YOUR PENSION YOUR CHOICE

Transcription

1 YOUR PENSION YOUR CHOICE Guardian Media Group Pensions Department Number 1 Scott Place, Manchester M3 3GG Tel: pensions@gmgplc.co.uk Website:

2 YOUR PENSION - YOUR CHOICE Are you now considering drawing your benefits from the Lifestyle Plan? If so, you will need to think carefully about the important choices that are available to you. This booklet is designed to guide you through those choices. You should also refer to the Members' Guide and Investment Guide for additional information about the way the Lifestyle Plan works. There is a glossary at the end of this booklet clarifying some of the technical words. You may also find our website useful If there are any points about which you are unsure, please contact the Pensions Department. 2

3 CONTENTS PAGE Getting Advice 3 Are you happy with where your Lifestyle account is invested? 4 About Our Illustrative Letters 5 Retirement 6 How Long Might Your Pension Be Paid For? 7 Your Choices Taking Your Benefits via Lifestyle Plan Tax Free Lump Sum Pension Increases Spouse s Pension on Death 5-Year Guarantee / 10-Year Guarantee Retiring early? Want a higher pension in early years? Enhanced/Impaired Life Annuities 8-16 Alternative Choices Taking your benefits via an adviser 17 Investment Linked Annuities Income Withdrawal (Income Drawdown) Alternatively Secured Income Purchasing Your Pension 18 Glossary 19 Document updated March

4 GETTING ADVICE It will almost certainly be the case at this important time in your life that you will want to consider all aspects of your financial affairs - should you take the lump sum from the pension scheme and if so, how are you going to invest it etc? If you have not already done so we would suggest that you consider these matters and seek the financial advice you think you may need e.g. independent financial advisors (IFAs), banks, building societies, insurance advisers, accountants, etc. You can find out more information about financial advice and check whether a firm is authorised by contacting the Financial Services Authority consumer helpline on or using their website If you would like to find an IFA you can contact IFA Promotion on their consumer hotline ( ) for a list of local IFAs or log on to their website at where there is a search facility. Aim to speak to a range of people (e.g. friends, family and advisers) so that you can compare and contrast. You should ask each adviser to outline the charges which will be involved. Please see page 18 for details of the arrangements for purchasing your pension. If you do this via the Lifestyle plan it is on a nil commission basis with the administration costs being met by the company. This is also an ideal time for you to check your entitlements to State Pension or any other Social Security benefits with the Department for Work and Pensions (DWP). Their Pension Service website is 4

5 VERY IMPORTANT Are you happy with where your Lifestyle Account is currently invested? If you are intending to take your benefits in the near future you should give careful consideration to whether you need to a) change your Target Retirement Date (if you have not already done so) or b) specify your own mix of investments. If your Lifestyle account is invested as per the default investment arrangements then it is initially invested in the Long Term Fund which mainly consists of equity investments in the stock market together with a small element of bonds. The main objective of the Long Term Fund is to provide reasonable growth and protection against inflation in the longer term. However, we all know that stock market values can go up or down so as you approach the time when you wish to draw your benefits it is important that a gradual switching takes place from the Long Term Fund to the Short Term Fund. The Short Term Fund is generally invested in bonds. There is also a section of the Short Term Fund which is placed in cash deposits to provide for your tax free cash lump sum at retirement. The capital value of bonds can also go up or down but these movements are closely related to changes in interest rates thus providing more stability to the actual amount of pension which can be purchased at retirement with your Lifestyle account. However, bonds cannot protect against changes in other factors which insurance companies use to determine annuity rates such as mortality trends. You should also bear in mind that the Short Term Fund might not be appropriate if you do not intend purchasing an annuity (pension). Switching from the Long Term Fund to the Short Term Fund normally takes place over a ten-year period up to your own Target Retirement Date. (Prior to 1 st April 2003 the norm was for switching to take place over a five-year period). This is designed to achieve a gradual switch over, which helps to smooth out some of the ups and downs of the stock market values. It therefore means that you know the stability of your benefits is gradually building up as you approach your target retirement date. You can override the automatic switches and specify your own mix between the funds or you can change your Target Retirement Date at any time to reflect your own circumstances and to keep the balance between 'growth' and 'stability' in line with your needs. You may wish to obtain advice from a qualified financial adviser concerning the investment of your Lifestyle Account to ensure that the approach you follow is the most appropriate for your circumstances. The Trustees of the Plan and the members of the Pensions Department are unable to give advice to members regarding their investment choices (see Getting Advice on page 3). Full details of all investment choices are contained in the Investment Guide, which is available on request from the Pensions Department. Details are also available via our website 5

6 ABOUT OUR ILLUSTRATIVE LETTERS Members of the Lifestyle Plan receive annual illustrations of benefits. On request, we can also provide illustrative figures in retirement choices letters including details of different types of pension to suit members' individual requirements. The letters contain quite a lot of information and have therefore been designed to be as simple as possible. These notes explain the letters in more detail. The value of your Lifestyle account in letters is the value at the date shown and is subject to fluctuation thereafter. (Any Equitable Life AVC figures are usually approximate and are subject to confirmation.) You can choose to have a pension (annuity) that will remain level over your lifetime, or you can have a pension with guaranteed annual increases. Some parts of your account must be used to include a spouse's pension in the event of death whilst other parts have full flexibility. See the rest of this guide for a more detailed description of your choices including: lump sum option on retirement, pension increases, spouse's pension payable on death, lump sum payable on death and the early retirement step-down option. The pensions illustrated in letters are based on assumed annuity rates which are subject to fluctuation up to the time of actual purchase of the annuity. The annuity rates we have used are based on market rates. Our standard calculations assume wives are 3 years younger than their husbands. Variations from this assumption will mean that the pension which can be secured may be higher or lower than shown. Please note that once you have chosen the type of pension you want and you have completed the Benefit Choices section of the Taking Your Benefits Application Pack, then individual annuity quotations are obtained by the Trustees, on your behalf, from a panel of competitive insurance companies, using an estimated retirement fund and the best one is put forward. For this purpose, quotations are obtained on a nil commission basis and all administration costs are met by the company. Alternatively, if you wish, in conjunction with your financial adviser, you can specify which insurance company is to provide your pension. However, you would need to meet the advice and administration costs yourself. Page 18 gives further details re purchasing your pension. Any tax-free lump sum at retirement illustrated in letters is based on the rules of the Lifestyle Plan. For the majority of members this will be 25% of your fund value. Where benefits are shown at a future date they are expressed in today s values so that you can relate them to your current income and outgoings. This is in line with the basis for the figures in your annual personal illustration of benefits. These figures are of course purely illustrative. Where benefits are shown at a future date it has also been assumed that Lifestyle contributions, AVC s and EC s will be continued at current rates to the projected date, where applicable. 6

7 RETIREMENT On your retirement you will be given a range of benefit options that your Lifestyle Account can be used for. These are discussed in detail later in this booklet. Lifetime Allowance From 6 April 2006 the Inland Revenue (HMRC) introduced a new limit on tax-efficient pension savings called the Lifetime Allowance. The Lifetime Allowance is compared to the value of all your pension benefits, including benefits from previous employers and personal pensions, and any excess value over the Lifetime Allowance at your retirement date is subject to a recovery charge of 25%, in addition to income tax being payable. The level of the Lifetime Allowance is 1.75 million for the tax year 2009/10. Therefore, once you decide on your retirement date we will ask for full details of all your pension benefits in order to check your benefits against this allowance. Your pension will normally be payable monthly in arrears for your lifetime, however a pension that is less than about 120 a year is usually payable annually in advance. Commutation of Small Pensions On retirement after age 60, there are two ways in which small benefit rights may be commuted and paid as a one-off lump sum. The Trustees may offer a one-off lump sum instead of a pension if the pension is small enough to be deemed trivial. Trivial means total pensions of around 800 pa, which is equivalent to total pension funds of less than 1% of the Lifetime Allowance. You should notify the Pensions Department if you think this applies to you remember the 1% of Lifetime Allowance limit is across all your pension arrangements. (For 2009/2010 the limit is 1% of 1.75 million = 17,500). Alternatively, the Trustees may offer a one-off lump sum instead of a pension to members with fund values (or fund values after deduction of protected tax-free cash) of less than 2,000 providing certain conditions can be met. To determine your eligibility for this option, pensions from other pension arrangements can be ignored. Early Retirement The lowest age at which you can currently take your benefits is age 50 except in cases of serious ill health. In April 2010 the Government is increasing this to age 55. However, if you were a member of the Lifestyle Plan on 5 April 2006 you can continue to take your benefits from age 50 provided: You take all your benefits under the Lifestyle plan at the same time, and You do not stay in employment. 7

8 Flexible Retirement - Taking Your Benefits Whilst Continuing In Employment There is an increased desire to ease the transition from working life to retirement. The Lifestyle Plan allows members to take their benefits whilst continuing to work. If, however, you want to change your working hours, for example go part time, then this would need to be agreed by your Manager and your HR Department. To avoid overcomplicating the Plan, under this option you must take all your benefits at the same time. You will be able to rejoin the Lifestyle Plan once and build up a second pension. You will also be covered for a reduced level of death benefits. After April 2010, you can only take flexible retirement if you are over age 55. If you are interested in this option you should contact the Pensions Department. HOW LONG MIGHT YOUR PENSION BE PAID FOR? The choices set out in this booklet will very much depend on your own personal circumstances. Remember, you will need to think about the level of income you need to live on, the level of inflation while you are alive, what will happen to your dependants when you die. It often comes as a surprise that in many cases your pension may be needed to provide an income in retirement which could well exceed the period over which you have saved - always remembering that the pension will often need to continue to be paid to your spouse after your death. The following table shows how long a pension may be needed if it is payable to you and your spouse. YOUR AGE AVERAGE PERIOD FOR WHICH PENSION COULD BE REQUIRED 33 YEARS 28 YEARS 24 YEARS This table is based on actuarial tables and is intended purely to give a broad indication of the average period for which a pension might continue. 8

9 YOUR CHOICES Taking your benefits via the Lifestyle Plan TAX FREE LUMP SUM On retirement you may elect to take a tax-free lump sum of any amount up to the maximum under the HMRC rules. Obviously the more you take as a lump sum the smaller your pension will be. Deciding how much lump sum, if any, you require and what you might do with it is a vitally important decision. As mentioned earlier you will almost certainly want to seek financial advice before making a final decision. From 6 April 2006 you are entitled to take 25% of your fund as tax-free cash, subject to a limit of 25% of the Lifetime Allowance at your date of retirement. However, if the previous HMRC rules would have produced a better cash sum for you, you will continue to have this for the part of your Lifestyle account related to contributions paid before 6 April If you are taking a higher pension with no tax-free lump sum you should also seek advice. It might be possible to improve the tax position by taking the tax-free lump sum and purchasing the additional pension with this part of your benefits separately. PENSION INCREASES The pensions quoted in illustrations and retirement choices letters show alternative types of annual increases. In illustrations we include LPI increases only. In retirement choices letters we usually illustrate three options Level (no increases), 3% pa and LPI. LPI means 'limited price indexation' i.e. increases in line with inflation up to a maximum of 5% pa and a minimum of 0%. You can choose between a pension that is level or with guaranteed increases. The level pension starts off higher but obviously would never increase. The increasing pensions will eventually catch up with and then exceed the level pension. In other words the choice is about 'more now and less later' or 'less now and more later'. For a person who lives to the expected 'average age' it is reasonable to take a broad view that all of these options provide the same value for money in terms of what will be paid out. Another option to consider is a pension with guaranteed RPI increases i.e. 'an inflation proofed' pension without the upper limit of 5%. Such a pension would provide high increases if inflation were to reach high levels. The cost of pensions with RPI increases varies from time to time according to the outlook for inflation. The starting level for such a pension might sometimes be a lot lower than the pensions described above but sometimes when inflation is very low the starting amount can be quite similar. A pension which has guaranteed RPI increases usually has detailed provisions dealing with the way in which increases will be calculated in certain circumstances e.g. if the Government changes the structure of the Index or if the pension continues for a very long time. You should note that it is possible for a pension of this type to go down if inflation is negative. 9

10 SPOUSE'S PENSION ON DEATH The pensions we quote in illustrations and retirement choices letters include benefits from the non Protected Rights part of your account and the Protected Rights (see glossary) part of your account. The spouse's pension on death for each part is as follows: - Non Protected Rights part of your account & all of your AVC s/ec s Married or Single you have full choice regarding spouses pension Protected Rights part of your account Must include 50% spouse s pension if married but can choose if single On illustrations we assume you are married and include a 50% spouses pension On illustrations we assume you are married and include 50% spouse s pension In retirement choices letters we usually include both: - with 50% spouse s pension, and without spouse s pension In retirement choices letters we always allow for a 50% spouse s pension If you are not legally married but have Financial Dependants you may provide for a continuing pension to be paid to one or more dependants in the event of your death. Please note that if you subsequently separate, then the dependant s pension would remain payable to your named dependant as it is not possible to change the terms of your pension once it has been purchased with an insurance company. With effect from 5 December 2005, Protected Rights pensions must include a 50% spouse s pension for registered civil partners. For married members, in respect of the Non-Protected Rights part of their account, we have found that the majority choose a spouse's pension of 50% although it is possible to have lower or higher amounts with a corresponding effect on your own starting pension. If you do choose a spouse s pension then you should select one of the following options and confirm your choice in the Benefit Choices section of the Taking Your Benefits Application Pack. a) Named Spouse at Date of Retirement Under this option the spouse s pension is payable, on your death, to your spouse at date of retirement. In the event of your spouse predeceasing you after retirement, the spouse s pension cover ceases to apply. Also, if you divorce your spouse after retirement then the spouse s pension would normally not be paid to your ex-spouse. If you have a preference for the spouse s pension to continue to be payable to your ex-spouse, after divorce, then you need to indicate this In the Benefit Choices section. If you do indicate this preference, you should note that this could possibly result in you receiving a lower pension because some competitive insurance companies do not offer this option. 10

11 Also, in some circumstances it may not be possible to buy your pension on these terms. In such cases a pension will not be payable to your ex-spouse on your death. If you remarry, no spouse s pension will be paid to your new spouse. b) Any Spouse - Spouse at Date of Death Under this option the spouse s pension is payable to the person to whom you are married when you die. This option tends to result in a lower pension for yourself (typically around 1% lower), as the insurers need to allow for the fact that a spouse s pension is more likely to be paid. The compulsory 50% spouse s pension relating to the Protected Rights part of your account must be paid to your widow(er)/civil partner. 5-YEAR GUARANTEE The guarantee means that in the event of your death within 5 years of retirement the remaining balance of 5 years instalments of your pension would continue to be paid to your dependants/estate, as specified in the policy document supplied by the insurance company with whom your pension is purchased. The continued pension will be taxed as income in the normal way. You will be able to request this guarantee in the Benefit Choices section of the Application Pack. If you are married at retirement the default position will be to purchase a 5-year guarantee. Any spouse s pension chosen would then commence payment at the end of the guarantee period. Note that it is also possible to choose a 10-year guarantee if you want this then please state so clearly on the Benefit Choices of the Application Pack. 1 1

12 ARE YOU RETIRING EARLY? Do you want a higher pension in the early years of your retirement? This option is usually available if you satisfy all three conditions below:- a) You are retiring more than two years before your State Pension Age (SPA) b) Your Lifestyle account value is at least 20,000 c) You have at least five years pensionable service in the Lifestyle Plan. If you are interested please contact the Pensions Department and ask for Step-Down Early Retirement illustrative figures. (The next section gives a detailed explanation and examples showing how the Step- Down option works. Perhaps the easiest way of understanding how this option may suit you is by first asking for your own illustrative figures from the Pension Department and then reading this section alongside your own figures.) How the Step-Down option works. You get a higher initial pension from when you retire until you reach State Pension Age (SPA). At SPA your pension reduces by a fixed Step-Down amount. We calculate the Step-Down amount based on your pensionable service and the Single Person s Basic State Pension. To help you decide whether to choose this option, please turn to the next page for examples comparing pensions (With and Without Step-Down ) 12

13 Examples comparing pensions for the same member (With and Without Step- Down) Example A Step-Down Male member retires aged 59 after 28 years pensionable service, (SPA = 65).He chooses a pension with 3% increases, 50% spouse s pension. Step-Down amount = 4,620 p.a. Starting Lifestyle pension at age 59 = 9,700 p.a. By age 65 this pension will grow, with 3% increases, to 11,582 p.a. At age 65 (SPA) the Lifestyle pension Steps-Down (reduces) by 4,620 pa to 6962 p.a. and, at the same time, the member s State pensions become payable. The reduced Lifestyle pension of 6962 p.a. continues to increase by 3% each year for the rest of the members life. Example B No Step-Down Identical member as in Example A (same size Lifestyle fund, age 59, 28 years pensionable service, chooses 3% increases and 50% spouses pension).the only difference is that this time the member does not choose the Step-Down option. Starting Lifestyle pension at age 59 = 6,700 p.a. By age 65 this pension has grown, with 3% increases, to 8,000.p.a. At age 65 (SPA) there is no Step-Down (pension reduction) so the 8,000 pension continues to increase by 3% each year for the remainder of the members life. The table overleaf compares the pensions for Example A against Example B, illustrating clearly how the Step- Down option can be attractive for early retirees who want a higher level of pension prior to reaching State Pension Age 13

14 Comparison Step-Down versus No Step-Down Example A Step-Down 3% annual increases Lifestyle Pension p.a. Example B No Step-Down 3% annual increases Lifestyle Pension p.a. Age 59 9,700 6,700 Age 60 9,991 6,901 Age 61 10,291 7,108 Age 62 10,599 7,321 Age 63 10,917 7,541 Age 64 11,245 7,767 Age 65 ( STEP DOWN reduction) 11,582-4,620 = 6,962 N/A 8,000 Plus. From age 65, members State pensions commence From age 66 for remainder of member s retirement Lifestyle pension continues to increase at 3% p.a. Lifestyle pension continues to increase at 3% p.a. Note Actual pensions depend on the size of member s Lifestyle fund, member s pension choices and prevailing annuity rates at date of retirement. Figures in the above examples are purely illustrative to show the difference between choosing a Step-down pension or not. See next page for points to consider regarding the Step-Down option. 14

15 Step-Down Option Points to Consider You get more Lifestyle pension in the years prior to reaching State Pension Age. Your Lifestyle pension then reduces by a fixed amount from State Pension Age. If you don t already know what State Pension benefits you are likely to receive then we recommend you get a forecast from If you do choose the Step-Down option.please note that, currently, only two insurance companies quote for step-down pensions (annuities) Prudential and Canada Life. Both have been consistently competitive annuity providers over many years but this might not always be the case. If you don t choose the Step-Down option then you will enable our advisers to get a wider panel of competitive insurance companies to quote to secure the best annuity rates for you. Prudential and Canada Life can only quote enhanced annuity rates for step-down pensions in limited circumstances. (See pages 15 and 16 for more information on enhanced annuities). The availability of Step-Down pensions is subject to insurers terms and conditions. In some cases, even if you are more than two years away from your State Pension Age and your fund value exceeds 20,000 and you have at least five years pensionable service it may not be possible to get a step-down pension. Once you have considered your personal illustrative figures from the Pensions Department, if you wish to proceed with the Step-Down option then you should confirm this on the Benefit Choices section of the Taking Your Benefits Application Pack. ENHANCED / IMPAIRED LIFE ANNUITIES 15

16 Enhanced or impaired life annuities may be available to anyone with one or more lifestyle or medical conditions, including:- Smoking Obesity Diabetes Heart disease, angina, stroke Lung disease High blood pressure High cholesterol Kidney, bladder or liver complaints Cancer, leukaemia, Hodgkin s disease Multiple sclerosis, dementia, Parkinson s disease These conditions, either alone or in combination, may have an effect on normal life expectancy and, as a result, the insurance companies that provide enhanced or impaired life annuities are prepared to pay out a higher pension. As a general rule, you may quality for an impaired life annuity if you or your dependant suffers from a serious condition that may result in a significant reduction in life expectancy. A full medical examination may be required before the annuity can be set up, and this could result in a delay before payment of your pension commences. Therefore, while the process for obtaining an impaired life annuity quotation can take longer than for an ordinary annuity, the potential increase in pension can be substantial. You may quality for an enhanced annuity if you or your dependants have a less serious condition that has a lower impact on life expectancy. You will not be required to attend a medical examination, although a report from your doctor will probably be requested by the insurance company. It is important to provide as much information as possible about your health if you believe you may qualify for an enhanced or impaired life annuity. The more information you supply about your condition and treatments, the more accurately the insurer can assess your potential entitlement to a higher pension. If you are not sure whether you are eligible, it is worth considering the following example questions:- 1) Have you smoked 10 cigarettes or more per day for the past 10 years? 2) Are you currently taking any medication prescribed by a doctor? 3) Have you received treatment for a serious medical condition at any time? If you can answer affirmatively to any of these questions, you may qualify for an enhanced annuity. Please note that enhanced annuities are given at the discretion of the insurer involved, and we cannot guarantee that any application will be accepted. The size of the fund value and the structure of benefits selected also may affect the availability of an enhanced annuity. Our advisers are unable to enter into any debate concerning an insurer s decision on this matter. Notes re Enhanced / Impaired Life annuities:- 16

17 If you believe you may be eligible for an enhanced or impaired life annuity then you should contact the Pensions Department and ask for a medical application form. This should then be fully completed and returned with your Taking Your Benefits Application Pack. It is important that medical application forms are completed fully, truthfully and with no exaggeration of any medical/lifestyle condition. The insurance companies who quote enhanced rates undertake random testing. In some instances, there can be significant delays in determining eligibility for enhanced annuity rates, therefore this would delay setting up your pension.. As with all options, statutory requirements and scheme rules take precedence. In circumstances where specialist insurers are unable to meet these requirements, quotations will not be obtained from them There are no guarantees that you will get enhanced rates if you complete the medical application form. Where this is the case your pension will automatically be purchased on conventional annuity rates. 17

18 ALTERNATIVE CHOICES Taking your benefits via an adviser The choices described earlier cover the key areas to consider if you are going to use your Lifestyle account to both provide tax free cash and purchase a conventional pension / annuity via the Lifestyle Plan. However, there are also other important options which might give more flexibility and growth although the pension income is not guaranteed. The annuity market place is continually developing in terms of the range and attractiveness of products available to meet the needs of different individuals and this is likely to continue. These types of arrangements are usually provided through personal pensions and stakeholder plans. It is not possible to provide these through the Lifestyle Plan. Therefore, you would need to transfer your fund to a personal pension or stakeholder plan to take advantage of these options. You will almost certainly need to take financial advice before considering any of the following options or any other alternatives that are introduced in future:- INVESTMENT LINKED ANNUITIES There are various annuities available in the market, which have increases linked to investment returns rather than being fixed at retirement or linked to inflation. An example is a with profits annuity, which is invested in an insurance company's with profits fund. The starting level of the pension is low but there is a possibility of increases as the bonuses from the insurance company build up. Unit linked annuities work in much the same way as with profits annuities although they are invested in unit-linked funds in investment areas of your own choice. INCOME WITHDRAWAL (INCOME DRAWDOWN) Income withdrawal is an alternative to purchasing a standard pension annuity at retirement. It allows you to draw an income from your fund whilst the remainder of your fund continues to be invested. The maximum amount of income that can be drawn each year is governed by strict rules and is broadly the same as a level annuity for a single person at the same age. This approach allows you to vary your retirement income in line with your personal circumstances. A standard pension annuity must be purchased once you reach age 75. You should note that the investment of your remaining fund could increase or decrease depending on the underlying investments. This would affect the amount of future income you would receive. The death benefits available to your spouse under this option would be a return of the fund (after tax) if death occurred before an annuity was purchased. ALTERNATIVELY SECURED INCOME ASI works in a similar way to income drawdown but avoids the necessity of purchasing an annuity at age 75. Instead, at age 75, you continue to draw an income based on the annuity rate for a 75 year old. The death benefits available to your spouse are a return of the fund (after tax) if death occurs before age 75 and for the income withdrawals to continue, or for an annuity to be purchased with the remaining fund, on death after age 75 18

19 PURCHASING YOUR PENSION a) Via the Lifestyle Plan Once you have decided on any lump sum option and on the type of pension you require you will be asked to complete a Taking Your Benefits Application Pack confirming your requirements and at that time you will also need to produce your birth certificate and if applicable your spouse's birth and marriage certificates. You will also be asked to provide bank or building society details into which your pension will be paid. To ensure your benefits comply with HMRC limits at the time of commencement it is necessary to take account of all your pension or lump sum benefits. You will be asked to give details, if any, at the time you complete your application pack. On receipt of your completed Application Pack, and official confirmation of your termination of employment, your Lifestyle account will be encashed. The transaction will be based on the prevailing unit prices on the next available dealing date with the investment manager after your retirement date or date of receipt of your completed application pack, whichever is the later. Any AVC s and EC s will also be encashed. At retirement, individual pension (annuity) quotations are obtained by the Trustees on your behalf from a panel of competitive insurance companies, using an estimated retirement fund and the best one is put forward. For this purpose, quotations are obtained on a nil commission basis and all administration costs are met by the company. Alternatively, if you wish, in conjunction with your financial adviser, you can specify which insurance company is to provide your pension. However, you would need to meet the advice and administration costs yourself. The retirement fund used to secure your pension after paying any relevant tax-free cash sum will be based on the value of your Lifestyle account as described above. Your actual pension at retirement may be more or less than that shown in any illustration. This is a particularly important point if your account is invested in the Long Term Fund immediately before your retirement (see page 4). The most competitive insurer will provide final confirmation of your pension (annuity) and we will then write to you with details of the benefits payable, contact details of the insurance company and the relevant tax office. A few weeks later we will receive the policy documentation from the insurance company and we will forward a copy to you. b) Via an Adviser (Alternative Choices) Once you have decided on the type of product you require you, or your adviser, will need to send us a suitable quotation from your chosen insurance company. We will then send you appropriate forms for signature on receipt of which we will arrange to send the monies to the relevant insurance company. As mentioned earlier, if you chose to select your own benefit provider then you will need to meet the administration cost and the cost of your adviser either on a fee basis or by commission deducted from your policy. You should ensure you understand the basis and extent of any costs when instructing your adviser. The arrangements described above are subject to change from time to time in the light of advice received by the Trustees. 19

20 GLOSSARY This glossary highlights some of the technical words used in this booklet. ANNUITY RATES The cost of buying a pension from an insurance company. AVCs Additional Voluntary Contributions ECs ENHANCED / IMPAIRED LIFE ANNUITY RATES HMRC Contributions made in addition to standard Lifestyle Plan contributions and AVC s If you, or your dependant, suffer from a serious condition that may result in a significant reduction in life expectancy, you may qualify for a higher pension. Her Majesty s Revenue & Customs (formerly the Inland Revenue) LPI Limited Price Indexation i.e. pension increases in line with inflation up to a maximum of 5% per annum PROTECTED RIGHTS The part of your Lifestyle account (if any) relating to your own and the company s contributions paid whilst you were in contracted-out employment SERIOUS ILL HEALTH Where life expectancy is less than 12 months. SERPS State Earnings Related Pension Scheme S2P State Second Pension (Replaced SERPS from April 2002) SPOUSE Your legal wife or husband. Also included are registered civil partners 20

21 STEP-DOWN PENSION Higher initial pension from when you retire early until you reach State Pension Age (SPA). At SPA your pension reduces by a fixed step-down amount. 21