Northern Foods Pension Scheme Explanatory Booklet

Transcription

1 Northern Foods Pension Scheme Explanatory Booklet Your benefits in depth

2 Welcome to the Northern Foods Pension Scheme an important and valuable part of your employment benefits package.

3 Contents Introduction 4 Running of the scheme 5 Your benefits at a glance 5 Joining the scheme 5 Technical terms 6 The State Scheme and taxation 7 Contributions 8 Additional voluntary contributions 9 Retirement benefits Pension increases 12 Leaving the scheme 13 Death benefits Other information about the scheme Temporary absence 18 Helpful organisations 19 3

4 Introduction Why your pension is important Quite simply, your pension will be your pay when you give up work. At retirement, the wages or salary you earn now will stop, but you still need to pay the bills. Your costs may not be as much as they are now and hopefully, your pension will help you to maintain a good standard of living, but without it, what will you do? At present rates of interest, you will need a fund of around 100,000 for each 5,000 of pension. Could you save this amount of money on your own? Membership of the Scheme provides protection and security for you and your family, not just at retirement, but from the moment you join the Scheme. The many benefits of the Scheme are summarised for you on the opposite page. Your Scheme booklet This booklet gives you an overview of the Northern Foods Pension Scheme. It outlines what benefits are provided, how they work and what they cost. We have tried to make this booklet as easy to read and understand as possible, which means that it does not cover every aspect of the Scheme. Full details are contained in the Trust Deed and Rules (the legal documents that govern the Scheme), which prevail should any difference in interpretation arise.

5 Running of the Scheme A separate company, Northern Foods Trustees Limited acts as the Trustees of the Scheme. Some of the members of the Trustee board are drawn from your fellow workmates and some are appointed by the Company. It is their responsibility to ensure that the Scheme is run according to the Rules. These are the legal documents that govern the Scheme. The Trustees also make sure that the Scheme is administered in a professional and efficient manner. The Scheme is run on a day to day basis by the Northern Foods Pensions Department. All contributions paid into the Scheme are held by the Trustees completely separate from Company funds. The Trustees invest all contributions, carefully considering the balance between returns and acceptable risk. The funds built up (from contributions and investment returns) are used to pay members benefits as they fall due. Your benefits at a glance Retirement Pension Tax free cash sum Ill health benefits Life assurance Spouse s pension Pension increases Tax relief An income for life from Normal Pension Date, or possibly before. The option to take a reduced pension in exchange for tax free cash at retirement. A pension if you have to retire early because of serious ill health. A tax free cash lump sum if you die while still paying in to the Scheme. A lifetime pension for your spouse on your death. Annual increases to pensions in payment. You receive immediate tax relief on the contributions you pay. Joining the Scheme Any permanent employee, aged at least 18, may join the Scheme on the first day of any month and from that date will be covered for life assurance and other benefits. Those aged 55 or over when they join, may be required to undertake a medical examination. The Company and the Trustees will decide on the basis of that examination whether to admit the employee. Special terms may apply and these employees will be advised of any change to their benefits as a consequence. 5

6 Some technical terms used in this booklet We have kept the use of technical language in this booklet to a minimum, but there are some terms we have to use. We thought it would help you to have a list of the technical terms and abbreviations we ve used at the start of this booklet, so that you can refer back to them. The Company Northern Foods plc. The Scheme Northern Foods Pension Scheme. Normal Pension Date For both men and women - the last day of the month before your 65th birthday. Pensionable Service This is the number of years and complete months you have been a member of the Scheme, from the date you started paying contributions. Pensionable Earnings This is the greater of your basic rate of earnings on 1st April each year or your total earnings for the tax year ending on the following 5th April (but excluding any amounts which your employer specifically notifies you are not pensionable). Final Pensionable Earnings This is the average of the best three consecutive Pensionable Earnings in the ten years before retirement, leaving service or death (whichever occurs first). If you retire or leave service, however, before Normal Pension Date, then a different definition may apply if it produces a greater pension. Guaranteed Minimum Pension (GMP) Before 1997 the Scheme contracted out of the State Earnings Related Pension Scheme (usually referred to as SERPS) and until that time had to guarantee to provide a pension that was at least as good as the SERPS pension - this was called the GMP. The GMP was replaced by a new reference scheme test on 6th April 1997 and the Northern Foods Pension Scheme meets this test. State Second Pension (S2P) From April 2002, SERPS has been replaced by the State Second Pension (which is known as S2P).

7 The State Scheme and taxation State Scheme There are two parts to the State Scheme: Basic Pension available to everyone who has paid sufficient National Insurance contributions during their working lifetime, and State Second Pension (previously SERPS) Provides additional top up pension based on an individual s earnings. How is my Scheme pension affected by the State Pension? The Scheme is contracted out of the State Second Pension (S2P). As such you do not earn any State Second Pension. Taxation The Scheme is approved by the Inland Revenue under the Income and Corporation Taxes Act This means that currently, subject to Inland Revenue Rules and within Inland Revenue limits: You receive tax relief on all your contributions to the Scheme Cash sums on retirement are tax free And The income received from the investment of the Scheme s assets (except UK dividend income) is tax free. The benefits of the Scheme, including those purchased by AVCs are limited in form and amount by the Inland Revenue. Statements made in this booklet in relation to the tax treatment of benefits are based on the Trustees understanding of the Inland Revenue law and practice at the date of publication of this booklet. Benefits will be subject to taxation in accordance with law and practice at the time of payment. 7

8 Contributions On the surface Membership offers excellent value for money and need not cost as much as you might think! As you might expect, the cost of providing a comprehensive range of benefits is high, so both the Company and the members contribute to it. Going deeper How much does it cost me? This depends on which section of the Scheme you choose one gives better benefits than the other and costs slightly more. You can therefore, choose to pay either 7% or 5% of your Pensionable Earnings to build up a pension based on 1/60th or 1/80th of your Final Pensionable Earnings. However, because your contributions are deducted before your tax is calculated, you pay less tax - the example below shows how this works. In addition, you will pay less National Insurance. This is because the Scheme undertakes to provide the benefits you would have earned under the State Second Pension (S2P). Example Someone earning 15,000 a year and contributing at 7%, will pay a week. But after tax relief of 4.44, and after a reduction in national insurance of 3.19, the cost to the member will actually be a week. Your contributions will be deducted weekly or monthly as appropriate. What does the Company pay? The Company and the other employers participating in the Scheme pay the balance of the cost of providing the Scheme s benefits on a basis agreed by the Company and the Trustees after considering actuarial advice. Can I pay more to get more benefits? Yes. Arrangements are in place to allow members to make Additional Voluntary Contributions (usually referred to as AVCs) on top of their normal contributions. You will find more information about AVCs on the opposite page. Summary Members can choose to pay either 7% or 5% of their Pensionable Earnings (but the actual cost is much less). Depending on your contribution rate, the pension you will receive will be based on either 1/60th or 1/80th of your Pensionable Earnings for every year you are a member. The Company pays the balance of the cost to provide the benefits promised. You can improve your benefits by paying AVCs. It may be possible to transfer former pension arrangements into the Scheme. Can I transfer my pension benefits from my previous employer(s)? Yes. The Trustees may accept a transfer of benefits from a former employer or personal pension arrangement on a money purchase basis. If you want to consider this, please contact the Pensions Department for guidance.

9 Additional voluntary contributions (AVCs) On the surface When you reach retirement how do you see yourself living this part of your life? You probably find now, whilst you are working, that your income isn t always enough. The same then may be true for your retirement, and you will need to plan for that. The Scheme offers one way to boost your pension AVCs. Going deeper You ve said that the Scheme is a good one, isn t that enough? Possibly it will be, but in order to get maximum benefits from the Scheme you will need to have been in it for 40 years, which is increasingly unlikely as people change jobs more often than they used to. There are other reasons why people are not able to maximise their benefits. Have you, for instance: Had a career break (perhaps when your children were young)? Joined the Northern Foods Scheme later on in life? Considered early retirement? If any of these are familiar to you, perhaps you may wish to make some form of additional provision, such as AVCs. So, what are AVCs? AVCs are voluntary payments that you make on top of your normal Scheme contributions. Northern Foods has set up an AVC arrangement which offers members a number of advantages: Contributions are deducted from pay before tax, so you pay less tax. Hassle free contributions - made from your pay on your behalf with low expense charges. Your AVC fund will grow free of tax (except for tax on UK share dividends). All AVCs are invested with a specialist investment manager appointed by the Scheme Trustees on your behalf and are held in individual accounts, separately from the main assets of the Scheme. They will be used at retirement to buy additional pension benefits; how much extra will depend on the amount you invest and the returns over the savings period. How much should I pay? Depending on what you can reasonably afford, you can make contributions in steps of 1% of your Pensionable Earnings. Total contributions (normal+ AVCs) are limited by the Inland Revenue to a maximum of 15% in each tax year. Members may wish to take independent financial advice before starting to pay AVCs. Summary The Scheme offers the ability to top up your normal contributions. AVCs are a flexible and tax advantageous way of boosting your pension. Within limits, you can choose how much you want to contribute. Members may wish to take independent financial advice about AVCs. If you would like more information on AVCs, please contact your Personnel Department. 9

10 Retirement benefits On the surface When you retire you will normally receive a pension for life calculated on a simple formula. At Normal Pension Date you will receive a pension based on your earnings near to retirement and the number of complete years and months you have been in the Scheme. Going deeper How much pension will I actually get at Normal Pension Date? Let s look at someone who retires on Pensionable Earnings of 15,000 a year and has 30 years in the scheme. Your pension fraction will vary depending on whether you contribute at 7% or 5%. Contribution Rate 7% = Pension Fraction 1/60th of Final Pensionable Earnings = 30/60ths x 15,000 = 7,500 a year for every year in retirement. Contribution Rate 5% = Pension Fraction 1/80th of Final Pensionable Earnings 30/80 x 15,000 = 5,625 a year for every year in retirement. Once your pension comes into payment it will receive regular increases (see pension increases on page 12). Can I take a tax free lump sum? When you retire, you have the option to exchange part of your pension for a tax free cash lump sum of up to 3/80ths x Pensionable Service x Final Pensionable Earnings. The formula for calculating the tax free lump sum is the same, no matter what your level of contributions, so for the example above of someone retiring on Final Pensionable Earnings of 15,000 a year with 30 years in the Scheme: 30 x 3/80ths x 15,000 = 16,875 tax free cash How will taking a cash sum affect my pension? Taking a cash sum will reduce the amount of annual pension you receive. You must exchange part of your pension to take the tax free cash. The amount is worked out depending on your age at retirement. The amount of pension which you will have to give up is determined by the Trustees and may vary from time to time. You will be notified of the rates which apply when you are close to retirement. Under the rates presently used, for example, at age 65, for every 11 of cash you take, your pension is reduced by 1 a year. Using our previous example again: If you choose to take the maximum cash sum shown above of 16,875, your pension would reduce by: 16, = 1,534 a year. Can I retire early? With the consent of the Company and Trustees, you may retire at any time after your 50th birthday, or earlier if in ill health (see opposite page). You will have the same rights as at normal retirement, but with your early retirement pension worked out taking Final Pensionable Earnings and Pensionable Service at the date you actually retire. (If retirement is before age 63, the Final Pensionable Earnings figure used will, normally, be your Pensionable Earnings at the date of early retirement).

11 Early retirement benefits will be subject to a reduction for each year of early retirement to take into account the longer period for which the pension would be paid. This factor is determined by the Trustees and is reviewed from time to time. At present, the reduction is 4% per year. If retirement is between 60 and 65, however, the Company and the Trustees shall decide if your benefits earned before 1st August 2002 will be paid without reduction. You will be notified of the rate which applies if you enquire about early retirement. In order to retire early your pension must be sufficient to match your GMP entitlement when you reach State Pension Age. Please note that special provisions apply to members who joined the Scheme before 1st May If you are thinking seriously about early retirement, you should contact the Pensions Department. They will be able to give you details about your own situation. What happens if I become seriously ill? The Scheme can provide the financial protection of an immediate early retirement pension (subject to the agreement of both the Company and the Trustees) if you suffer from mental or physical incapacity which in the opinion of the Trustees prevents you from following your normal occupation (or any other occupation which your employer and the Trustees consider appropriate) or which seriously impairs your earnings capacity. If the Trustees consider that you are unable to work again in any capacity your pension is worked out taking Final Pensionable Earnings at the date you actually retire, but Pensionable Service is extended by the additional time you would have worked through to your Normal Pension Date. This is known as a 1st Tier ill health pension. However, if the Trustees believe that you cannot continue in your own occupation or that your earnings are seriously impaired and the Company does not have another job it can offer you, then your pension is worked out taking Final Pensionable Earnings and Pensionable Service at the date you actually retire. This is known as a 2nd Tier ill health pension. In both cases, the pension would not be reduced for early retirement and you would have the same options as those at Normal Pension Date, including the opportunity to take part of your pension as a tax free cash lump sum. Medical evidence is required before an ill health early retirement pension can be considered. When your pension is in payment you will receive regular increases (see page12) In addition, you may be entitled to some State benefits. The Trustees may review your pension from time to time and may reduce or suspend it if they believe that your health has improved. You may be required to undergo a medical examination as a condition of your pension continuing. Summary Your pension is worked out using a formula based on your salary near to retirement and the number of years and months you have been in the Scheme. You can take a tax free cash lump sum in exchange for a reduced pension. It is possible to retire early from age 50, subject to the consent of the Company and Trustees. In certain circumstances, the Scheme provides a pension if you fall ill and cannot work again. When and how will my pension be paid to me? The first payment will normally be made towards the end of the month following retirement. From then on, for the remainder of your lifetime, your pension will be paid towards the end of each month directly into your bank or building society account. The Trustees will deduct tax from your pension before it is paid. 11

12 Pension increases On the surface There will be annual increases to your pension to help protect its value from the effects of inflation. Going deeper What comfort can you give me that my pension won t be eaten away by inflation? First, since your pension is based on your earnings near to retirement, the pension you receive will automatically reflect your standard of living at that time. Secondly, on 1st April each year, your pension will be increased by : the rate of inflation for the twelve months ending in the preceding January up to a maximum of 3% for pension earned before 1st April 1997 and the rate of inflation for the twelve months ending in the preceding January up to a maximum of 5% for pension earned after 1st April Any spouse s or dependant s pension will receive the same increases once it is being paid. The State may be responsible for providing pension increases on part of your pension - details will be provided at retirement date. In addition, further increases may be awarded at the discretion of the Trustees with the consent of the Company from time to time. If I leave the Company, will my deferred benefits be frozen? No, your deferred pension will be increased each year until you retire (see page 13) and pension increases as detailed above are paid after you start to receive your pension. Summary The Scheme s annual increases help to offset the effects of inflation If you leave the Scheme before retirement, your deferred pension will be increased each year both before and after retirement.

13 Leaving the Scheme On the surface When you leave the Company your membership of the Scheme ends, though it can still play an important part in your retirement provisions. Going deeper If I leave, what will happen to my pension? If you leave the Scheme before completing two years Pensionable Service, you will receive a refund of your contributions, less your share of the cost of buying you back into the Second State Pension (S2P), and tax (currently at 20%). If you have completed two or more years Pensionable Service, you are entitled to a deferred pension which is kept in the Scheme for you until you retire. The deferred pension increases in line with inflation each year subject to a maximum of 5% per annum, but the increases will be not be less than 3% per annum. A deferred pension is worked out as for normal retirement (see page 10) but using your Final Pensionable Earnings and Pensionable Service at the actual date of leaving. This may include benefits transferred in to the Scheme when you joined. Deferred benefits may be drawn before Normal Pension Date with the agreement of the Company and Trustees, and they will be reduced for early payment. Benefits cannot be drawn before age 50 (unless the Trustees decide you are unable to work again in any capacity due to ill health). Details will be provided on request. Can I transfer my pension to my new employer or a personal pension? Yes. The Scheme can make a transfer payment to another employer, personal pension or an insurance buy out policy. If you wish to transfer the value of your deferred benefits to another pension arrangement please ask the Pensions Department for an illustration - called a cash equivalent transfer value. This value is linked to investment conditions and so it can either increase or decrease, and the calculation excludes any discretionary early retirement terms that may be available. You can request a transfer value quote from the Pensions Department, but please note that the Company, the Pensions Department and the Trustees are not permitted to give financial advice on the merits of a transfer. Summary With less than two years' Pensionable Service, you will automatically be given a refund. If you leave with two or more years' Pensionable Service, you can either leave your pension in the Scheme or transfer its value out. Can I leave the Scheme while I am still employed? You can opt out of the Scheme at any time by giving one month s notice to the Trustees. Your benefits would be calculated as if you had left Company service on the day your notice expires and you will then have the leaving service options referred to above. Will I be able to re-join at a later date? You may be able to re-join the Scheme at a later date, if the Company and the Trustees agree, but your two periods of Pensionable Service would be treated as being totally separate, unless you re-joined within three months of opting out. 13

14 Death benefits On the surface In the unfortunate event of your death, the Scheme provides a range of benefits that will assist your family and dependants. Going deeper What happens if I die while I am still working for the Company? If you die before Normal Pension Date while you are still working for the Company, your dependants will receive the following benefits: A tax free lump sum of four times your Pensionable Earnings at the date you died, plus A tax free refund of the contributions (and AVC fund if applicable) you made to the Scheme, plus A spouse s pension. This is one half of the pension you would have received had you been a member of the Scheme until Normal Pension Date, but based on your Pensionable Earnings at the date you died (or your Final Pensionable Earnings, if greater). A children s allowance of one quarter of the spouse s pension for each child, up to a maximum of four children. If you have more than four children, the equivalent spouse s pension will be divided equally between them. What happens if I die after starting to receive a pension? If you die after you start to receive a pension, your dependants will receive the following benefits: A tax free cash lump sum equivalent to the balance remaining of five years pension payments, if you die within five years of retirement. In addition, an immediate spouse s pension equal to half your original pension (that is, before taking any tax free lump sum) including any increases paid since retirement. The pension is payable for the rest of their lifetime. If a spouse s pension is paid, the five year guarantee mentioned above will be reduced to reflect the spouse s pension payable over the same period. If you die after retirement and leave children, then a pension will be paid to them. This pension will be one quarter of the spouse s pension for each child up to a maximum of four children. If you have more than four children, the equivalent spouse s pension will be divided equally between them.

15 What happens if I die after leaving the Company and before starting to receive a pension? If you have left your benefits in the Scheme as a deferred pension and you die before retirement, a pension will be paid to your spouse. This will be half of your deferred pension as increased to the date of death. In addition, a refund of the contributions you made as a member will be made to your estate. No children s allowances will be paid. Your dependants may also be entitled to State death benefits. Who gets the lump sum benefits payable? On the death of a member (except where the member dies after leaving the Company and before starting to receive a pension) the Trustees have discretion as to who receives the lump sum for two reasons: It avoids the need to pay the benefit into the estate of the member and means that the lump sum is not liable to inheritance tax, and In those cases where members have not completed a Nomination Form advising the Trustee of their wishes, or where the form is not up to date, the Trustee has discretion as to whom the lump sum will be paid. You should complete a Nomination Form to let the Trustees know to whom you would like any benefits paid. Although the Trustees will always consider your wishes, this nomination is not binding on them. You can see how important it is that you complete a Nomination Form and keep it up to date - replacement forms can be obtained from your Personnel Department. Summary If you die in service your dependants will receive a lump sum of four times your salary. A pension will be paid to your spouse and if applicable, to your children. If you die within five years of retirement a lump sum is payable. Notes: i) If your spouse is more than ten years younger than you, their pension may be scaled down to allow for the difference in age and potentially longer payment. This will not affect, however, the amount of any children s pensions. ii) If your spouse is not living with you or dependent on you at the date of your death, the Trustees may limit the pension to a minimum amount required by legislation. If they do so, they may (but need not) pay the balance to another person financially dependent on you at the time of your death. iii)if you do not leave a spouse, a dependant s pension may be paid to another person financially dependent on you at the time of your death. iv) A children s allowance is paid to members children who are under the age of eighteen or still in full time education approved by the Trustees. v) If your marriage took place within six months of your death, in certain circumstances, the spouse s pension may be less than described above. 15

16 Other information about the Scheme The Scheme s accounts are audited annually and an actuarial valuation is undertaken at least every three years to ensure that the Scheme is properly financed and can continue to pay the benefits. It should be noted that while the Company has every intention of maintaining the Scheme, it reserves the right to amend the Scheme (with the consent of the Trustees) or discontinue the Scheme at any time. Where can I go to get more information? General enquiries concerning the Scheme should be directed to the Pensions Department at Northern Foods head office in Hull. You will be notified of any changes to the Rules of the Scheme which affect your benefits. The Trust Deed and Rules of the Scheme can be inspected by contacting the Pensions Department. Copies of the audited annual accounts of the Scheme and Trustees Report are available on request, but a summary of the accounts is normally distributed to members in any event.

17 Disputes procedure The Scheme has a responsibility to make sure that all its members have as much information about their Scheme as possible. But who do you speak to if you feel you have a disagreement with the Scheme? In the first instance always speak to the Pensions Department, since the vast majority of questions can be cleared up quickly and easily. If, however, the matter cannot be resolved informally, the following formal two stage procedure can be used. STAGE 1 Make your complaint in writing to Pensions Manager You should have a response in 8 weeks Satisfied with response? YES No further action NO YES STAGE 2 Make your complaint to Trustees within 6 months You should have a response in 8 weeks Satisfied with response? NO Complaints can be made under this procedure by: any current member, deferred member or pensioner of the Scheme any employee who is potentially a prospective member a former member s widow, widower or other dependant any person claiming to be or entitled to become one of the above anyone who has ceased to be in one of the above categories in the previous six months. A complaint may be made on behalf of one of the above by a nominated representative. If the person is incapable of acting for themselves, it may be made by their personal representative. This procedure does not cover complaints in respect of former members who have transferred their benefits from the Scheme unless the transfer has taken place in the last six months, or complaints which are subject to specific investigation by the Pensions Ombudsman (or where proceedings have begun in a court or tribunal). Contact OPAS or the Pensions Ombudsman (see page 19) 17

18 Temporary absence On the surface Even if there came a time when you had to have a period of temporary absence from work, you may still be able to continue as a member. Going deeper What happens if I am temporarily absent from work? You will still be covered for death in service benefits - see pages 14 and 15. Your membership of the Scheme will continue if: You are absent because of sickness or injury (for as long as the Company allows). You are absent for any other reason (for up to 12 months). You are absent because of parental leave (unless the Company notifies you otherwise). During your period of temporary absence, you can choose to continue or suspend your contributions. If you suspend your contributions, your pension will be reduced to take account of the missing period of Pensionable Service. What about maternity leave? If you qualify for maternity leave you will remain a member of the Scheme. You are not required to pay pension contributions during the eighteen week ordinary maternity leave period. Members who have a maternity leave period in excess of eighteen weeks will be given the option to make good the missing pension contributions when they return. If you do not return to work, you will be treated as having left the Scheme at the end of the eighteen week period. Summary You can remain a member of the Scheme even if you are temporarily absent or on maternity leave. You will still be covered for death in service benefits

19 If necessary the following organisations could help you further Occupational Pension Schemes Regulatory Authority (OPRA) OPRA is able to intervene in the running of pension schemes where the trustees, employers or professional advisors have failed in their duties. OPRA can be contacted at: Invicta House Trafalgar Place Brighton BN1 4DW Tel: OPAS (The Pensions Advisory Service) OPAS is available to assist members and beneficiaries of the Scheme in connection with difficulties which they have failed to resolve with the trustees or administrators of the Scheme. OPAS can be contacted at: 11 Belgrave Road London SW1V 1RB Tel: The Pensions Ombudsman The Pensions Ombudsman is independently appointed by the Government and has power to investigate (and determine) complaints or disputes of fact or law in relation to occupational pension schemes. The Ombudsman can be contacted at: 11 Belgrave Road London SW1V 1RB Tel: Registrar Information about the Scheme has been given to the Registrar of Personal and Occupational Pension Schemes. Data Protection Act The Trustees will hold personal data provided by you (and where appropriate, by third parties such as the Company or medical advisors) for the purpose of calculating and providing benefits under the Scheme for you and your spouse/dependants. The Trustees may also make that information available to others (within the UK and abroad) where they feel it is necessary or desirable to do so in connection with the administration of the Scheme. In particular, the Trustees may make the information available to professional advisors, the Pensions Department and any other trustees or other persons who may become responsible for providing benefits. In addition, the Trustees may make that information available to the Company (and other companies in the UK or abroad with whom the Company is dealing). This could be for the purposes of preparing accounts or other financial information, for calculating remuneration packages or developing remuneration policy or otherwise in connection with the business of the Company. 19

20 Pensions Department, Northern Foods Trustees Ltd. Cavaghan & Gray, Brighton Street, Hessle Road, Hull, HU3 4UL