Changes to your pension. BTPS Team Members April 2018

Transcription

1 Changes to your pension BTPS Team Members April 2018

2 CONTENTS page 1 Introduction Summary of the changes 2 Why are we making these changes? 3 Your BTPS benefits Your deferred benefits in the BTPS AVCs and Added Years Early retirement factors Flexibility options Other benefits 6 The BTRSS in detail Contributions Maximising your contributions Additional allowances in BTRSS pensionable salary Death benefits Medical retirement benefits Your BTRSS investment choices Your BTRSS benefits when you retire 12 Death in service, medical and other benefits 13 Using your BTRSS benefits in retirement 14 The new hybrid scheme Contributions Your benefits in the hybrid arrangement Transition payments between 1 July 2018 and 1 April 2019 Smart Pensions Additional allowances in pensionable salary What do I need to do now? 16 Member support What do I need to do now? Glossary of terms Frequently asked questions and answers 22 Member examples How to read the member examples Member examples Important notes This guide is intended for team members who are currently active members of the BTPS. It details the changes BT will make to the BTPS from 1 July 2018 and provides detail on the BTRSS and life cover arrangements. References to BT in this guide should be read as meaning each relevant BT entity which has employees participating on standard terms in the BTPS including, where appropriate, whichever BT entity employs you. All examples and information are based on current legal and tax rules. If those rules change in the future this may result in a different outcome for your pension benefits. Details of the benefits provided under the BTPS, the BTRSS and the life cover arrangements are a summary only. Full details can be found in the governing documentation of the BTPS, the BTRSS and the life cover arrangement. If there s conflict between this guide and the covering letter, the governing documentation will prevail. The information set out in this document does not restrict BT s right or ability to exercise any powers relating to the BTPS and the benefits provided to BTRSS members, including any power to amend or discontinue the BTPS and the BTRSS or the life cover arrangement. BT reserves the right to exercise any such powers, subject to the terms and conditions of the relevant scheme and legislative requirements.

3 INTRODUCTION AND WHY ARE WE MAKING THESE CHANGES? YOUR BTPS BENEFITS THE BTRSS IN DETAIL DEATH IN SERVICE, MEDICAL AND OTHER BENEFITS USING YOUR BTRSS BENEFITS IN RETIREMENT THE NEW HYBRID SCHEME MEMBER SUPPORT MEMBER EXAMPLES Introduction This guide lets you know more about the changes we re making to your pension arrangements. Following our consultation and agreement with the CWU Executive to close the BTPS to future accrual this summer (subject to their consultative ballot), we can now tell you more about the changes that will take effect from 1 July It s important you read this guide carefully to understand the changes and what you need to do next. Summary of changes The changes shown here represent an improvement to the terms we proposed during the consultation. BT will: 1. Close the BTPS to Section B and C team members for future benefits. Our intention is to do this from 30 June Remember, you ll still receive all the benefits you ve already built up in the BTPS when you retire. These benefits will increase before retirement to allow for inflation in accordance with the rules of the BTPS. 2. Make arrangements for you to join the BT Retirement Saving Scheme (BTRSS) and be eligible for the death in service and medical retirement benefits available for BTRSS members. This means your pension contributions from 1 July 2018 would go into a new BTRSS plan. We originally consulted on closing the BTPS from 31 March The later planned closure date will allow you more time to plan your finances and consider your BTRSS contribution and investment options. Your new BTRSS pension will include: a further enhanced contribution structure, meaning you ll receive greater contributions from BT than the current standard terms. a temporary higher contribution tier offered exclusively to members who join the BTRSS from the BTPS as part of the changes. Plus, we ve responded to your feedback and have extended the period this higher contribution tier will be made available to you moving from three years to five years (until 30 June 2023). additional transition payments for all BTPS members affected by the changes (these would be made into their BTRSS plan). The duration of these transition payments will depend on your age at 1 April some allowances that are pensionable in the BTPS will also be pensionable in the BTRSS. Additionally, those BTPS pensionable allowances that will no longer be pensionable within the BTRSS will attract a one-off transition payment for ex-btps members in receipt of pensionable allowances. 3. Make a new type of pension arrangement available to you by 1 April It s intended that this arrangement known as a hybrid scheme would combine elements of both defined benefit (like the BTPS) and defined contribution (like the BTRSS). As this will be a completely new pension scheme its governance and administration rules still need to be confirmed. 4. Create an arrangement that enables former BTPS members to continue paying additional contributions until 30 September 2019 which could then be transferred into the BTPS and used in a similar way to AVCs (Additional Voluntary Contributions). 5. Bring into effect new early retirement and flexibility options within the BTPS, which we re currently working through with the Trustee. All this means that, at retirement, you ll have up to three sources of BT retirement income: 1. Your BTPS pension for service to 30 June The value depends on your length of pensionable service in the BTPS and your BTPS Pensionable Salary. 2. Your BTRSS plan which you build up from 1 July The value of this plan will depend on how much you and BT contribute, and the investment returns generated net of charges. 3. If you join the new hybrid scheme, your hybrid benefits built up from the date you join that scheme. We re confident we ll be able to implement the changes set out in this guide from 1 July However, there are some complex administration-related issues that the Trustee is working to resolve. In the event that these issues impact the timetable, we ll provide a further update. We re changing your pension scheme (BTPS) 1

4 Why are we making these changes? During the pensions consultation we told you we wanted people already at BT, and those joining us in the future, to be able to build up fair and flexible retirement benefits. We also need to ensure these benefits are affordable, both to BT and to you. Taking these principles into account, along with your feedback from the consultation, we believe the changes now being made to BT s pension arrangements are necessary because: Our pension principles Fair It s our aim to have pension arrangements that are fair for all, allowing everyone to meet their retirement needs. The costs in the BTPS have gone up significantly since we made changes to our pension arrangements in At the same time they ve remained stable in the BTRSS. The BTPS causes significant uncertainty and risk for BT. If we do nothing, BT could be facing hundreds of millions of pounds in extra contributions to the BTPS on top of our current costs. This could damage our ability to invest in our networks, customer experience and jobs. Without change, BT s costs of providing future benefits in the BTPS were expected to be more than double those in the BTRSS, despite having fewer active members. Because one of our main aims is to ensure fairness for all, we need to consider the needs of all BT employees in our decision. Flexible Affordable Our pension schemes should allow you to build up and access your benefits in a way that suits you best. We need to address the cost and risks we face to ensure pension benefits are affordable to both BT and you. Details of the further support we ll be offering you are also set out in the member support section on page 18. Our combined changes to the BTPS and BTRSS mean the total amount we spend on our pension arrangements will actually increase compared to current levels. We can do this because the changes actually mean we have greater certainty of ongoing and future costs, and we can spread these costs more equally across our employees. We ll also continue to make payments into the BTPS to close the deficit. 2 We re changing your pension scheme (BTPS)

5 INTRODUCTION AND WHY ARE WE MAKING THESE CHANGES? YOUR BTPS BENEFITS THE BTRSS IN DETAIL DEATH IN SERVICE, MEDICAL AND OTHER BENEFITS USING YOUR BTRSS BENEFITS IN RETIREMENT THE NEW HYBRID SCHEME MEMBER SUPPORT MEMBER EXAMPLES Your BTPS benefits Your deferred benefits in the BTPS On 1 July 2018 you ll become a deferred member of the BTPS. This means you remain entitled to the BTPS benefits you ve built up to 30 June 2018 (your deferred benefits ) until you retire or transfer them out in the same way as if you had left BT at the end of June You won t build up any further benefits in the BTPS from 1 July 2018 onwards. The benefits you ve built up in the BTPS remain protected, and will become deferred. Subject to the usual rules of the BTPS and relevant legislation, you remain entitled to these benefits when you retire. The BTPS will provide you with a deferred member statement in the months following the closure date. In the meantime, your latest benefit statement alongside the pension review modeller at snip.bt.com/pensions will give you a better understanding of your BTPS benefits in retirement. Increases to your deferred benefits Your deferred benefits would increase after 1 July 2018 until you retire in line with the BTPS rules and relevant legislation. This means they ll rise broadly in line with inflation as explained in the box below. How your benefits increase in deferment Section B: increases in line with the Government s inflation index, currently CPI. Section C: increases in line with the Government s inflation index, currently CPI, up to a maximum of 5% per year (measured over the whole period from you become a deferred member until when you retire). Note: There are statutory elements of your pension that may receive different rates of increase We re changing your pension scheme (BTPS) 3

6 Your BTPS benefits (continued) Additional Voluntary Contributions into the BTPS During the consultation, many of you let us know you wanted more time to make Additional Voluntary Contributions (AVCs) into the BTPS. We re working with the BTPS Trustee and Standard Life to create an arrangement enabling former BTPS members to continue to pay additional contributions until 30 September These could then be transferred into the BTPS and used in a similar way to AVCs. If you wish to do this you ll be able to set up a separate plan with Standard Life. You can choose how much you want to contribute to this account, and vary the contributions in the same way you would with your main BTRSS plan. Although BT won t make any contributions into this account (other than payments on your behalf through Smart Pensions), you would still receive tax relief on your contributions and National Insurance relief if you use Smart Pensions. Shortly after 30 September 2019 (or when you leave or retire if that s sooner), you would have the option to transfer this separate plan into the BTPS. Improved early retirement factors The BTPS Trustee is due to review all the standard retirement, commutation and other factors that apply under the BTPS as part of the current actuarial valuation of the BTPS. This will include early retirement factors, which are used for calculating reductions in your pension and lump sum if you choose to retire early before age 65. Different factors apply for different BTPS sections and ages and for different periods of service that the benefits relate to. For example, benefits built up pre-1 April 2009 will only be reduced if you take them before age 60, but post 1 April 2009 benefits are reduced if you take them before age 65. Illustration: Taking your benefits early at age 55 The table below shows the approximate increase per 1,000 of pre or post-1 April 2009 pension per year once the illustrative revised factors are applied. This assumes you re still employed by BT at the date your pension commences: Period of service when benefits built up Current factor at age 55 Reduced benefit after applying current factor to 1,000 of pension per year Revised factor (illustrative only) Reduced benefit after applying revised factor to 1,000 of pension per year Illustrative increase in pension using revised factors Before 1 April 2009 From 1 April (24% reduction) 0.58 (42% reduction) 760 per year ( 1,000 x 0.76) 580 per year ( 1,000 x 0.58) 0.83 (17% reduction) 0.70 (30% reduction) 830 per year + 70 per year (+9%) 700 per year per year (+21%) The factors shown in the illustration above are based on one potential approach for calculating the factors, which we have determined following initial discussions with the BTPS actuary. However, we can t confirm the actual factors until after the triennial valuation has been completed and they may well differ from the above. The new improved factors are expected to be in place by 1 June 2018 (or on completion of the BTPS actuarial valuation, if later). 4 We re changing your pension scheme (BTPS)

7 INTRODUCTION AND WHY ARE WE MAKING THESE CHANGES? YOUR BTPS BENEFITS THE BTRSS IN DETAIL DEATH IN SERVICE, MEDICAL AND OTHER BENEFITS USING YOUR BTRSS BENEFITS IN RETIREMENT THE NEW HYBRID SCHEME MEMBER SUPPORT MEMBER EXAMPLES Other retirement flexibility options from age 55 Taking your BTPS pension early while you continue working at BT: As well as the enhanced early retirement factors, we re also planning to make it easier for you to be more flexible with your savings in retirement. From 1 June 2018, we intend to extend our current flexible retirement policy by allowing you to take your BTPS pension early while you continue working at BT (for up to two years from the date you start taking your pension). Your actual leaving date will need to be agreed in advance and is subject to your manager s approval. Take your pre-1 April 2009 benefits before your post-1 April 2009 benefits: We re still working through the details with the Trustee, but we also want to allow you to take your pre-1 April 2009 benefits earlier than your post-1 April 2009 benefits in the BTPS. If you re still employed by BT when you decide to take this option, the flexible retirement policy above would apply and you d need to agree a leaving date within two years. These terms would be available only if you re still employed by BT on the implementation date (which we expect to be no earlier than 1 April 2019) and are subject to BT s consent on a case by case basis. Continuation of the terms will be subject to regular review. If you take either of these flexibility options, you ll be able to participate in the BTRSS while still employed (but you won t be able to make additional contributions to the special arrangement that can be transferred to the BTPS). Added Years for Section B members only All BTPS Added Years contracts in force on 30 June 2018 will stop and no new contracts will be available. The proportion of Added Years you ve built up as at 30 June 2018 will be added to your deferred BTPS benefits at that date. Sick pay After 1 July 2018, as a deferred BTPS member, you would no longer be eligible for sick pay at pension rate ( SPPR ). However, you ll still be eligible for payment of full or half-rate sick pay (as appropriate). You can access the sick pay procedure on the BT intranet at hr.bt.com/en-gb/performance-reward/miscellaneous/sick-pay Returned member rights The ability for former Section A or B members of the BTPS to (in certain limited circumstances) return to BT employment and re-join Section B will also no longer be available. Former Section B members of the BTPS returning to BT employment would be offered membership of the BTRSS on the same terms as new joiners at that time. RITIE and Redundancy From 1 July 2018 BTPS redundancy and retirement in the interests of efficiency (RITIE) benefits will no longer be applicable. The current BTPS RITIE arrangement will not be replicated in either the BTRSS or new hybrid scheme. Where a BTPS team member doesn t meet the criteria for medical retirement, BT will consider these on a case by case basis. Where agreement is given by BT to RITIE, BTPS benefits will be paid with no actuarial reduction using BT s augmentation powers under the BTPS Rules. 5

8 The BTRSS in detail You ll join the BTRSS from 1 July Here s a reminder of how the BTRSS works. The BTRSS is a contract-based scheme (sometimes called a personal pension), which has been provided by Standard Life since It s a defined contribution scheme, where the contributions are defined, but the level of benefits aren t guaranteed. Contributions are paid into a plan under a contract made directly between you and Standard Life. BT works with Standard Life to agree the terms under which these contracts are set up. Both you and BT pay contributions into your BTRSS plan. How much BT pays depends on how much you decide to contribute. There s more detail about the contribution rates on the opposite page. In addition to paying contributions, BT also covers the cost of providing death in service lump sum benefits and medical retirement benefits for active BTRSS members. When you decide to retire, your BTRSS plan provides your benefits. The size of your benefits will depend on the amount of contributions paid, investment returns, how you take your benefits and any charges. The value of your plan can increase or decrease over time with investment returns. Should you die, whether in service or having left BT, the savings built up in your BTRSS plan will be paid by Standard Life to your beneficiaries. The value of the plan is usually paid as a lump sum but may be used to provide a pension to a dependant. Joining the BTRSS You ll automatically join the BTRSS on 1 July Standard Life will send you a joining pack with information on your choices as a member of the BTRSS. This will include information on contributions and investment options and where you can find more detailed information. If you don t want to join the BTRSS, you ll be able to opt out, but only after 1 July 2018 once you ve become a BTRSS member. If you opt out within 30 days of this date, any contributions deducted will be refunded to you. You can still opt out more than 30 days after 1 July 2018, but the contributions already paid wouldn t be refunded and you would need to use your BTRSS plan to provide benefits. You should think carefully about any decision to opt out as you would be losing out on BT s contributions, death in service and medical retirement benefits as a result. If you choose to opt out of the BTRSS you may not be entitled to re-join at a later date or be eligible for transition payments. BT will be legally obliged to automatically re-enrol you into a workplace pension scheme this may not be the BTRSS every three years, to comply with pensions law. You could choose to opt out each time auto enrolment takes effect. There s lots more information about the BTRSS at On pages we ve shown some examples of how you might use your BTPS and BTRSS benefits together flexibly to support your retirement needs. 6 We re changing your pension scheme (BTPS)

9 INTRODUCTION AND WHY ARE WE MAKING THESE CHANGES? YOUR BTPS BENEFITS THE BTRSS IN DETAIL DEATH IN SERVICE, MEDICAL AND OTHER BENEFITS USING YOUR BTRSS BENEFITS IN RETIREMENT THE NEW HYBRID SCHEME MEMBER SUPPORT MEMBER EXAMPLES BTRSS contribution structure From 1 July 2018, both you and BT will contribute to your new BTRSS plan. We re pleased to announce that BT s standard contribution rate is increasing to 10% assuming you pay at least 5% as shown in the table below. These rates are an improvement from current rates and a further improvement from those proposed during the consultation. The table below shows the improved contribution rates for BTPS members moving into the BTRSS as part of the changes. These are shown as a percentage of BTRSS Pensionable Salary and will be available from 1 July 2018 for those who join on that date. Standard member rate Current BT rates Improved BT rates 5% 8% 10% 15% 6% 8.5% 10% 16% 7% 9% 10% 17% 8% 9% 11% for five years, 10% thereafter Total rates into BTRSS 19% for five years, 18% thereafter If you contribute at least 5%, BT will pay a contribution of at least 2,000 a year. This minimum contribution will be pro rata d for part-time employees and for those who start or leave during a year. So if you have a BTRSS Pensionable Salary of 30,000 and choose to pay 5% into the BTRSS, you ll pay 125 per month into your plan. BT s contribution will be 250 per month into your plan that s a 25% increase from what it would currently be. Additional temporary contribution tier As shown in the table above, BT will contribute 11% of your BTRSS Pensionable Salary if you contribute 8% or more. This temporary higher contribution tier is offered exclusively to members who join the BTRSS from the BTPS as part of the changes, and has been extended to be available for five years to 30 June This is an increase from the three years proposed during the consultation. Additional transition payments BT will also pay additional transition payments of 2% of BTRSS Pensionable Salary per year into your BTRSS plan, for a period of up to 10 years (or earlier if you leave BT or stop being an active member of the BTRSS). This remains based on your age at 1 April 2018 (and not 1 July 2018), so members don t miss out due to the implementation date changing. Transition payments: Age at 1 April 2018 Additional transition payments (% of BTRSS Pensionable Salary) < 40 2% for 10 years 20% % for 8 years 16% % for 7 years 14% % for 5 years 10% % for 3 years 6% > 60 2% for 2 years 4% Total amount of transition payments (% of BTRSS Pensionable Salary) Note: if you opt out of the BTPS before 1 July 2018 you may not be entitled to join the BTRSS at a later date or be eligible for transition payments. Bringing it all together examples If you re 50 years old on 1 April 2018, you could have as much as 21% of your BTRSS Pensionable Salary paid into your BTRSS plan for five years from 1 July If you re 55, you could have much as 21% being paid into your BTRSS account for three years and 19% for another two years. This is before allowing for additional contributions (above 8%) you may wish to pay. We re changing your pension scheme (BTPS) 7

10 The BTRSS in detail (continued) Your default BTRSS contribution rate As a BTRSS member, you ll have the flexibility to choose how much you contribute to your BTRSS plan each month, subject to a 5% minimum of your BTRSS Pensionable Salary. You ll be able to choose how much you wish to contribute through the Your Rewards portal. If you don t make a choice, you ll start contributing to the BTRSS at a rate based on what you re currently paying in the BTPS (your default contribution rate). Currently, BTPS team members typically pay between 6% and 7% of BTPS Pensionable Salary into the BTPS. The amount you currently pay depends on the section of the BTPS you re in, whether your BTPS Pensionable Salary is above or below the Contribution Earnings Threshold ( CET ) ( 50,661 in tax year 2018/19), and whether you chose to pay contributions at a reduced rate to build up benefits more slowly. You also currently receive an additional allowance (the NI allowance ) in your pay each month that relates to the changes made in This allowance is shown on your pay slip as the Pensions Contract-in NI adj. You ll stop getting the NI allowance from 1 July 2018 when you move to the BTRSS. The NI allowance reduces the impact of your BTPS contributions on your take home pay, so we ve taken this into account when setting your default BTRSS member contribution rate. On average, the value of this allowance is equal to around 1% of BTPS Pensionable Salary. Your default BTRSS contribution rate The team member default rate will be 6% for BTPS Section B members and 5% for BTPS Section C members. This includes any members who currently have BTPS Pensionable Salary above the CET. This means all members will need to increase their default rate to 8% to receive the additional contribution tier of 11%. There are a few members who have previously chosen to build up benefits on a 90ths accrual rate. If you are one of these members, you ll be paying contributions of 6% salary less NI allowance and will automatically start paying 5% into the BTRSS. Making changes to your BTRSS plan If you would like to make changes to either your contribution rate or investment choices within your BTRSS plan, you can do so by logging on to Your Rewards (for contribution rates) or the Standard Life site (for investment choices). We ll give you more instructions about how to do this at a later date. You don t need to do anything to remain on your default contribution rate. From 1 July 2018, BT s contributions will be paid in automatically. Maximising BT s contributions to your BTRSS plan For many BTPS members their default contribution rate is less than 8% so they ll not benefit from the temporary five-year enhanced BT contribution of 11%. If your own contribution rate is currently below 8% and you think you would like to take advantage of BT s 11% contribution rate, you ll need to increase your contribution rate through the Your Rewards portal when given the opportunity. Also, as you receive tax relief on your contributions (as well as National Insurance savings through Smart Pensions), it may not cost as much as you think. A pension is a tax efficient savings scheme. You receive tax relief on your contributions as you pay in to your pension and your savings have the possibility of growing with minimal tax. Remember, you re able to change your BTRSS contributions to a higher or lower rate at any time if you wish, and BT s contribution rate will be adjusted where applicable. You ll be able to make a choice of contribution rate before joining the BTRSS on 1 July 2018 more information on how you do this is shown on page 17 under the section What do I need to do? 8 We re changing your pension scheme (BTPS)

11 INTRODUCTION AND WHY ARE WE MAKING THESE CHANGES? YOUR BTPS BENEFITS THE BTRSS IN DETAIL DEATH IN SERVICE, MEDICAL AND OTHER BENEFITS USING YOUR BTRSS BENEFITS IN RETIREMENT THE NEW HYBRID SCHEME MEMBER SUPPORT MEMBER EXAMPLES Examples of BTPS and BTRSS member contributions, and the impact on take-home pay Example 1 Ron, Section B, age 50, Pensionable Salary 1 of 30,000 per month BTPS 7% of BTPS Pensionable Salary, less NI allowance Gross member contributions BTRSS: default rate of 6% of BTRSS Pensionable Salary Net contributions Impact on take-home pay 2 less per month Example 2 Anika, Section C, age 55, Pensionable Salary 1 of 40,000 per month BTPS 6% of BTPS Pensionable Salary, less NI allowance Gross member contributions BTRSS: default rate of 5% of BTRSS Pensionable Salary Net contributions Impact on take-home pay 4 less per month 1 For illustration purposes, BTPS Pensionable Salary and BTRSS Pensionable Salary are assumed to be the same amount. In practice there are some differences between the two schemes in terms of what is included in these definitions (see the Glossary on page 18 for more details). 2 Net contributions are shown after tax and assume contributions are paid through Smart Pensions. Smart Pensions When you join the BTRSS, you ll automatically participate in Smart Pensions, although you can choose to opt out of this at any time. Smart Pensions is our salary sacrifice arrangement. It s a cost-effective way of making payments to your BT pension arrangement. It s an agreement between you and BT, where you agree to sacrifice part of your salary in return for BT making pension contributions on your behalf as long as this wouldn t reduce your salary below the National Living Wage or National Minimum Wage. You save money because you pay lower National Insurance contributions. You can find more information at: hr.bt.com/en-gb/performancereward/pensions/ smart-pensions-for-btps-btrss-members Changing your BTRSS contribution rate In the BTRSS, you can change how much you contribute to a higher or lower rate at any time through the Your Rewards portal. As with all defined contribution pension schemes, the more you and BT pay in, the more you ll potentially get in retirement the example below illustrates this. Ron who is age 50 at 1 July 2018 and has a BTRSS Pensionable Salary of 30,000 a year: % of BTRSS Pensionable Salary If Ron pays 5% 7% 8% BT would pay 10% 10% 11% for five years, 10% thereafter + transition payments of 2% for five years Then, at age 65, Ron s projected BTRSS plan value is 84,000 95, , % +21% The member examples are based on the following assumptions: Figures are expressed in today s prices, allowing a better comparison of benefits for members of different ages and periods to retirement. Salary growth is assumed to be in line with inflation at 2.5%. Members are assumed to invest in the BTRSS low involvement option, and to receive investment returns of 5% each year until retirement. Because the projections allow for inflation of 2.5% a year, the effective growth rate is 2.5% a year above inflation. Standard Life makes a similar assumption in its retirement modeller. This is in line with rules set out by the Financial Conduct Authority (FCA). Members are assumed to remain active members until age 65. We re changing your pension scheme (BTPS) 9

12 The BTRSS in detail (continued) Your BTRSS investment choices The BTRSS gives you control over how your plan is invested, with choices that suit your level of investing experience and how involved you want to be with managing your plan. When you join the BTRSS on 1 July 2018, you don t have to make a decision on which funds to invest in immediately as your contributions will be invested in the default low-involvement option, operated by Standard Life. This option gradually moves your money into lower risk funds in the 10 years before your target retirement age of 65. This gives you more flexibility when you retire. Once your BTRSS plan has been set up, you can choose other options which may be more appropriate for your circumstances, and you can change your investment options, including your target retirement age, at any time through the Standard Life portal (we ll let you know more about this closer to the time we close the BTPS). As with most investments, the value of your plan can go down as well as up. Annual management charges An annual management charge applies to your BTRSS plan. BT has negotiated a significant discount on the annual management charges with Standard Life. Members invested in the low involvement option will pay an annual management charge of 0.3%. This is a 0.73% discount on the normal charge (including expenses) of 1.03%. For example, if your BTRSS plan is 20,000 the charge amounts to 60 per year. Please visit investment-choices for more information about investment options and fund charges. London Weighting allowance From 1 July 2018, as well as pay and pension protection, we will now include London Weighting allowance in the calculation of your BTRSS Pensionable Salary. If you receive London Weighting allowance, this means you and BT would pay contributions on this allowance in future. For example, if Ellie s current Pensionable Salary is 25,000 and she receives a London Weighting allowance of 3,380 per year, her BTRSS Pensionable Salary would increase from 25,000 to 28,380. This means the contributions paid by her and BT would change as follows: Ellie pays 5% on her current BTRSS Pensionable Salary of 25,000 From 1 July 2018 Ellie pays 5% on her new BTRSS Pensionable Salary of 28,380 BT pays 10% of her new BTRSS Pensionable Salary of 28,380 Gross Net member contributions contributions into Ellie s plan (after tax and Smart pensions) 1,250 per year 1,419 per year 2,838 per year 850 per year 965 per year n/a Ellie s take-home pay would go down by just under 10 per month, but with BT s contributions (at the new 10% contribution rate), adding the London Weighting allowance would put an extra 42 per month into Ellie s BTRSS plan. Other pensionable allowances BT will make some other allowances pensionable within the BTRSS no later than 1 April 2019 but you won t be required to pay member contributions on these. This will mean BT will pay contributions on these allowances, but this won t affect your take-home pay. 10 We re changing your pension scheme (BTPS) The allowances which will also become pensionable within the BTRSS are: Shift Night attendance premium (within standard hours) Outside broadcast Sunday (within standard hours) There are some allowances which will no longer be pensionable for BTPS team members who join the BTRSS or the new hybrid scheme. Where this is the case, these members will receive a one-off employer contribution into the BTRSS which will be equivalent to 10% of the allowance received in the 12-month period prior to closure.

13 INTRODUCTION AND WHY ARE WE MAKING THESE CHANGES? YOUR BTPS BENEFITS THE BTRSS IN DETAIL DEATH IN SERVICE, MEDICAL AND OTHER BENEFITS USING YOUR BTRSS BENEFITS IN RETIREMENT THE NEW HYBRID SCHEME MEMBER SUPPORT MEMBER EXAMPLES You could have as much as 21% of your BTRSS Pensionable Salary paid into your plan

14 Death in service, medical and other benefits From 1 July 2018, you ll be entitled to various other benefits, such as death in service and medical retirement both from the BTPS and as a BTRSS member. Death in service benefits If you die before you retire while still working at BT, the benefits payable from BTPS and the BTRSS are set out below. BTRSS members receive death in service benefits though a separate arrangement. Death benefits for deferred BTPS members Section B and Section C members: For eligible spouses / civil partners / adult dependants: a pension of up to a maximum of half your deferred pension at the date of your death. (Some adjustments for members with pre 1 June 1972 service may apply). In addition, for Section B members a lump sum death benefit is payable equal to the higher of: 1 ¼ of your Final Pensionable Salary as at 30 June The retirement lump sum which would have been paid if you had been retired on medical grounds at 30 June Five times your deferred annual pension. A refund of your member contributions (excluding any contributions attributable to pensions for your Spouse/Civil Partner or eligible children) with interest at 3% per year compound. For Section C members the additional lump sum is equal to the value of the retirement lump sum you built up between 1 April 2009 and 30 June Death benefits for active BTRSS members Cash lump sum of 10 x your BTRSS Pensionable Salary 1. This is subject to a maximum amount equal to the value of the Lifetime Allowance 2 at the time of your death. PLUS The value of your BTRSS plan, which can be paid as a lump sum or used to provide a pension. 1. BTRSS Pensionable Salary is subject to the Earnings Cap, which is 160,800 for the 2018/19 tax year 2. The Lifetime Allowance is 1.03m for the 2018/19 tax year Any lump sum death benefit will normally be paid free of inheritance tax as the payments are made under a discretionary trust. The Trustee of the relevant scheme (or Standard Life in the case of your BTRSS plan) decides who receives the lump sum payments and how much they get. However, you can guide them by completing an Expression of Wish form for each arrangement. It s therefore really important that you complete one of these forms for each scheme, and keep the forms up to date, so that the trustees (or Standard Life) can take your wishes into account. Don t wait until it s too late. Lump sums payable on death are subject to the Lifetime Allowance, so tax charges may apply if the total of all the above payments takes you over the Lifetime Allowance. Medical retirement benefits If you suffer from ill health while working for BT and satisfy BT s medical retirement criteria, (and a valid medical retirement certificate has been issued), you would receive both of the following: Medical benefits for deferred BTPS member Deferred BTPS pension and lump sum, which wouldn t be reduced for early payment. Medical benefits for active BTRSS member A lump sum of either 15% or 20% (depending on the severity of your illness, disability or injury) of BTRSS Pensionable Salary for each year of future service up until age 65. The payment is at BT s discretion and does not apply to anyone whose terms include permanent health insurance. In addition, you may be able to receive payment of your BTRSS plan before age 55 if you meet Standard Life s medical retirement conditions. 12 We re changing your pension scheme (BTPS)

15 INTRODUCTION AND WHY ARE WE MAKING THESE CHANGES? YOUR BTPS BENEFITS THE BTRSS IN DETAIL DEATH IN SERVICE, MEDICAL AND OTHER BENEFITS USING YOUR BTRSS BENEFITS IN RETIREMENT THE NEW HYBRID SCHEME MEMBER SUPPORT MEMBER EXAMPLES Using your BTRSS benefits in retirement Your BTRSS benefits when you retire The BTRSS gives you flexibility and control over how you take your benefits at retirement. You ll have a number of options to choose from, and you can use your BTRSS plan in a number of different ways. Options for how you take your benefits You have a number of choices for how you spend your BTRSS plan Your BTRSS plan 25% You can still take up to a quarter of your plan as tax-free cash Take your entire plan as cash Take an amount from your plan whenever you want Buy a pension Take your plan as cash You could take the full value of your plan as a cash lump sum, but anything over the first 25% would be subject to income tax. Take an amount from your plan whenever you want, also known as drawdown You could choose to take a series of cash sums or income from your plan over time while the balance remains invested. Buy a pension and receive an annual income, also known as an annuity This provides a guaranteed regular income for the rest of your life. You ll be able to choose the type of annuity that suits you best. For example, you can choose one that pays an income to your spouse or partner if they outlive you, and that increases in line with inflation each year. You can use your plan to do a combination of these options. Unless you buy an annuity, you d need to manage your money carefully to make it last for as long as you need it once your money runs out, it s gone for good. Whichever option or options you choose, your pension benefits (above the 25% tax-free amount) would be taxed as income. We re changing your pension scheme (BTPS) 13

16 The new hybrid scheme As part of our consultation with the CWU, we agreed we would make a new type of pension available. It s intended that this new scheme would combine elements of both defined benefit (like the BTPS) and defined contribution (like the BTRSS) schemes. This hybrid scheme would give you another option for your retirement savings instead of the BTRSS, which could provide more certainty over your eventual level of benefits. The new hybrid scheme will be set up under separate governance arrangements to the BTPS and the BTRSS. The key features we ve agreed so far are: Benefits in the hybrid scheme Your normal retirement age will be age 65. Your benefits up to the salary threshold* each year will be calculated on a Career Average Revalued Earnings (CARE) basis. This means that benefits build up year on year and reflect your earnings during your membership of the hybrid arrangement. For each year of Pensionable Service you ll build up a block of pension of 1/105ths of salary up to the Pensionable Salary threshold. Plus A lump sum of three times that pension, payable from your normal retirement age. * The salary threshold will initially start at 17,500 for the 2019/20 year and will increase each year in line with the Consumer Price Index (CPI) in the future. The block of pension built up each year will be increased at the end of the following year and annually thereafter up to your retirement, or leaving the hybrid arrangement if earlier. Each block is increased by the change in each year, but never below zero. Once in payment, the defined benefit element of your pension will rise in line with CPI inflation, capped at 3.5%. In addition, BT will also pay a contribution into your hybrid DC pot. This will be 10% of pensionable salary earned over the salary threshold. If you join the hybrid arrangement you ll still have the BTPS benefits you built up before 1 July 2018 and any benefit you built up in the BTRSS in the period before you joined the hybrid arrangement. Contributions in the hybrid scheme Your contributions to the hybrid scheme will be 6.25% of your total Pensionable Salary. Pensionable Salary in the hybrid scheme will follow the same definition as for the BTRSS. It s intended that if you join the hybrid scheme you ll automatically participate in Smart Pensions, although you can choose to opt out of this. Death in service benefits in the hybrid scheme Death in service benefit whilst an active member of the hybrid scheme will be: 10 x your Pensionable Salary 1. This is subject to a maximum amount equal to the value of the Lifetime Allowance 2 at the time of your death. Plus 10 x your accrued DB pension in the hybrid scheme at date of death along with the value of any lump sum built up at date of death in the hybrid scheme. Plus the value of your DC pot in the hybrid scheme. Notes: 1. Pensionable Salary is subject to the Earnings Cap, which is 160,800 for the 2018/19 tax year. 2. The Lifetime Allowance is 1.03m for the 2018/19 tax year. Any lump sum death benefit will normally be paid free of inheritance tax as the payments are made under a discretionary trust. The Trustee of the relevant scheme (or Standard Life in the case of your BTRSS plan) will decide who receives the lump sum payments and how much they get. However, you can guide them by completing an Expression of Wish form for each arrangement. Lump sums payable on death are subject to the Lifetime Allowance, so tax charges may apply if the total of all the above payments takes you over the Lifetime Allowance. 14 We re changing your pension scheme (BTPS)

17 INTRODUCTION AND WHY ARE WE MAKING THESE CHANGES? YOUR BTPS BENEFITS THE BTRSS IN DETAIL DEATH IN SERVICE, MEDICAL AND OTHER BENEFITS USING YOUR BTRSS BENEFITS IN RETIREMENT THE NEW HYBRID SCHEME MEMBER SUPPORT MEMBER EXAMPLES Bringing it all together: death in service example For example, if a hybrid scheme member has accumulated 500 per annum of defined benefit pension and 1,500 of lump sum, this is paid out on death in service as 500 x ,500 = 6,500. The total death in service benefit in this example would be: 6,500 (i.e. 10 x the member s accrued defined benefit pension and lump sum); Plus: the member s accumulated hybrid scheme defined contribution fund; Plus: the member s accumulated BTRSS fund (if applicable at that time); Plus: 10 x pensionable salary (subject to a cap set at the level of the Lifetime Allowance million for 2018/19); Plus: BTPS death in deferment benefits. Medical retirement benefits in the hybrid scheme Active members of the hybrid scheme who have medically retired in accordance with BT s medical retirement criteria will receive the same benefits as active BTRSS members, with the lump sum being paid into the defined contribution part of the hybrid scheme. In these circumstances the standard actuarial reduction will be applied for early payment of the member s hybrid scheme defined benefit pension and lump sum benefits. Hybrid scheme retirement flexibility option Members of the hybrid scheme will be able to draw their defined benefit and defined contribution benefits at different times. The earliest date these benefits can be taken will be age 55 (subject to overriding legal requirements). If a member wants to take the defined benefit part of the hybrid scheme before their normal retirement age of 65, the defined benefit will be reduced for early payment. If the member then wishes to continue working for BT, the flexible working policy will apply. So you ll be able to take your hybrid pension early while you continue working at BT (for up to two years from the date you start taking your pension). Your actual leaving date will need to be agreed in advance and is subject to your manager s approval. Additional transition payments We ve also agreed some transition payments for members wanting to move across to the hybrid. BT will continue paying additional transition payments of 2% of Pensionable Salary into the hybrid arrangement but only in respect of Pensionable Salary above the salary threshold, for a period of up to 10 years (or earlier if you leave BT or stop being an active member of the hybrid arrangement). This remains based on your age at 1 April 2018 (and not 1 July 2018). Age at 1 April 2018 Additional transition payments from 1 July 2018 (first made into BTRSS and then into the hybrid arrangement once available) (% of Pensionable Salary above the salary threshold) < 40 2% for 10 years 20% % for 8 years 16% % for 7 years 14% % for 5 years 10% % for 3 years 6% > 60 2% for 2 years 4% Total amount of transition payments (% of Pensionable Salary above the salary threshold) Smart Pensions It s intended that if you join the hybrid arrangement you ll automatically participate in Smart Pensions, although you can choose to opt out of this. Smart Pensions is our salary sacrifice arrangement. It s a cost-effective way of making payments to your BT pension arrangement. It s an agreement between you and BT, where you agree to sacrifice part of your salary in return for BT making pension contributions on your behalf as long as this wouldn t reduce your salary below the National Living Wage or National Minimum Wage. You save money because you pay lower National Insurance contributions. You can find more information at: hr.bt.com/en-gb/performancereward/pensions/smart-pensionsfor-btps-btrss-members where you can also find a link for opting out of Smart Pensions if you wish. What do I need to do now? You don t have to make any decisions at the moment. We ll be sending you more details before the hybrid scheme becomes available. Once the hybrid arrangement becomes available, you ll be able to choose whether to join the new arrangement or remain in the BTRSS. We re changing your pension scheme (BTPS) 15

18 Member support If you would like more information or support, you can visit our intranet site at snip.bt.com/pensions. The site features videos, an FAQ, modeller and additional member examples to help you understand the changes. If necessary, talk to your manager and arrange a convenient time for you to access this support. If you have any additional queries about the changes, please call the Helpdesk on or bt.pensionsreview@wealthatwork.co.uk We ve also updated the online BTPS pensions review modeller on the pensions review site to reflect the final changes and illustrate the potential impact of the new early retirement and flexibility options. The online modeller will help show how the changes will affect your benefits and will be live from April You can find it at snip.bt.com/pensions and click on BTPS pensions review modeller The pensions review modeller is provided as a guide only and can t provide a fully accurate results for every personal circumstance. If you want to talk to someone about your personal circumstances, you may wish to seek financial advice. BTRSS Information For more information about the BTRSS, visit If you have any questions about the BTRSS, please contact Standard Life on or bt_admin@standardlife.com. The Pensions Advisory Service provides free and impartial information for pension scheme members. You can find out more at or by calling The Pensions Regulator is responsible for ensuring pension schemes comply with UK legislation. They can be contacted at While BT isn t offering access to, or paying for, independent financial advice, you can find a local adviser at Please note that BT doesn t recommend any particular adviser, and if you take advice you ll have to pay for it yourself. 16 We re changing your pension scheme (BTPS)

19 INTRODUCTION AND WHY ARE WE MAKING THESE CHANGES? YOUR BTPS BENEFITS THE BTRSS IN DETAIL DEATH IN SERVICE, MEDICAL AND OTHER BENEFITS USING YOUR BTRSS BENEFITS IN RETIREMENT THE NEW HYBRID SCHEME MEMBER SUPPORT MEMBER EXAMPLES What do I need to do now? You don t need to do anything right away but we d encourage you to find out additional information through the pensions review site at snip.bt.com/pensions. Standard Life will send you more information on the BTRSS soon. You ll be automatically enrolled into the BTRSS on 1 July 2018 on the contribution rate relevant to you and into the default low involvement option investment fund (as described on page 10) unless you tell us otherwise. 17

20 Glossary of terms Active members Annuity Benefits BT Life Assurance Scheme BT Pension Scheme (BTPS) BT Retirement Saving Scheme (BTRSS) BTRSS Governance Committee BTRSS Pensionable Salary Commutation factors Contributions Contribution rate Death benefits Default investment option Defined Contribution (DC) Dependant Drawdown In the BTRSS, these are members who are making monthly contributions into the BTRSS. This is a contract with an insurance company you can buy when you retire to give you a guaranteed income for the rest of your life. Money that is paid out of a pension scheme. This is the Trust that life assurance benefits are paid under for BTRSS members. The BTPS is a defined benefit pension scheme. All benefits are set out in the BTPS Rules. The BTRSS is a defined contribution pension scheme where the contributions are defined, but the level of benefits aren t guaranteed. The BTRSS Governance Committee acts as an independent body that helps manage and monitor the BTRSS. In the BTRSS, this is typically your basic salary plus any applicable allowances that are deemed pensionable (see page 10). When calculating BT contributions, and death and medical retirement benefits, BTRSS Pensionable Salary is subject to the Earnings Cap. The Earnings Cap doesn t apply when calculating member contributions. If you exchange pension into lump sum, these factors are used to calculate the amount of pension exchanged. This is the money you and BT pay into your plan. This is the percentage of your BTRSS Pensionable Salary you and BT pay into your plan. Money paid out of a scheme to a member s spouse and/or dependants after the member dies. When you join the BTRSS, your money is automatically invested in a low involvement option, unless you choose a different fund. There s more information on the BTRSS website: investmentchoices/your-investment-options/the-low-involvement-option A defined contribution pension scheme is where members and employers pay contributions based on a percentage of the member s salary. Contributions are defined, but the level of benefits isn t guaranteed. The BTRSS is our primary defined contribution scheme. Generally speaking this is your spouse, partner or someone under the age of 18 (or 23 if they re in full-time education) who is financially reliant on you at the time of your death (as defined in the Rules of the BT Life Assurance Scheme or BTPS (as relevant). The option to take money out of your BTRSS plan to give yourself a flexible income when you retire. Any money left in the plan remains invested and could still increase or decrease. If you decide to draw down your pension, you d need to manage your money carefully to make it last for as long as you need it once your plan runs out, it s gone for good. 18 We re changing your pension scheme (BTPS)