Continuous Pension Plan

Transcription

1 Continuous Pension Plan A net annuity solution For employees with a salary above 100,000 Significant new rules for pension are to come into effect on 1 January This will mean that many employees will build up less pension in their employer s pension scheme. The new rules will have the greatest effect on employees with a salary above 100,000. Fortunately there is something you can do about this situation. Your employer has given you the option to top up your pension with the Continuous Pension Plan. Your income when you retire will then be largely unchanged by the legislation. Why choose the Continuous Pension Plan? Your partner s income and your own will remain largely unaffected; you obtain the full benefit of the tax advantage allowed by the government; if you become occupationally disabled Delta Lloyd will pay the contribution on your behalf; you need no medical examination for the additional partner s pension before retirement date if your employer s pension scheme is also with Delta Lloyd (subject to application within four months); you receive a generous discount on the administration charges through your employer; the Continuous Pension Plan is flexible: you can include or exclude individual modules or change your contribution percentage; everything can be arranged with a single signature.

2 What if you take no action? The new tax rules for employer-provided pension schemes might mean that you build up less pension in your pension scheme. You will no longer be able to build up pension in the scheme on any portion of your salary above 100,000. This will mean less income when you retire. Similarly, you will not be able to insure a partner s pension on a salary above 100,000. If you should die on or after 1 January, your partner will therefore receive less partner s pension than prior to that date. The higher your salary, the larger the fall in your old-age pension and partner s pension. What is the Continuous Pension Plan? The Continuous Pension Plan allows you to top up your lower pension yourself. You then make use of the tax advantage provided by the government for a net annuity. You will find more information about net annuity in the box. Your choice of modules in the Continuous Pension Plan is as follows: Module 1: top up your partner s pension before your retirement date; Module 2: top up your old-age and partner s pension after your retirement date; Modules 1 and 2: top up your old-age and partner s pension both before and after your retirement date. Read on for more information about how you can maintain your partner s income and your own through the Continuous Pension Plan. Delta Lloyd will pay your contribution on your behalf in both modules if you should become occupationally disabled. Net annuity for employees with a salary above 100,000 You are expected to take ever more responsibility for your own pension. You could do so by saving or investing, for instance. However, you would then be liable for tax (on imputed return on investment). From 1 January 2015 the government is providing employees whose salary is above 100,000 an additional opportunity to top up their pension. This will work by building up assets through a net annuity, on which you will not have to pay any tax on imputed return on investment. The amount you pay in for the net annuity is limited to a certain maximum. It is up to you whether you use this additional option. Module 1: Topping up your partner s pension before your retirement date With this module you limit your partner s fall in income if you should die before you retire. This is shown in the figure as the dark orange part of the purse. This involves an insurance policy that pays out to your partner if you die. This is explained below. Salary 100,000 Insured Not insured above 100,000 Insured for less than 100,000 Insured 0 Current situation 1 January 2015 Reduction in insured partner pension before retirement date from 1 January Your partner will be able to buy a net surviving dependant s annuity with the insurance payout. We set this amount so as to achieve a 2% annual increase in benefit. Alternatively, your partner could opt for a constant benefit. He or she may also choose between a lifelong or a higher temporary benefit, or a combination of both. The benefit will largely restore your partner s income. The table at the end of this brochure gives example calculations for various ages and incomes. It is up to you to specify the beneficiary, who is not necessarily your partner. Your contribution for Module 1 The amount that we pay out to your partner if you die depends on the portion of your salary above 100,000. For this there is a monthly premium loading, which you pay from your net salary. The amount of your contribution depends on the amount to be paid out and your age. There are reduced rates for nonsmokers. If you should become occupationally disabled Delta Lloyd will pay the contribution on your behalf. This applies to the contribution that is recalculated each year. Tax advantages with Module 1 Your partner will have to pay no tax on imputed return on investment, wage tax, or inheritance tax on the net annuity payment. This benefit falls under the exemption for inheritance tax, although the exemption for any remaining inheritance will be reduced. If your partner uses the amount paid out for anything other than an annuity payment, then he or she might have to pay tax on imputed return on investment. 2

3 No medical questionnaire or examination You do not need to fill in a medical questionnaire or to have a medical examination for Module 1. This applies to earnings up to 300,000 and only if your employer s pension scheme is also with Delta Lloyd. However, you must apply within four months of becoming eligible for this option. Take a look at the tables towards the end of this brochure to see how the Continuous Pension Plan can limit the fall in old-age pension and partner s pension. Module 2: Topping up your old-age pension and partner s pension after your retirement date With this module you limit the fall in income after you retire. This is shown in the figure as the dark orange part of the apple. You limit this fall by building up assets through investment. This is explained below. Salary 100,000 Build-up From 1 January 2015 the rate of accrual of old-age pension and partner s pension after retirement date will be less No build up above 100,000 Lower build-up to 100,000 Build-up 0 Current situation 1 January 2015 Your contribution for Module 2 You pay a monthly contribution from your net salary. The maximum contribution for the Continuous Pension Plan rises in line with your age and income. You can find your maximum contribution at the end of this brochure. It is up to you how much of the maximum amount you will pay in: 50%, 60%, 70%, 80%, 90% or 100%. If you become occupationally disabled then Delta Lloyd will pay your contribution on your behalf. Your contribution will rise in line with your age. We will pay this rising contribution on your behalf. We deduct risk premiums and administration charges from the contribution. The statement of costs and contributions specifies the charges and risk premiums involved. Investment The remaining amount will be invested. You can arrange for Delta Lloyd to invest on your behalf, or select your own investments from Delta Lloyd funds. If we invest on your behalf we use a lifecycle approach. The younger you are, the more risk we take in order to increase the probability of a high rate of return. We reduce the risk gradually as your retirement date approaches. You will find more about investing in Lifecycles and selecting your own investments on (in Dutch only). There is more information about investment risks below in this brochure. Your payment after retirement When you retire, you use the value of your investments to buy a net old-age annuity and, if applicable, a net surviving dependant s annuity for your partner. You will then receive an additional net annuity payment alongside the pension through your employer. If you should die after retiring your partner will receive an additional net surviving dependant s annuity alongside the partner s pension through your employer. You may choose between a lifelong or a higher temporary benefit, or a combination. The table at the end of this brochure gives example calculations for various ages and incomes. Tax advantages with Module 2 You do not have to pay tax on imputed return on investment on the value of your investments. Neither you nor your partner have to pay wage tax on the amount paid out. Likewise, your partner does not have to pay inheritance tax on the amount paid out. This is because the amount paid out falls under the exemption for inheritance tax, although the exemption for any remaining inheritance will be reduced. If your partner uses the amount paid out for anything other than an annuity payment, then he or she might have to pay tax on imputed return on investment. When we invest in Lifecycles we select your investments in accordance with the time to go to your retirement. Alternatively you can select your own investments from Delta Lloyd funds. 3

4 What do you use to pay for the Continuous Pension Plan? Bij The belegging rationalization in of lifecycles your pension stemmen scheme means wij that uw your beleggingen employer pays a af lower op contribution de tijdsduur to a pension tot uw administrator (such as Delta Lloyd). Your employer might pensioen. U kunt ook zelf beleggen in come to an agreement with you to pay out an amount Delta Lloyd fondsen. equal to the lower pension contribution as higher salary. You could then use this portion of your salary to top up your pension. If you pay a personal contribution, then from 1 January you can also use an amount equal to your lower contribution to top up your pension. Bear in mind that your contribution to the Continuous Pension Plan rises in line with your age. You might later change your mind, or be unable to pay the contribution either from your higher salary, or from your lower personal contribution. You are able to change the contribution percentage at any time. What are the risks? The amount you build up with Module 2 is not fixed in advance, because it is obtained through investment. The price of any net old-age annuity and net surviving dependant s annuity that you purchase in connection with Modules 1 and 2 is not yet known. This price will depend on the interest rate at that time and other factors. More information is given below about investment risk and interest rate risk. Investment risk In an investment-based scheme, we invest your contributions in shares, bonds and real estate. Investments are generally expected to gain in value so that they can be sold for a profit later. However, investments can also lose value, or the gain may be disappointing. This uncertainty is known as investment risk. In order to obtain more certainty about the amount of your pension, we take a lifecycle approach to investment. Interest rate risk The price of net old-age and net surviving dependant s annuities depends on the interest rate at the time of purchase. The lower the interest rate, the more money will be needed to purchase a given amount of pension. The Pension Stabilizer reduces the impact of interest rate changes on the amount of your additional pension. The Pension Stabilizer is a component of all Delta Lloyd Lifecycles. You do not need to fill in a medical questionnaire or to have a medical examination for Module 1. (See Module 1 for the applicable conditions.) Is there a minimum income for joining this scheme? You can join the scheme if you earned 100,000 or more last year. Your employer tells us your pensionable salary. It will generally be twelve times gross monthly salary plus holiday allowance. What if you earn more? Benefits such as a company car, or additional income from another job, can lead to a higher income. If so, you are allowed to base the Continuous Pension Plan on your higher income. What if you earn just over the 100,000 limit? You should ask your adviser whether the Continuous Pension Plan is right for you. Perhaps it is not right yet, but it could be later. If you change your mind later and opt for Module 1 to top up the partner s pension, then strictly speaking you will be too late to qualify for exemption from the medical examination (see Module 1 for the applicable conditions). However, we are happy to make an exception in situations of this kind, and you will not need a medical examination. How do we communicate with you? If you take out the insurance, you will receive a policy and policy conditions. You will also receive a Costs & Value Statement every year. You can include or exclude individual modules or change your contribution percentage at any time. What if you leave your job? You can simply continue with the Continuous Pension Plan if you leave your job with your current employer. Bear in mind that the discount for administration charges through your employer will no longer apply. You can find this discount in the proposal you receive from Delta Lloyd. What if you want to leave the scheme? You can stop with the Continuous Pension Plan at any time. You have the following options: to stop paying contributions (non-contributory continuation); 4

5 to do without Module 1 to top up the partner s pension. Your investments in Module 2 will be unaffected. What if you die? Your partner will receive 90% of the value of the investments (provided you selected this option); to move the value of the investments to a different net annuity insurance; to use the value of the investments for something else. We call this commuting the insurance. N.B. you might then have to pay tax on imputed return on investment. Differences with your current pension scheme The table shows the main differences between your current pension scheme and the Continuous Pension Plan. Current pension scheme Continuous Pension Plan For salary up to 100,000 For income above 100,000 Pension Employer takes out the insurance Membership is compulsory Introductory letter and Uniform Pension Statement Lifelong payment only No commutation option Pension payment subject to wage tax Annuity You take out the insurance yourself It is up to you whether to join Policy and conditions, Costs & Value Statement Lifelong and/or (higher) temporary benefit Commutation possible No wage tax on the net annuity payment Costs and contributions You pay the following charges and premium loadings for the Continuous Pension Plan: administration charges: 79 a year for either or both of Module 1 and Module 2. You receive a discount through your employer; loading for continued payment of the contribution by Delta Lloyd if you become occupationally disabled; for Module 1 you pay a loading for the insurance that will pay out if you die; for Module 2 you pay the following investment costs if you invest in the Lifecycles: 0.5% purchase costs and 0.48% recurring costs. The recurring costs are deducted from the price of the fund concerned. You will find the amounts that apply to you in your proposal for the Continuous Pension Plan. Together with your proposal you will also receive a list of the total costs and contributions throughout the term of the insurance. What happens with the contribution? The example below illustrates what happens with the contribution in the Continuous Pension Plan, and how much is left to be invested. Paul is 45 years of age, married, and has an annual salary of 175,000. He does not smoke. Paul has selected Module 1 and Module 2 in the Continuous Pension Plan. He wants to invest 100% of the contribution in the Lifecycles. Based on his age and salary, his maximum contribution in 2015 is 6.8% of 75,000. This is a total of 5,100 ( 425 a month). We explain below what happens with this amount: - Paul pays 5,100 into the Continuous Pension Plan. - We deduct 69 in administration charges, for which Paul receives a policy and an annual Costs & Value Statement. We also process any changes, such as salary rises. - What if Paul becomes occupationally disabled? In that case we will pay the entire 5,100 in contributions on his behalf, including any future increase in line with his age. For this Paul pays a premium loading of If Paul dies, his partner will receive 431,600 to purchase a net surviving dependant s annuity. For this Paul pays a premium loading of After deduction of administration charges and loadings the amount left is 4,519. We invest 100% of this amount on Paul s behalf in Lifecycle funds. For this Paul makes a one-off payment of 0.5% in purchase costs. This is 23. This leaves 4,496 to be invested in the first year. Continuous Pension Plan amounts in 2015: Continuous Pension Plan amounts in 2015: Maximum contribution 5, Administration charges Loading for continued payment with occupational disability Loading for supplementary partner s pension Available for investment 4, Purchase costs 0.5% Invested amount 4,

6 Continuous Pension Plan tax advantages Needless to say, there are other ways of topping up your pension. The table shows a few of these ways, and the tax you will then pay in comparison with the Continuous Pension Plan. Continuous Pension Plan tax advantages Ways of topping up your pension Choice Applied to Tax on imputed return on investment Tax on payout Personal saving Old-age pension Yes No Yes Personal investment Old-age pension Yes No Yes Individual gross 1 annuity arrangement Individual term life insurance Continuous Pension Plan Module 1 Continuous Pension Plan Module 2 Old-age pension No Yes No Partner s pension before or after retirement date Partner s pension before retirement date Old-age and partner s pension after retirement date Yes Yes Yes No 2 No No No 2 No No Inheritance tax 1 The contribution paid is conditionally deductible from the income in Box 1 2 The amount paid out must be used to purchase a net surviving dependant s annuity Your proposal for the Continuous Pension Plan We will send you a proposal for the Continuous Pension Plan with example calculations. Your proposal will be based on your current salary and both modules. We will assume that the value of your investments on retirement date will be used to purchase a net old-age annuity and a net surviving dependant s annuity (70% of the net old-age annuity). It goes without saying that you may make different choices. Ask for advice Read through your proposal carefully with an independent adviser to be sure that the Continuous Pension Plan is right for your financial situation. Your adviser will also be able to calculate alternative choices for you. If you decide to top up your pension with the Continuous Pension Plan, everything can be arranged with a single signature. How much are you allowed to contribute? The table shows the maximum percentage of your salary above 100,000 that you can use for the Continuous Pension Plan. Your contribution percentage will be adjusted upwards automatically every five years. It is up to you how much of this maximum amount you will contribute: 50%, 60%, 70%, 80%, 90% or 100%. Age % % % % % % % % % % % Contribution percentage 6

7 Example calculations You can see below how the Continuous Pension Plan is able to limit any fall in your partner s pension and old-age pension. The example calculations are based on both Module 1 and Module 2 being chosen. If you choose Module 2 only, the addition to your old-age pension and partner s pension after your retirement will be higher. If you require no partner s pension after your retirement date, then the addition to your old-age pension will be higher. Limit of fall in partner s pension before retirement date with Module 1 Age Salary Net fall on Envisaged net partner pension top-up ,000 4,032 4, ,000 4,851 4, ,000 10,395 10, ,000 16,065 16, ,000 3,780 3, ,000 7,560 7, ,000 5,512 5,583 Limit of fall in old-age pension with Module 2 Net fall Age Salary Expected net old-age pension top-up on Pessimistic expected return With 4% return With historical return ,000 5,760 2,150 3,240 4, ,000 6,930 2,840 4,220 5, ,000 14,850 6,950 10,210 12, ,000 22,950 10,190 14,880 16, ,000 5,400 2,430 3,500 3, ,000 10,800 5,450 7,790 8, ,000 7,875 3,930 5,390 5,540 Limit of fall in partner s pension after retirement date with Module 2 Net fall Age Salary Expected net partner s pension top-if up after retirement date on Pessimistic expected return With 4% return ,000 4,032 1,505 2,268 3, ,000 4,851 1,988 2,954 3, ,000 10,395 4,865 7,147 8, ,000 16,065 7,133 10,416 11, ,000 3,780 1,701 2,450 2, ,000 7,560 3,815 5,453 5, ,000 5,512 2,751 3,773 3,878 With historical return 1 The fall in pension is based on an average salary scheme. This may be different for your own pension scheme. 2 This payment is assumed to increase by 2% every year. 3 The performance figures used in this calculation are based on investment in the Neutral Lifecycle. We have assumed with Module 2 that a net surviving dependant s annuity (70% of the net old-age annuity) will be purchased alongside a net old-age annuity on retirement date. Otherwise the old age pension will be topped up to a higher amount. 7

8 P For additional information If you have any other questions, please contact your employer or an independent adviser. You may also contact the Delta Lloyd Client Service Desk with any questions about your Delta Lloyd pension scheme on +31 (20) No rights may be derived from this brochure. Delta Lloyd Levensverzekering NV P.O. Box BA Amsterdam Chamber of Commerce Amsterdam: