your spouse or civil partner is more than ten years younger than you the pension payable may be reduced in amount. Details are available from the Scheme Administrator. Death benefits are also subject to the Trustees being able to obtain appropriate insurance cover. (You will be notified if there are any problems with obtaining this.) Other dependants Pensions are payable on your death to your spouse or civil partner. If you do not leave a spouse or civil partner it may be possible to pay an equivalent benefit to another person who is deemed to be dependent on you to a substantial extent at your death. Details are available from the Scheme Administrator in the Human Resource Department, whom you should contact in writing. Death after Retirement If you die after retirement (which includes early retirement), as a pensioner there will be payable: if you die less than five years after retirement, a cash sum equal to the value of the pension you would have received for the balance of the five years period (but excluding any part of it secured by voluntary contributions); the cash sum is paid; as described under 'Payment of lump sum death benefits'. a pension for life to your spouse or civil partner equal to 50 % of the pension you were receiving (or would have received if you had not taken any of it in cash form or surrendered any of it to provide an additional dependant s pension) at your death. However, any pension secured by voluntary contributions is excluded from this calculation. Your spouse or civil partner must have been married to you or be your civil partner at the time your Pensionable Employment ended to qualify for a pension. If you are not survived by a spouse or civil partner, the Trustee may, if Allen & Overy agrees, deem any person who in the Trustee s opinion was dependant on you to a substantial extent at the date of your death to be your spouse for the purposes of awarding Scheme benefits. If your spouse or civil partner is more than ten years younger than you the pension payable may be reduced in amount. Details are available from the Scheme Administrator. Payment of Lump Sum Death Benefits For tax reasons, the Trustee has discretion as to who receives any cash sum benefit on your death. The benefit can be split between different people. It will normally be paid to your spouse or civil partner or close family. You are asked to complete an Expression of Wish form to suggest to whom any death benefit might be paid. The Trustee will take account of your wish but is not legally bound by it. You should update your Expression of Wish form if your circumstances change. The form can be found on the Allen & Overy intranet under Policies/UK/Employment Manual/Life Assurance or obtained from the Benefits Team in the Human Resource Department. 6

9 Leaving the Scheme If your employment with Allen & Overy ends and you do not receive an immediate pension, you will be entitled to the benefits detailed below. The same benefits apply if you choose to opt out of the Scheme while staying in Allen & Overy s employment. If you decide to opt out of the Scheme the period of notice required is one month If you opt out of the Scheme and wish to rejoin in the future, you will not be able to rejoin the Defined Benefit section of the Scheme. Allen & Overy s consent will in any case be required before you can join the defined contribution section. If you had completed less than two years Pensionable Employment on leaving Allen & Overy or opting out of the Scheme, your membership of the Scheme would have ceased and you would have received a refund of the contributions you had paid to the Scheme (including any voluntary contributions), less tax (currently 20%). If you have completed at least two years Pensionable Employment on leaving Allen & Overy or opting out of the Scheme, you will be entitled to a deferred pension starting on your Normal Retirement Date (or your 60th birthday if you joined the Scheme before 1st January 1992), calculated and payable in the same way as for retirement at Normal Retirement Date, but it will be based on your Pensionable Employment completed, and Final Pensionable Salary, at the date you leave. The deferred pension is increased up to the date it starts to be paid by the lesser of 5 per cent. per annum and the increase in the Retail Prices Index over the period from leaving active membership. The following options are available: It may be possible to arrange for the transfer of the value of your benefits in the Scheme to another employer s scheme, a personal pension scheme or a "buy-out" policy with an insurance company. Details will be available from the Scheme Administrator in the Human Resource Department at the time you leave. You may request a statement of the amount of your transfer value at any time, although the Trustee may limit the number of calculations to one a year. Your transfer value is worked out as the amount that needs to be invested in order to produce your expected benefits at retirement. It includes an allowance for guaranteed pension increases and for any discretionary benefits that you might receive if you kept your pension in the Scheme. The calculation of your transfer value is based on your age and on certain assumptions (mainly about future inflation rates, investment returns and the length of time you will live). You should note that the amount of the transfer value will depend on investment conditions at the time of the quotation. For this reason, transfer values can go up and down. However, the amount shown in your quotation will be guaranteed for three months. If you have paid additional voluntary contributions, the transfer value relating to these will be the value of your account. If you have not exercised the transfer option above, you can request to take your deferred pension before the date it would otherwise start to be paid (but not before age 50 unless you are suffering from incapacity), subject to the agreement of the Trustees. Please note that, as a result of a change in legislation, the minimum age will increase to 55 from April The amount paid will obviously depend on the date selected. 7

10 When your deferred pension starts you can exercise either or both of the options as previously described under 'Tax Free Cash' and 'Dependant's Option'. You will be given a full statement of your benefits and options available when you leave the Scheme. You should tell the Scheme Administrator in the Human Resource Department when you wish to select any of the above options. If you die while entitled to a deferred pension but before it starts to be paid the contributions you have paid to the Scheme will be paid as described in the next section. In addition your spouse or civil partner will receive a pension for life equal to 50% of the amount of your deferred pension at the date of your death. Your spouse or civil partner must have been married to you or be your civil partner at the time your Pensionable Employment ended to qualify for a pension. If you are not survived by a spouse or civil partner, the Trustee may, if Allen & Overy agrees, deem any person who in the Trustee s opinion was dependant on you to a substantial extent at the date of your death to be your spouse for the purpose of awarding Scheme benefits. If your spouse or civil partner is more than ten years younger than you the pension payable may be reduced in amount. Details are available from the Scheme Administrator. If you remain in employment, a lump sum of four times salary (with the exception of a death occurring during a Career Break) will be paid on your death. Pension Increases Whilst in payment, all pensions from the Scheme are increased automatically on each 1st January. Pensions increase by 5% p.a. compound, subject to the total percentage increase since the pension started to be paid, being no more than the increase in the Retail Prices Index from that time up to the October before the increase is granted. Allen & Overy can award further increases to pensions in payment at its discretion, with the consent of the Trustee. State Benefits and Allen & Overy s Scheme Benefits from the Allen & Overy Pension Scheme are paid in addition to any State Pension benefits you may be entitled to receive. The State Scheme is currently made up of two tiers, both of which are payable from State Pension Age: State Basic Pension State Second Pension (S2P). State Pension Age is currently 65 for a man and 60 for a woman. However, between 2010 and 2020 it will be gradually equalised to age 65 for both men and women. State Basic Pension The State Basic Pension is a flat-rate weekly pension which, provided you have made sufficient National Insurance contributions, you will receive in addition to your benefits from the Allen & Overy Pension Scheme. If you have not made National Insurance contributions for the majority of your working life you could still be entitled to a State Basic Pension on a reduced basis. Information regarding the State Pension Scheme is available from your local Department for Work and Pensions (DWP), see their website at 8

11 State Second Pension (S2P) The second tier of the State Pension Scheme (S2P) is also paid through National Insurance contributions. It aims to provide a pension related to part of your earnings. Delaying a claim for the State Pension You may choose to delay your claim for five years after reaching your State Pension Age in order to receive a lump sum payment. If you are interested in this option you should contact your local Department for Work and Pensions (DWP). The Defined Benefit section of the Scheme is designed to integrate with the State scheme - this means that Allen & Overy takes State benefits into account in setting the level of benefits the Scheme provides. Allen & Overy reserves the right to make changes to the Scheme benefits in the light of any future changes to State benefits and the ways in which they are paid. The amount of the deduction from your A&O pension will take into account the current level of pension under the State Second Pension. This deduction is calculated on your salary between two figures called the lower and upper earnings limits. These limits are set by the State to calculate your social security contributions and your State pension entitlement. They are adjusted each year. In the tax year 2005/06 these were 4,264 and 32,760 per annum and for the tax year 2006/07 these are 4,368 and 33,540 per annum. The deduction which is applied is calculated as shown in the chart below. The lower earnings limit is subtracted from your Pensionable Salary, or from the upper earnings limit if that is less than your Pensionable Salary. The lower and upper earnings limits are taken at their amounts on the 6th April in the year in which your Pensionable Employment ends. The result is multiplied by the period of your Pensionable Employment and then divided by a figure which varies according to your year of birth: Year of birth divide by: Year of birth divide by: 1936 or earlier or later The lower deduction for younger members reflects the reduced pension they will receive under the State Second Pension. The deduction will be made from your Allen & Overy pension irrespective of your State benefit entitlement. Payment of pensions Pensions are payable for life. They are paid monthly in advance, normally direct into a bank, building society or Giro account. Income tax is deducted on the PAYE basis. 9

12 Divorce Provisions for pension sharing on divorce were included in the Finance Act 1999 and the Welfare Reform and Pensions Act The Trustee of the Scheme has issued guidelines which are available upon request from the Benefits Team. You should advise the Scheme Administrator at the earliest opportunity if you are in the process of a divorce and whether any financial settlement is likely to affect your accrued benefit in the Scheme. Information about benefits Every member of the Scheme is given a personal statement each year providing details of Scheme benefits. You may ask for an estimate of your transfer value at any time, although the Trustee may limit the number of calculations to one a year. Any enquiries about your own benefits or the Scheme generally should be addressed to the Scheme Administrator: Karen Young Allen & Overy Pension Scheme One New Change London EC4M 9QQ. The Cheviot Money Purchase Scheme Some Scheme members are entitled to benefits under The Cheviot Money Purchase Scheme (formerly called The Solicitors Staff Pension Fund), earned before the A&O Scheme started in The effect this has on Scheme benefits has been notified on an individual basis. Annual Report and Accounts The Annual Report and Accounts are drawn up to the 30 th April each year and a copy is available on request from the Scheme Administrator in the Human Resource Department. Assignment of benefits Scheme benefits cannot be assigned or transferred to another person or used as security for a loan. If you attempt to do any of these things, or become bankrupt, your benefits will be forfeited. Amendment and discontinuance The Scheme can be amended at any time by Allen & Overy if the Trustee agrees. By law, no amendment may adversely affect a beneficiary s accrued rights unless he or she consents. Allen & Overy expects to continue the Scheme indefinitely but reserves the right to discontinue it without replacing it by another scheme. The Trust Deed and Rules contain detailed provisions about beneficiaries rights in the event of discontinuance. Dispute Procedure If, having raised matters for the Trustee's attention, you do not feel your concerns have been adequately dealt with, the trustees have an Internal Dispute Resolution procedure that should be followed. A copy of the procedure may be obtained from the Benefits Team in the Human Resource Department at Allen & Overy, One New Change, London EC4M 9QQ 10

13 If, having followed the procedure, you remain unsatisfied, you are entitled to raise your case with The Pensions Advisory Service (TPAS). If TPAS is unable to resolve matters, the complaint would go to the Pensions Ombudsman, who has statutory powers to investigate and determine any complaint or dispute of fact or law in relation to the Scheme. The address for TPAS and the Ombudsman is; 11 Belgrave Road London SW1V 1RB Telephone number for TPAS: Telephone number for the Pensions Ombudsman: The Pensions Regulator (the Regulator) The Pensions Regulator is a Government body in force to oversee the legal safeguards in place for members of group pension schemes. The Pensions Regulator is able to intervene in the running of schemes where trustees, employers or professional advisers have failed in their duties and it has the following powers: to suspend, disqualify, remove and replace a trustee; to apply to the courts for injunctions, or restitution orders, to prevent the misuse or misappropriation of assets; to impose fines on corporate bodies or individuals, and in extreme circumstances to wind schemes up. Useful information about the Regulator (and copies of the Codes of Practice it has produced so far) can be found on its website: The Pensions Regulator can be contacted at: The Pensions Regulator Napier House Trafalgar Place Brighton East Sussex BN1 4DW Tel: Fax: customersupport@thepensionsregulator.gov.uk Registry and Tracing Service The Scheme has registered with the Register of Occupational and Personal Pension. To trace a pension scheme to which you have previously belonged you should contact the DWP Tracing Service at: 11

14 Pension Tracing Service The Pension Service Whitley Road Newcastle-upon-Tyne NE98 1BA Tel: The term "Allen & Overy" means Allen & Overy LLP and/or its affiliated undertakings Last updated: December