Income Drawdown Plan (Pre 75) Member s explanatory guide

Transcription

1 Income Drawdown Plan (Pre 75) Member s explanatory guide

2 Contents Introduction General information About your plan Eligibility Transferring your pension funds into your plan If you have not yet designated your funds If your pension fund is already designated for income drawdown Adding further transfers Investing the pension funds in your plan Our charges for running your plan What you receive from your plan Taking income from your plan Using all or part of the value of your plan to buy an annuity If you die If you get divorced Transferring out of your plan Approaching age 75 Other information Queries and complaints Definitions Notes

3 1 Introduction This guide contains important information about your Income Drawdown Plan (Pre 75). We call it your plan throughout this guide. Please read this carefully. All terms are correct at the date of publication but may alter in the future. Please remember to let us know if you change your address so we can keep in touch with you when necessary. You should keep this booklet with your policy provisions and certificate in a safe place, as you may need to refer to them in the future. Please refer to the Key Features of the Income Drawdown Plan (Pre 75) (X2079) for further details on the aims, commitments and risks of the product. Unless specifically mentioned, this guide is about Flexible Access Drawdown. Your plan will be on this basis if You started your plan on or after 6 April 2015; You started your plan before then but have either asked us to move you to the Flexible Access Drawdown basis or you asked for an income withdrawal that exceeded the maximum level of income you were allowed to take under the previous Capped Drawdown basis.

4 2 General information About your plan Your plan is part of a scheme administered by Clerical Medical. The Clerical Medical Investment Group Limited Personal Pension Scheme is a registered pension scheme under Chapter 2 of Part 4 of the Finance Act This means the pension funds grow free of UK income tax and capital gains tax. Dividends received into the fund from UK shares may have been subject to corporation tax. This cannot be reclaimed. Please note tax rules may change in the future. Eligibility You are eligible to take out an Income Drawdown Plan (Pre 75) if you re aged at least 55 but have not reached your 74th birthday, and have built up your pension fund in one or more registered pension schemes. The age from which you are eligible to take out an Income Drawdown Plan (Pre 75) may change. The scheme has been set up by a legal document called a Deed Poll. This document contains a set of Rules and a Master Policy. The Rules set out how the scheme must be run. The Master Policy contains the detailed terms on receiving and investing the pension funds you transfer to your plan. You will receive a copy of the Master Policy together with a separate policy certificate confirming details of your plan. These are valuable documents please keep them in a safe place. If there are differences between this guide and the scheme documents (including the Master Policy), the scheme documents will apply.

5 3 Transferring your pension funds into your plan If you have not yet designated your funds The Income Drawdown Plan (Pre 75) can accept transfers of pension funds that have not yet been designated for income drawdown. On receipt, the transfer will be designated for income drawdown, any tax-free cash (known as a pension commencement lump sum ) you require will be paid out and the remaining fund will be invested according to your instructions. If you re transferring several plans into the Income Drawdown Plan, each transfer will be designated when it arrives and we ll pay any tax-free cash. Income will normally start once all transfers are received. If your pension fund is already designated for income drawdown If your pension fund is already designated, then your fund must be paid directly into the Income Drawdown Plan as a drawdown to drawdown transfer. This means you cannot transfer additional amounts to your plan from other sources. Product minimums and product charges will apply to each individual plan as set out in the Technical details and charges leaflet (reference X2081). Adding further transfers If you open your plan with a transfer of pension funds that have already been designated for income drawdown, you cannot add to that plan. Investing the pension funds in your plan We invest the funds in your plan in line with your instructions. We offer a range of investment funds for you to choose from: Each of these funds is made up of units. We use the funds in your plan to buy units in the investment funds you choose. The price of the units in each fund depends on the value of the underlying assets. We work out the value of your plan based on the total number of units you have in each fund. If the unit prices fall or rise, so will the value of your plan. For more details on your investment options, please refer to our website or our Investor s Guide (reference 52483), which is available on request. Your financial adviser will be able to help you make your choice. At least 1% of your total investment in this plan must be invested in each of the funds chosen at the outset. The unit price used to allocate units to your plan depends on when we receive your transfer. We calculate the unit prices using the asset valuations taken at noon each business day. If we receive a request to buy units in one or more of the funds before 11am on a business day, we will use the price calculated at noon the same day. If we receive a request after 11am, we will use the price calculated at noon the next business day. You can check the unit prices of your funds on our website If you open your plan with a transfer or transfers of pension fund(s) that have not been designated for income drawdown, you can add further transfers of undesignated funds to the same plan. On receipt of each subsequent transfer, we ll designate the funds, pay any tax-free cash you require and invest the remainder.

6 4 The investment funds available A wide range of funds is available. Together they cover the principal world stock markets as well as gilts, fixed interest investments and property. These funds offer returns directly linked to the performance of stocks, shares and other assets in which they are invested. The funds grow free of capital gains and income tax. The value of any tax benefits depends on your personal circumstances, which may change. Tax legislation may also change. The managed funds offer varying degrees of risk and reward depending on the investment approach of the fund manager. These approaches are cautious (lower risk), balanced (medium risk) and adventurous (higher risk). Your financial adviser will be able to help you decide which funds to consider investing in to create a portfolio that suits your individual circumstances and attitude to risk. You will receive annual statements showing how your investments are progressing. You can also check the unit prices of our funds on our website This holds a wealth of information, investment views and past performance statistics on all our funds. Or you can contact our customer service desk on Pensions are a long-term investment. The retirement benefits you receive from your pension plan will depend on a number of factors including the value of your plan when you decide to take your benefits which isn t guaranteed, and can go down as well as up. The value of your plan could fall below the amount(s) paid in. Switching between investment funds You can change your choice of investments by asking to switch some or all of your units into a different fund or funds. We do not currently charge for switching between funds but may do so in the future. If you wish to switch funds, please complete a Request for a fund variation form (reference G986), which is available on request. We calculate the unit prices using the asset valuations taken at noon each business day. If we get your switch instruction before 5pm on a business day, we ll use the price calculated at noon the next business day unless you let us know a later date. If we get your request after 5pm, we ll use the price calculated at noon on the business day after the next business day unless you let us know a later date. We may change the selection of funds we make available.

7 5 Our charges for running your plan We make certain charges for running and administering your plan. The charges may change in the future. For details of the general charges that may apply to the plan see our Technical details and charges leaflet (reference X2081). For details of the specific charges that apply in your circumstances see your personal illustration.

8 6 What you receive from your plan Taking income from your plan You will have discussed with your financial adviser how much income you want to take from your plan. You can ask for income as a monetary amount, or as an annual percentage of your fund. The income you can take will depend on a number of things, including charges and expenses, and how well the investments perform. High levels of income withdrawals may not be sustainable and in some cases could reduce the value of your plan to zero. If you exhaust your available funds, you should consider how else you will provide for your retirement. Once set up, we ll continue to make regular income payments in line with your current instructions, while you have available funds (see Monitoring your plan). If you ask for your income as an annual percentage of the value of your plan, we ll calculate the amount payable based on the value of your plan on the date of calculation. We ll then split this amount across the payments you have asked for so if you ve asked for monthly payments, we d split the amount across the number of payments between the date of calculation and the next plan anniversary date. The unit price used to realise units in order to make your regular income payment depends on when the payment is due. We calculate the unit price using the asset valuations taken at noon each day. If your regular income payment is due on a certain business day, we ll use the price calculated at noon on the business day immediately before the day your payment is due. One-off withdrawals In addition to any regular income payments, you can take one-off income withdrawals from the plan. Units are realised at the price calculated at noon on the day we process your request. When the units are realised, we ll make the payment to you via BACS and you ll normally receive your payment within a week of us receiving your request, unless you ask for a later date. Fund specific withdrawals For both regular and ad-hoc withdrawals, payments can be made in equal proportion from all investment funds or from one or more specific funds within the plan. Changing your income payments You can start, stop or change the amount of your income payments at any time. You can change the frequency of your income payments on the plan anniversary date each year. If you ask for your income as an annual percentage of the value of your plan, you can ask for a different percentage at any time and we ll recalculate your income payments. If you don t ask us to change the percentage, we ll recalculate your income payments at the plan anniversary date, based on the value of your plan on that date. Monitoring your plan We check each month to see if you will run out of funds in the next two months and will write and let you know if this is the case. If you choose to take withdrawals from specific investment funds, we will tell you when a particular fund is about to be exhausted and ask you to tell us another fund(s) to use for future payments. If you don t tell us another fund(s) we will take future payments proportionally from all funds until you tell us otherwise. Please note: If any income and the charges deducted from your plan are more than any investment growth, the value of your plan will go down. This could reduce the amount of income you can take in the future and the income from any annuity bought later. Tax Income payments from the plan are treated as earned income and taxed under the PAYE system. They will be made net of tax, based on the tax code provided to us by HM Revenue & Customs (HMRC). Until we receive confirmation of your tax code, we will deduct tax on a month one basis. (This gives a proportion of any tax allowances and rates of tax for each pay period. It ignores any previous pay and tax in that tax year, effectively treating the income payment as if it was made in the first month of the tax year.) We will automatically send you a P60 each year, even if you are taking no income. The value of the tax benefits of a drawdown plan depends on your individual circumstances. Tax rules and your circumstances may change in the future. Plans started before 6 April 2015 (Capped drawdown) If you started your plan before 6 April 2015, your income is subject to limits set by the Government. The maximum level of income you can take is set by legislation. The maximum is calculated as a percentage of the single life open market annuity (using rates set by the Government Actuary s Department (GAD)) that could have been secured by the value of your plan. We ll regularly review the maximum level of income you can take for each of the following years until the next review. We ll write to you giving you the new amount.

9 7 Where you designated before 6 April 2011, the review period is five years. Where you designated after 6 April 2011, the review period is three years. You can ask us to review the maximum annual level of income more regularly than this, but we can only do this once a year on the anniversary of the date you first designated funds, and we must get your request in writing before that anniversary. For example, if you first designated funds on 1 July 2014, your next income review is due on 1 July If you wish you could ask us to review your maximum income level on say, 1 July 2015, but we must get your request in writing before 1 July We ll write and confirm the new maximum income level, which will then apply for each of the following three years, starting on 1 July 2014, unless you request a further review before the end of that three year period. If you make an additional transfer payment to an existing plan, the maximum income available will be recalculated at that time, based on the new total plan value. If you take a one-off income withdrawal from the plan, it will be subject to the maximum income figure for the review year in which you want to make the withdrawal. If you do this, you need to take into account any regular income and one-off income withdrawals already taken or that you intend to take in that review year. We will monitor the amount of income you take against the maximum, and will notify you if you are approaching it. Following a review, if the yearly income we are currently paying you is more than the new maximum, we will reduce the payments we make so your income is paid evenly on the same payment dates but at a level that is within the new maximum. If you are receiving monthly payments from specific investment funds within your plan, after every regular payment we will check to see if there are enough funds remaining in those investment funds to make the next three months payments. If you receive quarterly or annual payments from specific investment funds within your plan, after every regular payment we will check to see if there are enough funds remaining in those funds to make the next payment. If there are not, we will write to you when a particular fund is about to be exhausted and ask you to tell us another fund(s) to use for future payments. If you don t tell us another fund(s) we will take future payments proportionally from all funds until you tell us otherwise. You can choose to move to the Flexible Access Drawdown basis outlined earlier at any time, but you cannot change your mind. If you ask to withdraw more than the maximum income, we will move you to the new Flexible Access Drawdown basis you cannot then move back to the Capped Drawdown basis. In either case, if you move to the Flexible Access Drawdown basis and take any income, you will be subject to the money purchase annual allowance which will restrict the amount you can contribute if you want to continue pension saving. For more information, speak to your financial adviser. Using all or part of the value of your plan to buy an annuity You can use some or all of the value of your plan to buy an annuity at any time but you must continue to meet the minimum investment requirement if you want the plan to continue. We will conduct a second test against your lifetime allowance when you buy an annuity. If you re considering transferring to or buying an annuity with another provider, please be aware that other providers may have minimum investment amounts greater than the amount left in your plan. It s therefore important that you regularly review the value of your plan with your financial adviser to ensure that you have enough funds remaining to exercise all the options available to you. We don t currently have a minimum investment amount for purchasing an annuity with the proceeds of your Clerical Medical Income Drawdown Plan (Pre 75). The cost of buying annuities can change significantly over time. If the cost increases, the annuity income you can buy with the final value will be lower. When people buy an annuity, those who live longer gain at the expense of those who die early. If you delay buying your annuity and live longer, you ll not gain to the same extent. If you do decide to use some of the value of your plan to buy an annuity, you should reconsider the amount of income you are taking from your plan so that you do not exhaust your available funds more quickly than you intended.

10 8 Note: If you started your plan before 6 April 2015 and haven t switched to the new Flexible Access Drawdown basis, when you use some of the value of your plan to buy an annuity, we recalculate the maximum income you can take. The new maximum applies from the beginning of the next review year. This will normally mean that the maximum income decreases. If you decide to defer the purchase of an annuity until you re 75. The income from your plan and any annuity bought later may be less than you could have received if you bought an annuity at the start. You can transfer the value to another pension provider if you wish to defer the purchase of an annuity beyond age 75. If you get divorced If you get divorced, or your civil partnership is dissolved, the value of your plan could be split between you and your former husband, wife or civil partner. This could result in lower benefits for you. Any amount awarded to your former husband, wife or civil partner will not count towards your lifetime allowance but will count towards their lifetime allowance. Transferring out of your plan You can transfer the value of your plan to another income drawdown provider at any time, as long as the new provider is willing to accept your transfer payment. You must transfer the entire value of your plan, or use any remainder to buy an annuity. If you die If you die, the value of your Plan can be used to provide benefits as follows - lump sum any nominated beneficiary can take the value of your Plan as a tax-free lump sum. income drawdown any nominated beneficiary can transfer the remaining value to another provider and take income drawdown. The income will be tax-free. annuity any nominated beneficiary can use the remaining value to buy an annuity from another provider. No inheritance tax will normally be payable on the value of your Plan because we will choose the beneficiary, taking into account any nomination you make. However, as this is a complex area you should contact your financial adviser or tax office for further guidance. Nomination form To avoid any unnecessary delay in paying benefits after your death we ask you for the name of the person or persons whom you want to receive them. You do this in your application for your plan. You can change your nominations at any time by completing a new form (reference G1295). Paying death benefits We will pay death benefits as soon as we receive a death certificate and we are satisfied that the person claiming the benefit is entitled to it. Approaching age 75 Your plan ends when you reach age 75. You must use the remaining value of your plan to: buy an annuity or transfer to another pension arrangement to continue income drawdown, or take any remaining value as an income payment, or a combination of any of these. You may need to meet minimum investment criteria for some products. If you don t tell us what you want to do at least ten working days before your 75th birthday, we ll use the remaining value of your plan to buy you an annuity. When you designated your pension fund for income drawdown, its value would have been tested against your remaining lifetime allowance. A second test has to be made at your 75th birthday if you have not already bought an annuity. The value originally tested at designation is offset against the current value of those funds. Unless you have given us details of your remaining lifetime allowance by your 75th birthday, we have to assume that any growth in the value of those funds is in excess of your remaining lifetime allowance. This means we have to deduct a tax charge of 25% on this growth. If you have not, in fact, exceeded your remaining lifetime allowance, you will normally be able to reclaim this tax charge from HMRC.

11 9 Other information Queries and complaints Our aim is to provide you with the highest standard of service. If you have a concern about the administration of your plan, please call us on and we ll be happy to help. We may record your call for quality and training purposes. If your complaint isn t dealt with to your satisfaction, you can complain to the: Financial Ombudsman Service Exchange Tower London E14 9SR Telephone Making a complaint to the Financial Ombudsman Service will not affect your right to take legal action. Definitions This section explains technical words and phrases used in this guide and in your policy certificate(s). Annuity An annuity provides you with a regular income for life. The income can either be a fixed amount or can increase annually at a set rate, and is normally paid until the death of the person receiving the income. Designation This is the process whereby you elect to take some or all of your pension benefits and authorise for the part you are taking to be treated as income drawdown, allowing you to take any tax-free cash entitlement (also known as a pension commencement lump sum) and leave the remainder of your pension fund invested. Lifetime allowance The lifetime allowance is a limit set by the government on the maximum amount an individual can have in all their pension plan(s) without incurring a tax charge when they take their benefits. The lifetime allowance applies to the value of all of your registered pension schemes, including pensions already in payment. Each time you take benefits from your registered pension schemes on or before your 75th birthday, the value of the benefit will be tested against your remaining lifetime allowance. If the value of benefits taken exceeds your remaining lifetime allowance, the excess will be subject to a tax charge of 25% if taken as income, or 55% if taken as cash. The Money Purchase Annual Allowance (MPAA) is currently 4,000. The MPAA applies to you if you have flexibly accessed your pensions from us or any other provider and have received any of the payments listed below from 6 April 2015 onwards: a payment from a flexible access drawdown fund (also known as a flexi-access drawdown fund); a payment from a capped drawdown fund which would exceed existing capped drawdown limits; a pension encashment (also known as an uncrystallised funds pension lump sum); a payment under a flexible annuity contract; a pension payment from a money purchase scheme which has fewer than 11 other pensioner members; a stand-alone lump sum from a money purchase arrangement where you were entitled to primary protection with a right to take a lump sum of greater than 375,000. The MPAA applies to all contributions you pay (or that are paid on your behalf (e.g. employer contributions and deathin-service premiums) each year to all money purchase pension schemes of which you are a member. If the MPAA applies to you and your contributions exceed it, you will be liable to pay a tax charge based on your highest rate of income tax. The MPAA does not apply if you have taken only income from a capped drawdown plan; tax-free cash (pension commencement lump sums) when using your plan to purchase an annuity or drawdown plan; or small pots taken as a cash lump sum. In these circumstances, the higher annual allowance applies to you. Notes The information contained in this guide is based on our understanding of current legislation and HMRC practice, which is subject to change. Terms and conditions in this guide are those applying at the time of publication and may change in the future. We reserve the right to change the amount of any charge, but in the case of the annual fund management charge we aim to give three months notice of any such change. A copy of the Deed Poll (which includes the Rules and Master Policy) is available on request. Full product details can be obtained from your financial adviser.

12 Clerical Medical is a trading name of Scottish Widows Limited. Scottish Widows Limited is registered in England and Wales No Registered office in the United Kingdom at 25 Gresham Street, London EC2V 7HN. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number X2083/0417