1. Can I pay AVCs to the BlackRock Main Pension Plan and if I can, what are the terms?

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1 Xerox Final Salary Pension Scheme Final Salary Scheme closure information Frequently Asked Questions This is a transcript of the Closure information/faq section from the Xerox Pensions website December Can I pay AVCs to the BlackRock Main Pension Plan and if I can, what are the terms? Yes you can pay AVCs to the BlackRock Plan. You can pay either regular AVCs or one-off AVC payments or a combination of both. You can start, increase, decrease or stop AVCs at any time. You can pay your AVCs through the SMART method of making contributions which means you receive immediate tax relief at your highest rate of income tax and you save National Insurance contributions. Also, the company will give you a 10% uplift to your AVCs if they are paid under SMART (but the Company reserves the right to alter the amount of the uplift or to terminate the arrangement at any time). AVCs will be invested in the same investment funds as your Core contributions. 2. If I opt out of the Scheme and become a deferred pensioner my pension will be increased each year in line with the increase in the Retail Prices Index (RPI), subject to the annual cap of 5% or 2.5%. Is this RPI increase guaranteed or could the Company or Trustees change the percentage or even decide not to pay any increase? The Pension Scheme Rules provide that deferred pensions will be increased each year in line with the RPI subject to the 5%/2.5% cap. Under current law, neither the Company nor the Trustees can change this they cannot worsen the increases or decide to pay no increase at all. 3. If I decide to draw my deferred pension before age 65, it is subject to a reduction for early payment. That reduction is currently a 5% for each of the first 5 years before age 65 and 4% a year for each of the next 5 years. Can Xerox or the Trustees change the percentage reductions? The Trustees set the reductions that apply to deferred pensions paid before age 65. The reduction is intended to ensure that paying a smaller pension from an earlier age costs the Scheme as paying the full amount of the pension from age 65. The reduction takes account of a number of assumptions including how long pensioners will live and future levels of inflation. The Trustees review these assumptions from time to time to ensure that they remain relevant. If the assumptions are changed it could lead to a change in the percentage reduction applied to pensions paid before age After the Final Salary Scheme is closed, if I leave Xerox will my pension be treated in the same way as if I had remained with Xerox and will I still be able to take my pension at age 55? If you leave Xerox you become what is known as a deferred pensioner your deferred pension is based on your Final Pensionable Earnings at the date you leave Xerox and is then increased each year in line with the Retail Prices Index (subject to an annual cap of 5% for service before April 2009 and 2.5% for service from April 2009). As a deferred pensioner you can apply to the Trustees for early payment of your pension from age 55. Currently, the Trustees are prepared to allow individuals to draw their pension before age 65 subject to a 5% reduction for each year the pension is drawn before age 65, plus a reduction of 4% for each year it is drawn before age If you opt out of the Scheme to become a deferred pensioner what are the changes to the terms and conditions e.g. ill-health benefits and AVCs? If you become a deferred pensioner and are awarded an ill-health pension, your pension is reduced by 3% for each year it is paid before age 65; whereas, if you had not opted to become a deferred pensioner and were awarded an ill-health pension, it would not be reduced for early payment. 1 continued on page 2

2 HMRC will not allow you to continue paying AVCs to the Final Salary Scheme if you become a deferred pensioner. However, the most important factor in this decision is likely to be whether in future your salary will increase at a slower or faster rate than the capped rate of RPI. 6. If you are fully paid up in the Final Salary Scheme but continue in employment and then make payments into the BlackRock Plan will Xerox make contributions? Yes, Xerox will contribute to the BlackRock Plan even if you have completed the maximum pensionable service under the Final Salary Scheme. The contributions Xerox will make will be exactly the same as for someone who had not completed the maximum pensionable service under the Final Salary Scheme. 7. Is it worthwhile remaining in the BlackRock Plan for just 4 or 5 years? Will we even get our money back due to short duration and charges? Someone with Pensionable Earnings of 30,000 would have 16,800 paid into their pension account over 4 years if they contributed at the 6% rate. The final amount would depend on the investment return over that period. The management charges that BlackRock make on the investment funds used under the Lifestyle option are 0.4% of the value of your pension account each year. So if you had 16,800 in your account you would pay a charge of 68 a year. If the value of your pension account is less than 2,000 you don t have to buy an annuity, it can be paid as a cash sum less tax 25% of which would be tax-free. 8. Members of the Final Salary Scheme who pay AVCs can increase the maximum cash sum they can normally receive and use the AVCs to provide part or all of their tax-free cash sum. Can contributions to the BlackRock Plan be used in the same way? Only AVCs paid to the Final Salary Scheme can be used to provide part or all of your tax-free cash sum from that Scheme. However, you will be able to take 25% of your BlackRock pension account as a tax-free cash sum. The general rule is to pay at least 6% to BlackRock and if you still want to pay more, consider whether you pay AVCs to the Final Salary Scheme or BlackRock Plan. 9. There is an unfairness in the Final Salary Scheme. Compare two employees who are both age 65 on 31st December One completed the maximum service when they reached age 60 and the other completed maximum service when they reached age 65. The first employee has not had use of the money they paid into the Scheme for 5 years longer than the other employee, but they still get the same pension. This question does not relate to the closure of the Final Salary Scheme. However, I would point out that you would not get this unfairness with the BlackRock Plan the pension you will get will depend on how much you pay in, when you pay it in, the investment return you earn on the pension and the cost of buying a pension when you retire. 10. If a member of the Final Salary Scheme has paid in for 33 years will they still be automatically enrolled in the BlackRock Plan? Yes, everyone under age 65 has to be automatically enrolled into a pension plan under new Government regulations. You can opt out, but we will have to automatically re-enrol you, normally every 3 years. 2 continued on page 3

3 11. I have a personal pension plan can I transfer it into the BlackRock Plan? Yes, check with the personal pension provider to see if they will penalise you if you transfer the money away. If you want to transfer the pension, contact BlackRock and they will arrange it for you. 12. I plan to opt out of the Final Salary Scheme and become a deferred pensioner. If I do, will that mean that my pension would not be subject to any further changes in pension rules and it would NOT be transferred at any future date to BlackRock? You have a right to receive your pension from age 65 the rules of the Scheme cannot be changed to alter that. That does not mean that the terms on which pensions are paid before age 65 will not change the terms for deferred pensioners are set from time to time by the Trustees and these could change. Your Final Salary Scheme pension will not be transferred to BlackRock 13. I have a personal pension plan with Barclays Life which is now part of BlackRock this has been a financial disaster and I won t get back what I invested. Will the Company offer any alternatives to BlackRock? Firstly, Barclays Life are not part of BlackRock. There are 2 things that affect how much you get back: The performance of the investment fund you choose, and The management charges you pay. It is important you choose an investment fund that is consistent with the amount of risk you want to take. Last month we sent you a leaflet setting out the funds you can choose and a guide to help you understand what sort of investment might be suitable for you. Xerox has agreed competitive management charges with BlackRock. 14. If you become a deferred pensioner under the Final Salary Scheme, how does it affect your benefits under the Xerox Life Assurance Plan and Xerox Income Protection Plan? Your benefits under these plans are totally unaffected if you become a deferred pensioner. 15. Why is the Company waiting until the last minute to tell eligible employees about things? We started communicating with employees in August. We have tried to build employees understanding with a series of communications rather than one big one. So far employees have received 5 separate communications on the closure of the Final Salary Scheme, using a mixture of and hard copy. We have laid on almost 40 workshops at 8 main locations, plus 4 on-line workshops and a recorded version. Copies of all materials have been put on the Pensions Website. The only thing we cannot do well in advance is tell employees who have qualified for additional contributions. 16. Is there an option of going part-time and deferring your pension? Deferring your pension and going part-time are not linked. You can opt-out and become a deferred pensioner if you think that will give you a bigger pension. If you wish to go part-time you should discuss this with your manager. If you want to go part-time and draw part, or all, of your pension at the same time, you should discuss Flexible Retirement with your manager. 3 continued on page 4

4 17. Can I stick to just paying AVCs as now? Yes, but the general rule is you should first consider paying at least 6% to BlackRock and then if you still want to pay more consider paying AVCs or extra to BlackRock. 18. What is tax protection? HMRC limit the amount of pension that you can build up tax effectively. The limit is known as the Lifetime Allowance, or LTA for short. From April 2011 the limit was reduced and it is due to be reduced again from April Each time the limit has been reduced HMRC allow individuals to apply to have the previous higher limit continue to apply to them. Having the previously higher limit continue to apply is known as Tax Protection but this normally means that you cannot build up anymore pension or pay anymore pension contributions. Any employee wishing to apply for Tax Protection would have to become a deferred pensioner under the Final Salary Scheme and opt out of the BlackRock Plan. 19. If you choose to become a deferred pensioner, can you leave at 60 or do you have to wait until you are 65? I presume this question means can you draw your pension at 60 if you are a deferred pensioner, because leaving the Company is completely unaffected by becoming a deferred pensioner. You may recall that a year or so ago the Company announced that it would not consent to employees drawing their pension before age 65 on favourable terms. Since then the only way individuals can draw their pension before age 65 has been to become a deferred pensioner and apply to the Trustees for early payment of their deferred pension. Currently, the Trustees are prepared to allow individuals to draw their pension before age 65 subject to a 5% reduction for each year the pension is drawn before age 65, plus a reduction of 4% for each year it is drawn before age I m a paid up member of the Scheme, I have completed the maximum 33 years membership and no longer contribute. Will I be automatically enrolled in the Blackrock Plan? Yes, you will be automatically enrolled in the BlackRock Plan in January If you don't wish to remain in the Plan you simply phone BlackRock (after you have received your BlackRock Welcome Pack towards the end of January) and they will take you out of the Plan and return your contributions. 21. Why should I remain in the BlackRock Plan if I m likely to retire in 3 to 4 years? You might remain in the Plan if: You want to build up more pension few of us have too much pension! You want to get the benefit of the Company s contribution of up to 8% of your Pensionable Earnings. Currently, if you build up less than 2,000 in your pension account with BlackRock, you could take the whole amount as a cash sum 25% tax free and the other 75% less tax. If you build up more than 2,000 you can still take 25% as a tax free cash sum and the other 75% will be used to provide an income. You don t have to use your BlackRock pension account when you retire from Xerox you could use it later to provide yourself with extra pension when you are older or when annuity rates improve. 22. If I defer my pension are there any penalties? There are no penalties but your benefits are calculated differently, so you need to weigh up what you think is best for you. Your deferred pension is worked out based on your Final Pensionable Earnings at the date you decide to become a 4 continued on page 5

5 deferred pensioner. Your pension is then increased in line with the rules for increasing deferred pensions annual increases in line with the Retail Prices Index subject to a cap of 5% a year for service before April 2009 and 2.5% a year for service from April Not deferring my pension relies on increases to salary to increase my pension therefore becoming a deferred pensioner is better. If your salary increases at a lower rate than RPI (up to the 5%/2.5% cap) then becoming a deferred pensioner might be the better option but it is your decision. 23. One drawback to deferring your pension is that the Lower Earnings Limit (LEL) could rise over the next few years, whereas your pension will be frozen. That is not the case. The LEL is a deduction made to your Pensionable Earnings before your contributions and benefits are worked out. If you decide to become a deferred pensioner your pension is based on your Pensionable Earnings and the LEL at the date you opt out of the Scheme and become a deferred pensioner future increases in the LEL have no impact on your pension once you have become a deferred pensioner. If you didn't become a deferred pensioner, then your pension is based on your Final Pensionable Earnings and LEL calculated at the time you retire. 24. BlackRock take a percentage of the fund as payment for running the Plan. What safeguards do we have that in a few years time they won t increase their charges to satisfy shareholders? (I have read in the papers that some pension companies are being investigated for charging excessive commission.) BlackRock has been chosen as the pension provider of all Xerox companies in the UK (Technology and Services) we will therefore have a Plan covering several thousand employees which gives Xerox a lot of negotiating clout. Xerox regularly reviews BlackRock s charges to ensure they remain competitive BlackRock does not pay commission. It makes a single charge called an Annual Management Charge (AMC), which covers everything to do with the running of the Plan, including investment, administration, communications etc. The AMC varies depending on which investment fund you choose to invest in. 25. Xerox has a habit of changing suppliers if they can find a better deal. If they were to change supplier in a few years time, would Xerox bear the cost or would employees have to pay the cost? We hope that BlackRock will be our long-term partner and that their Plan continues to be one of the most competitive in the market. If that doesn t remain the case, then Xerox could choose another pension partner. If that happens it will be up to you whether you transfer your pension account from BlackRock to the new provider as the BlackRock Plan is a contract between you and BlackRock, the money cannot be transferred without your specific agreement. If you decided to transfer your pension account, the full value of your account is transferred and there is no cost or penalty to the employee. 26. When we decide to draw our pension do we have an option to go to market to see if we can get a better annuity rate than what the BlackRock Pension Plan will provide? BlackRock do not sell annuities. Therefore, when you retire, you will have to choose which insurance company you want to buy your pension from and what type of pension you want to buy. BlackRock will provide you with some assistance and will put you in contact with someone who can help you find the best annuity deal on the market. Alternatively, you can find the best deal yourself. 5 continued on page 6

6 27. What are the set-up costs of starting a BlackRock pension? If we leave during 2014, will all our new contributions be eaten up in charges, making our joining the BlackRock Plan not worthwhile? There are no set-up costs with BlackRock. BlackRock charge an annual management charge (AMC), the level of which depends on the particular investment fund you choose to invest in. For example, if you choose the Lifestyle option, that invests in funds which have an AMC of between 0.3% and 0.4% a year. The AMC is levied on the amount of money in your pension account. So, if you have 1,000 in your pension account and invest in the Lifestyle option, the AMC you would pay would be between 3 and 4 a year. As you can see, if you only have time to save a small amount in your pension account it will not be eaten up by charges furthermore, small pots of less than 2,000 can be paid out as a lump sum (25% tax-free and 75% taxed) and don t have to be used to buy an annuity. 6