Your Guide to Understanding the Old Mutual Wealth Pension Transfer

Transcription

1 Your Guide to Understanding the Old Mutual Wealth Pension Transfer Analysis (TVAS) Report The sections of the report covered in this guide are those relating to: The client The Pension Protection Fund The Technical Issues Please refer to the Appendix on Pages of the Guide for explanatory notes that will help in understanding the key sections of the report. NOTE Please note that there are some changes to this guide: The PPF compensation cap figure on page 14 is out-of-date. The version available online states 36, however the current amount from 1/4/2018 is 39, In note 29 on page 21 the taxation position for dependants flexi-access withdrawals is now that they are tax free if the member were to die before their 75th birthday. The guide refers to all withdrawals for a dependant being subject to their marginal rate of tax, when this would only now be applicable if the member s death occurred after age 75. This guide will soon be subject to a fundamental review because, in around October this year, the nature of the TVAS report structure will be changing dramatically. A revision to the report contents itself will be made available then and we will adjust the accompanying guide accordingly.

2 PENSION TRANSFER ANALYSIS Prepared for Mr C Yield Relating to Example Pension Scheme Prepared by Old Mutual Wealth 2

3 Pension Transfer Analysis Report contents Introduction 4 Critical Yields For Annuity Purchase 5 Retirement Benefits at age 65 For Annuity Purchase 6 Drawing Income Only Cash Flow Modelling From Age 65 7 Drawing Cash Sum And Income Cash Flow Modelling From Age 65 7 Retirement Benefits at age 60 For Annuity Purchase 8 Drawing Income Only Cash Flow Modelling From Age 60 9 Drawing Cash Sum And Income Cash Flow Modelling From Age Existing Scheme Pension Benefits 12 Existing Scheme Tax Free Cash (PCLS) 12 Transfer Value 12 Additional Voluntary Contributions (AVCs) 12 Transfer Alternatives 12 Benefits on Death Before Retirement 13 Benefits on Death After Retirement 13 Death Benefit Comparisons 13 Pension Protection Fund 14 Other Matters 16 Assumptions 16 Notes and Data used for the Report 17 Appendix Guidance to Understanding the Pension Transfer Analysis Report 20 3

4 INTRODUCTION This Pension Transfer Analysis Report is designed to assist in deciding whether a transfer of benefits from the Existing Scheme to an alternative pension contract would be appropriate. This report provides: a calculation of the annual rate of growth (Critical Yield) required to match the value of the benefits that would have been available in the Existing Scheme assuming the transfer value is invested into a Personal Pension and an annuity is purchased at retirement. Comparisons of the projected benefits in the Existing Scheme and the potential benefits arising from purchasing an annuity from a Personal Pension. a series of Cash Flow Models illustrating the potential outcomes on transfer to a Personal Pension assuming Pension Drawdown is used to access benefits equivalent to those available in the Existing Scheme. a comparison of the projected benefits available upon death, before and after retirement. Assumptions As we are projecting into the future, we have to use a range of assumptions. This report follows the assumptions laid out by the industry regulators, the Financial Conduct Authority (FCA). The assumptions cover how your pension fund may grow, how your pension fund is converted into an annual pension and future inflation rates. The FCA sets out 3 economic scenarios which are described as Low, Intermediate (Mid) and High. The projected values of the personal pension are not guaranteed. The Personal Pension used as the alternative contract in this report is the Old Mutual Wealth Collective Retirement Account and all references to Personal Pension in this report assumed the contract is the Old Mutual Wealth Collective Retirement Account. The analysis assumes that the crystallisation of benefits will fall within a client s available Lifetime Allowance. Where in practice this may not be the case, the effect of the Lifetime Allowance tax charge, on part of the projected value of benefits payable, would reduce the value of future benefits received from that time. Life Expectancy for Cash Flow Modelling The Cash Flow Models use data provided by the Office for National Statistics to make assumptions about average life expectancy. In your case the assumptions are as follows: UK Average Life Expectancy (source: ONS) You Partner Based upon your gender and year of birth Please Note this report does not include a Section 32 comparison as Old Mutual Wealth LIfe & Pensions Ltd does not offer a section 32 contract. a member may have at 5 April 2006 Protected Tax Free Cash rights in excess of 25%. This analysis assumes that the higher of the revalued Protected Tax Free Cash, or 25% of the fund will be payable at retirement. if the member has enhanced or primary protection, rights to the tax free cash may be lower than 25%. This report takes no account of this restriction. Care should be taken if the member has enhanced protection. The amount of the transfer value may be such that the Relevant Benefit Accrual occurs and the protection could be lost if benefits are transferred. Disclaimer Old Mutual Wealth do not accept any responsibility or liability for the advice provided by financial advisers resulting from the information contained in this Transfer Analysis Report (see note 1). This report is based on our interpretation of the information provided, and whilst we believe this interpretation to be correct, we cannot guarantee it (see note 2). 4

5 Pension Transfer Analysis Report CRITICAL YIELDS FOR ANNUITY PURCHASE The benefits in an individual pension plan grow according to the investment return of the funds in which the plan is invested. The Critical Yield shows how much growth is required each year in order to match the value of the benefits that would have been available in the Existing Scheme assuming an annuity purchase in an individual pension plan. For the purposes of valuing the Existing Scheme benefits, an Annuity Interest Rate of 2.3% has been used. This rate is set by the FCA and is reviewed each month. The rates in the Personal Pension Critical Yields table below breaks down the Critical Yield into two components: the growth required to match the value of the starting pension in the existing scheme; and the additional annual growth required to match the value of guaranteed periods and increases to the existing scheme pension once it comes into payment. The table is also broken down into Single Life and Joint Life Critical Yields. The Single Life Yields make no allowance for any spouse s pensions in the existing scheme, whereas the Joint Life yields will allow for the Existing Scheme s spouse s pension. Based on your current marital status and the scheme rules, you would currently be classified as Joint Life. The critical yields shown have been based on a transfer to the following plan: Personal Pension Retiring at Age 65 Comprised of Level Pension of 47,807 (Full) 29,766 (Reduced) Effect of Pension Increases and Guaranteed Period Retiring at Age 60 Comprised of Level Pension of 32,330 (Full) 21,371 (Reduced) Effect of Pension Increases and Guaranteed Period Old Mutual Wealth (Wealth Select) CRA Personal Pension Critical Yields (see note 3) The following critical yields are based on a transfer value of 680,000. Full Pension 7.0% (see note 4) 3.4% (see note 6) +3.6% (see note 7) 7.9% (see note 8) 1.6% (see note 10) +6.3% (see note 11) Assuming Scheme applies to Pension Protection Fund Today Full Pension Single Life Single Life Cash & Reduced Pension 4.8% (see note 5) Currently Classified as Joint Life Full Pension Cash & Reduced Pension 2.1% +2.7% 4.9% (see note 9) 0.0% +4.9% Cash & Reduced Pension 8.0% (see note 4) 4.1% (see note 6) +3.9% (see note 7) 9.3% (see note 8) 2.5% (see note 10) +6.8% (see note 11) 6.1% (see note 5) 2.9% +3.2% 6.7% (see note 9) 1.0% +5.7% Currently Classified as Joint Life Full Pension Cash & Reduced Pension Retiring at Age % (see note 12) 4.1% (see note 13) Retiring at Age % (see note 14) 6.1% (see note 15) 5

6 RETIREMENT BENEFITS AT AGE 65 FOR ANNUITY PURCHASE Annual Pension Benefits The graph below compares the projected pension benefits for the Existing Scheme with those that could become available at age 65 if purchasing an annuity from the Personal Pension at the Low, Mid and High rates of return. The initial pensions are: Existing Scheme Personal Pension 47,807 17,572 (Low) 31,720 (Mid) 55,945 (High) (see note 16) Tax Free Cash and Reduced Annual Pension The estimated maximum amounts of tax free cash and annual pension payable at age 65 are as follows: (see note 17) (See Notes 18-24) 6

7 Pension Transfer Analysis Report DRAWING INCOME ONLY CASH FLOW MODELLING FROM AGE 65 The table below shows the funds left within the Personal Pension Plan, assuming you withdraw the same pension each year as would be payable to you if you stayed in the Existing Scheme. Once you reach your average life expectancy, it shows the amount being payable as the spouse/partner pension within the scheme. In addition, it shows the critical yield required from now until various ages to match the scheme pension payable net of tax from the Personal Pension. The initial pension payable at age 65 from the scheme is 47,807. Allowing for tax of 20%, your net of tax income from the scheme at age 65 would be 38,245. Taking Full Scheme Pension and No Tax Free Cash - using Full Drawdown in Personal Pension This table assumes Full Drawdown option will be used in the Personal Pension, which means 25% of the Initial Fund is taken as cash and used to provide income until that runs out, then income is drawn from the fund (and taxed). Your age Probability of reaching your age You Partner Annual Scheme Pension after Tax (see note 25) Person Pension Fund remaining at start of year (see note 26) Low 2% Growth rate required to fund pension until age (see note 27) 65 93% 96% 38, , ,000 1,290, % 93% 43, ,000 1,040,000 1,800, % 75 81% 89% 48, ,000 1,080,000 2,510, % 80 72% 83% 54,956 15, ,000 3,120, % 85 59% 74% 62,038 Fund depleted 763,000 3,910, % 86 56% 72% 31,781* Fund depleted 713,000 4,100, % 90 43% 61% 35,023** Fund depleted 652,000 5,150, % 95 26% 44% 39,548 Fund depleted 534,000 6,900, % % 26% 44,665 Fund depleted 360,000 9,290, % 105 4% 12% 50,449 Fund depleted 112,000 12,500, % Mid 5% High 8% Age Pension Fund Depleted 80 >105 >105 Probability of Reaching that Age (You/Partner) 72%/83% *(see note 28) **(see note 29) DRAWING CASH SUM AND INCOME CASH FLOW MODELLING FROM AGE 65 The table below shows the funds left within the Personal Pension Plan, assuming you withdraw an initial amount equivalent to the Tax Free Cash Sum payable if you stayed in the Existing Scheme ( 198,442) followed by the same reduced pension each year as would be payable to you if you stayed in the scheme. Once you reach your average life expectancy, it shows the amount being payable as the spouse/partner pension within the scheme. In addition, it shows the critical yield required from now until various ages to match the scheme pension payable net of tax from the Personal Pension. The reduced initial pension payable is 29,766. Allowing for tax of 20%, your net of tax income from the scheme at age 65 would be 23,813. Taking Initial Cash and Reduced Scheme Pension - using Full Drawdown in Personal Pension This table assumes Full Drawdown option will be used in the Personal Pension, which means 25% of the Initial Fund is taken as cash and used initially to provide the 198,442 tax free cash and income at the same level as the scheme until that runs out, then income is drawn from the fund (and taxed). Your age Probability of reaching your age You Partner Annual Scheme Pension after Tax (see note 30) Person Pension Fund remaining at start of year (see note 26) Low 2% Mid 5% High 8% Growth rate required to fund pension until age (see note 27) 65 93% 96% 23, , ,000 1,290, % 93% 26, ,000 1,00,000 1,800, % 75 81% 89% 30, ,000 1,020,000 2,470, % 80 72% 83% 34,054 82,600 1,010,000 3,200, % 85 59% 74% 38,390 Fund depleted 983,000 4,190, % 86 56% 72% 31,781* Fund depleted 972,000 4,420, % 90 43% 61% 35,023** Fund depleted 952,000 5,570, % 95 26% 44% 39,548 Fund depleted 898,000 7,480, % % 26% 44,665 Fund depleted 799,000 10,000, % 105 4% 12% 50,449 Fund depleted 642,000 13,600, % Age Pension Fund Depleted 81 >105 >105 Probability of Reaching that Age (You/Partner) 70%/81% *(see note 28) **(see note 29) 7

8 RETIREMENT BENEFITS AT AGE 60 FOR ANNUITY PURCHASE Annual Pension Benefits The graph below compares the projected pension benefits for the Existing Scheme with those that could become available at age 60 if purchasing an annuity from the Personal Pension at the Low, Mid and High rates of return. The initial pensions are: Existing Scheme Personal Pension 32,330 13,719 (Low) 22,007 (Mid) 34,497 (High) (see note 31) Tax Free Cash and Reduced Annual Pension The estimated maximum amounts of tax free cash and annual pension payable at age 65 are as follows: (See notes 32 and 33) (See notes 18-24) 8

9 Pension Transfer Analysis Report DRAWING INCOME ONLY CASH FLOW MODELLING FROM AGE 60 The table below shows the funds left within the Personal Pension Plan, assuming you withdraw the same pension each year as would be payable to you if you stayed in the Existing Scheme. Once you reach your average life expectancy, it shows the amount being payable as the spouse/partner pension within the scheme. In addition, it shows the critical yield required from now until various ages to match the scheme pension payable net of tax from the Personal Pension. The initial pension payable at age 60 from the scheme is 32,330. Allowing for tax of 20%, your net of tax income from the scheme at age 60 would be 25,864. Taking Full Scheme Pension and No Tax Free Cash - using Full Drawdown in Personal Pension This table assumes Full Drawdown option will be used in the Personal Pension, which means 25% of the Initial Fund is taken as cash and used to provide income until that runs out, then income is drawn from the fund (and taxed). Your age *(see note 28) **(see note 29) Probability of reaching your age You Partner Annual Scheme Pension after Tax (see note 25) Person Pension Fund remaining at start of year (see note 26) Low 2% Growth rate required to fund pension until age (see note 27) 60 96% 98% 25, , , , % 96% 29, , ,000 1,290, % 70 88% 93% 32, , ,000 1,800, % 75 81% 89% 37, , ,000 2,280, % 80 72% 83% 41,946 30, ,000 2,890, % 85 59% 74% 47,320 Fund depleted 764,000 3,700, % 86 56% 72% 24,238* Fund depleted 733,000 3,890, % 90 43% 61% 26,696** Fund depleted 717,000 4,920, % 95 26% 44% 30,128 Fund depleted 673,000 6,630, % % 26% 34,006 Fund depleted 596,000 8,990, % 105 4% 12% 38,390 Fund depleted 475,000 12,200, % Mid 5% High 8% Age Pension Fund Depleted 80 >105 >105 Probability of Reaching that Age (You/Partner) 72%/83% 9

10 DRAWING CASH SUM AND INCOME CASH FLOW MODELLING FROM AGE 60 The table below shows the funds left within the Personal Pension Plan, assuming you withdraw an initial amount equivalent to the Tax Free Cash Sum payable if you stayed in the Existing Scheme ( 142,471) followed by the same reduced pension each year as would be payable to you if you stayed in the scheme. Once you reach your average life expectancy, it shows the amount being payable as the spouse/partner pension within the scheme. In addition, it shows the critical yield required from now until various ages to match the scheme pension payable net of tax from the Personal Pension. The reduced initial pension payable is 21,371. Allowing for tax of 20%, your net of tax income from the scheme at age 60 would be 17,097. Taking Initial Cash and Reduced Scheme Pension - using Full Drawdown in Personal Pension This table assumes Full Drawdown option will be used in the Personal Pension, which means 25% of the Initial Fund is taken as cash and used initially to provide the 142,471 tax free cash and income at the same level as the scheme until that runs out, then income is drawn from the fund (and taxed). Your age *(see note 28) **(see note 29) Probability of reaching your age You Partner Annual Scheme Pension after Tax (see note 26) Person Pension Fund remaining at start of year (see note 26) Low 2% Growth rate required to fund pension until age (see note 27) 60 96% 98% 17, , , , % 96% 19, , ,000 1,290, % 70 88% 93% 21, , ,000 1,770, % 75 81% 89% 24, , ,000 2,290, % 80 72% 83% 27, , ,000 3,000, % 85 59% 74% 31,065 Fund depleted 984,000 3,960, % 86 56% 72% 24,238* Fund depleted 982,000 4,190, % 90 43% 61% 26,696** Fund depleted 1,000,000 5,320, % 95 26% 44% 30,128 Fund depleted 1,020,000 7,190, % % 26% 34,006 Fund depleted 1,010,000 9,770, % 105 4% 12% 38,390 Fund depleted 986,000 13,300, % Mid 5% High 8% Age Pension Fund Depleted 83 >105 >105 Probability of Reaching that Age (You/Partner) 65%/78% 10

11 Pension Transfer Analysis Report EXISTING SCHEME PENSION BENEFITS The pension benefits accrued in the Example Pension Scheme are comprised of a number of separate elements, or slices of pension that are treated differently by the scheme or have different legislation governing their behaviour. The following details the types of pension benefit that were accrued and the different slices of benefit within each type along with details of how they increase before and after retirement. Guaranteed Minimum Pension (GMP) Pre 88 GMP Pension at 31 March Increases before age % per annum Increases after age 65 no increases* Post 88 GMP Pension at 31 March Increases before age % per annum Increases after age 65 CPI (max 3%) per annum* * The increases on GMP benefits from age 65 paid by the Existing Scheme are detailed above. If the increase in CPI is greater than the scheme increases, the balance of the increase is awarded as an addition to the member s state pension. GMP is not payable before age 65. When you retire before this age, the scheme will pay a pension in lieu of the GMP (known as a GMP Bridge). For details of this see the Data Used for the report section at the back of the analysis. Other Scheme Pension Benefits Pre 6/4/97 Excess Pension at 31 March ,000 Increases before retirement statutory Orders (5% cap) (see note 50) Increases after retirement rpi (max 5%) Post 5/4/97 Pension Pension at 31 March ,000 Increases before retirement statutory Orders (5% cap) (see note 50) Increases after retirement rpi (0% min, 5% max) Transferred-in Benefits There are no fixed transferred-in benefits although there may be some added years service included in the pension benefits listed above. 11

12 EXISTING SCHEME TAX FREE CASH (PCLS) The scheme rules permit some pension to be exchanged for a tax free cash sum up to the maximum permitted by HM Revenue & Customs (HMRC). This is otherwise known as pension commencement lump sum (PCLS). Whether this amount is completely tax-free will depend upon your remaining lifetime allowance. The amount of cash available depends on the total value at retirement of the pension benefits, together with the rate at which the Existing Scheme exchanges pension benefits for cash; this is known as the commutation rate. TRANSFER VALUE You have been offered a transfer value of 680,000, in lieu of benefits under the Existing Scheme, which can be invested into a Personal Pension contract. ADDITIONAL VOLUNTARY CONTRIBUTIONS No Additional Voluntary Contributions have been paid by the member. TRANSFER ALTERNATIVES These benefits, apart from being left within your existing scheme, can be transferred to a Personal Pension Plan or a Section 32 contract. Personal Pension Plan Benefits In a Personal Pension the benefits at retirement are determined by how the transfer value has grown in the period to retirement, together with the annuity rates available at retirement to convert the pension fund into annual pensions. The size of the pension fund also impacts the amount of death benefits and cash lump sums payable. Personal Pension Plan - Escalation of Benefits from Retirement In a Personal Pension Plan, at retirement the member would be able to choose the rate of pension increase. For comparison purposes, the Personal Pension benefits are assumed to increase on a basis that matches the Existing Scheme as far as possible. If a lower escalation rate is selected a higher starting pension might be available and vice versa. Personal Pension Plan - Tax Free Cash Sum The tax free cash sum is calculated as 25% of the entire pension fund. Section 32 Plan Benefits The benefits in a Section 32 contract are also determined by the fund value available at retirement, which is in turn used to purchase pension benefits, death benefits and cash lump sums. In addition the Section 32 contract treats any Guaranteed Minimum Pension (GMP) benefits in a similar way to the Existing Scheme and must ensure at least this level of pension is paid at age 65. For the purposes of this report, no comparison has been made of the benefits on transfer to a Section 32 contract. 12

13 Pension Transfer Analysis Report BENEFITS ON DEATH BEFORE RETIREMENT Existing Scheme A payment of 26,400 representing member s contributions plus interest at 3% per annum. (See notes 34 and 35) In the event of your death before retirement a Spouse s Pension is payable. This spouse s pension would be 50% of the member s pension. Personal Pension Where a Personal Pension Plan has been established as a result of a transfer from a Final Salary Scheme, the entire fund will be paid as a lump sum although there may be an option to provide a pension with some or all of the lump sum. BENEFITS ON DEATH AFTER RETIREMENT Existing Scheme (See note 35) The Existing Scheme member s pension will continue to be paid for a minimum of five years from the date of retirement. Given your current marital status, on your death in retirement a spouse s pension of 50% would be payable based on the member s pension prior to commutation. Personal Pension (See note 36) In a Personal Pension the member chooses at retirement the style of benefit they wish to take, including the size of any spouse s pension. This will be provided through a dependant s flexi-access drawdown facility. This may not be available through other personal pensions. For illustration purposes this report assumes a similar level of spouse s pension would be chosen to that in the Existing Scheme. Were a higher spouse s pension chosen, the amount of member s pension that could be purchased would be smaller and vice versa. DEATH BENEFIT COMPARISONS Death Before Retirement Assuming Death Benefit Payable Existing Scheme Immediately At age 60 At age 65 Lump Sum Annual Pension Lump Sum Annual Pension Lump Sum Annual Pension 26,992 17,958 (see note 37) 35,392 21,553 41,029 23,903 Capitalised Value of Death Benefits Before Retirement Personal Pension Low Mid High 680, , , ,000* (see note 38) 0 959, ,158, , ,243, ,731,552 0 To simplify the comparison of benefits payable on death before retirement, the graph below shows the capital cost of providing all projected death benefits from the Existing Scheme and the projected fund values that could be achieved by a Personal Pension. (See note 39) 13

14 PENSION PROTECTION FUND The Pension Protection Fund (PPF) offers an insurance scheme to help provide a minimum level of pension should a pension scheme get into serious financial difficulty. It is funded by a series of levies applied to all final salary pension schemes. It should be noted that the management body of the PPF have the right to reduce the level of compensation being paid from the scheme should the PPF itself suffer financial hardship. The government does NOT underwrite the scheme. Broadly speaking, those people below the normal retirement age of the scheme when the PPF is appointed will receive 90% of their accrued benefits immediately before the assessment date (subject to a review of the rules of the scheme by the PPF), whilst those past the normal retirement age of the scheme at this date would receive 100% of their accrued benefits. In the PPF, the Total Pension is revalued from the PPF assessment date to the normal retirement date in line with statutory orders revaluation. GMP benefits do not receive separate revaluation. Benefits relating to Post April 1997 service will increase in payment (in line with CPI capped at 2.5%), whereas no increase in payment will be made in respect of any pension accrued before This compensation is subject to an overall cap (currently 36, (see note 40) for those retiring at age 65) which will be increased each year, and adjusted to the age at which compensation comes into payment (future increases to the cap are assumed in line with AEI increases). The PPF is not applicable if your benefits are held within a Public Sector Pension Scheme. This type of scheme is dependent upon income from Local and/or Central Government for its funding. Generally, therefore, a greater degree of security is available. The following pages compare the benefits that the Pension Protection Fund might secure against those that the existing scheme provide. The comparison is performed assuming the scheme apply to the Pension Protection Fund as at the date of this report. Comparisons are provided assuming retirement at both age 65 and age

15 Pension Transfer Analysis Report PENSION PROTECTION FUND COMPARISONS The Normal Retirement Age of the Scheme is 65 and these comparisons assume the scheme applies to the PPF on 3 November % of your pension benefits relate to post April 1997 service and will receive escalation in the PPF. Assuming retirement at age 65 Full Pension: Pension Today Pension at 65 Capitalised Value of Benefits Critical Yield in Personal Pension Existing Scheme 35,007 pa 47,807 pa 1,729, % PPF Alternatively: Cash + Reduced Pension: Full Pension: 31,506 pa (90%) 41,640 pa (see note 41) (87%) Pension Today Pension at 65 Existing Scheme 35,007 pa 32,330 pa (see note 41) PPF Alternatively: Free Cash Sum at age 65 31,506 pa (90%) + Reduced Pension at 65 37,715 pa (117%) 1,065,662 (62%) Capitalised Value of Benefits Capitalised Value of Benefits 4.4% Critical Yield in Personal Pension 1,389, % 1,099,586 (79%) Critical Yield in Personal Pension Existing Scheme 198, ,766 pa 1,351, % PPF 223,789 Cash + Reduced Pension: (113%) Free Cash Sum at age ,230 pa (105%) + Reduced Pension at 65 1,023,035 (76%) Commutation rates used to convert pension into tax free cash are 11.0 (Existing Scheme) and (PPF). Assuming early retirement at age 60 Any applicable early retirement factors have been applied on both the existing scheme and the PPF in the calculation of the pension at age 60. Capitalised Value of Benefits 4.1% 6.6% Critical Yield in Personal Pension Existing Scheme 142, ,371 pa 1,110, % PPF 235,598 (165%) + 28,286 pa (132%) 1,060,287 (95%) Commutation rates used to convert pension into tax free cash are 13.0 (Existing Scheme) and (PPF). 6.1% 15

16 OTHER MATTERS Transfer Value Expiry Date The transfer value quoted by the Existing Scheme is out of date and will need to be recalculated if a transfer of benefits proceeds. Ill Health Retirement Benefits The majority of final salary occupational pension schemes have the scope to pay enhanced benefits to members who wish to retire early due to ill-health. The level of enhancement, and indeed, whether any such enhancement will be paid is usually at the discretion of the scheme trustees on a case by case basis. This potential benefit will however be lost upon transfer to a Personal Pension. Equalisation Issues Male and Female retirement ages for the Existing Scheme were equalised at age 65 on 17 May (see note 42) If the existing scheme benefits include GMP; it is important to note that the DWP has re-affirmed its intention to press ahead with regulations to make clear that there is a requirement on schemes to equalise GMPs. It is unclear, however, when the legislative changes will be made. Scheme Status The existing Scheme remains open to new members. Funding Position The Existing Scheme is known to be in deficit. The extent to which members benefits are being restricted should be discussed with the trustees of the Existing Scheme. Transfer Club It is understood that the Existing Scheme is not a member of a transfer club, therefore, this is not an issue that needs further consideration. ASSUMPTIONS This report uses various assumptions which are prescribed by the Industry s Regulators and are subject to regular review. Valuing Scheme Benefits The Annuity Interest Rate is the annual rate of investment return used in calculating the Annuity Rates for the evaluation of scheme benefits and for converting the projected fund in the individual plan into a pension. The individual plan s pension amount assumes payments are made monthly in advance. The mortality rates used to determine the annuity are based on the CMI tables PCMA00 and PCFA00 including mortality improvements and are derived from each of the male and female annual mortality projections models in equal parts. No allowance is made in these annuity rates for enhanced or ill health annuities. Existing Scheme Assumptions Where benefit increases are linked to an index, the actual historic increases are used where known and assumptions about the future growth in the index are applied for future increases. For pre-retirement increases, a separate check is made to ensure that the revaluation over the whole period from date of leaving to retirement is at least equal to any minimum rate and not greater than any maximum capping rate. The following table includes the assumptions used for the most common types of increases. (see note 43) Scheme Projections Critical Yields Annuity Interest Rate n/a 2.3% Retail Price Index 2.5% 3.54% Retail Price Index capped at 2.5% 2.5% 2.5% Retail Price Index capped at 3% 2.5% 3% Retail Price Index capped at 5% 2.5% 3.54% Consumer Price Index 2% 3.02% Consumer Price Index capped at 2.5% 2% 2.5% Consumer Price Index capped at 3% 2% 3% Consumer Price Index capped at 5% 2% 3.02% Statutory Orders 2% n/a National Average Earnings Index 4% 4% Personal Pension Assumptions Low Mid High Annuity Interest Rate 0.3% 2.3% 4.3% Fund Growth Rate 2% 5% 8% Life Expectancy The mortality rates used to determine life expectancy and survival probabilities are based on the UK 2012-based National Population Projections life tables published by the Office for National Statistics. The life tables for 2013 onwards are based on projected mortality rates from the UK 2012-based National Population Projections. Projections are uncertain and become increasingly so the further they are carried forward in time, but in principal, are allowing for future improvements in mortality based on your gender and year of birth. 16

17 Pension Transfer Analysis Report NOTES AND DATA USED FOR THE REPORT There are no Notes for this report. Data Used Personal Information Client Name Mr C Yield Date of Birth 1 January 1965 Gender Male Marital status Married (see note 44) Partner date of birth 1 February 1967 (see note 45) Same partner as at date of leaving Yes (Assumed) (see note 46) Current Employment Status employed (Assumed) (see note 47) Joined Scheme 1 April 1985 Left Scheme 31 March 2005 (see note 48) Final Pensionable Earnings 60,000 (see note 49) Tax Rate in Retirement 20% (Assumed) Scheme Information Scheme Name Scheme Category Contracted Out Pre 4/97 GMP Bridge Contracted Out Post 4/97 Basis of Post 97 Contracting Out Accrual Rate Scheme Status Funding Position Pensionable Service Basis Transfer Club Member Scheme Benefits have money purchase underpin Retirement Ages example Pension Scheme Yes Yes (Assumed) Yes reference Scheme S9(2b) Rights 60ths open To New Members in Deficit Years and Months Rounded Down (Assumed) no No (Assumed) Scheme Retirement Age 65 Earliest Retirement Age allowed by scheme 55 Latest Retirement Age allowed by scheme 75 (Assumed) Retirement Ages Equalised Yes Date Retirement Ages Equalised 17 May 1990 (Assumed) Report illustration age A 65 Report illustration age B 60 Cash by Commutation Does the scheme allow cash by commutation? Does Scheme pay HMRC Post A Day maximum? Protected 5/4/2006 Escalation applied to Pension before Commutation? Bulk Transfer Cash Protection? Yes Yes 0(Assumed) No(Assumed) no 17

18 Data Used (continued) Death Benefits Is the Spouses Pension only payable to the spouse to whom the member was married at date of leaving? Death Before Retirement Return of Members Contributions 26,400 Return of Members Contributions interest 3% fixed Spouse s Pension - Percentage of Total Pension 50% Death After Retirement Guarantee Period 5 years Spouse s Pension Percentage of Total Pension 50% Spouse s Pension based on Pension Before Commutation? Yes Transfer Value Total Transfer Value 680,000 Post 97 Contracted Out TV (included in Total TV) 250,000 Date of Transfer Value 1 February 2015 Transfer Value Guaranteed Until 1 May 2015 Transfer Value Basis standard TV Only Members Contributions 26,400 Additional Money Purchase AVCs 0 Pension Providers Personal Pension Product Initial Adviser Charge Basis Ongoing Adviser Charge Basis Charges Facilitated by Product Provider Fund 100% Discretionary Increases Discretionary Increases Before Retirement Benefits before retirement are not subject to discretionary increases. Discretionary Increases After Retirement Benefits after retirement are not subject to discretionary increases. No old Mutual Wealth (Wealth Select) CRA no Initial Charge no Ongoing Charge Yes old Mutual Fidelity Global Focus U2 Acc 18

19 Pension Transfer Analysis Report Data Used (continued) Pension Benefits Pre 6/4/97 Excess 14,000 as at 31 March Pre 97 Excess Pension slice that revalues by Statutory Orders (5% cap) and escalates by RPI (max 5%). Full franking is applied before age 65 with franking of escalation only applied on or after this age. On retirement at age 60 the slice is revalued to this age (assumed) and a factor of 0.75 is applied. Commutation factor at age 65 is 11 and at age 60 is 13. Post 5/4/97 Pension 12,000 as at 31 March Post 97 Pension slice that revalues by Statutory Orders (5% cap) and escalates by RPI (0% min, 5% max). Full franking is applied before age 65 with franking of escalation only applied on or after this age. On retirement at age 60 the slice is revalued to this age (assumed) and a factor of 0.75 is applied. Commutation factor at age 65 is 11 and at age 60 is 13. Pre 88 GMP 250 as at 31 March Pre 88 GMP slice that revalues by GMP Fixed Rate and escalates by Statutory Minimum (GMP). This slice starts at age 65. Revaluation basis is Tax Years This slice is non-commutable. Post 88 GMP 750 as at 31 March Post 88 GMP slice that revalues by GMP Fixed Rate and escalates by Statutory Minimum (GMP). This slice starts at age 65. Revaluation basis is Tax Years This slice is non-commutable. GMP Bridge 1,000 as at 31 March GMP Bridge slice that revalues by GMP Fixed Rate and escalates by RPI (max 5%). Revaluation basis is 6th Aprils On retirement at age 60 the slice is revalued to this age (assumed) and a factor of 0.75 is applied. This slice is non-commutable. 19

20 APPENDIX GUIDANCE to Understanding the Pension Transfer Analysis Report Notes to the Report Content 1. This analysis should form part of a client specific report and the information contained in it must be verified by the Financial Adviser. 2. This normally is obtained from the member s leaver s and/or transfer value statement(s) issued by the scheme administrator. 3. There are two versions of the critical yields based on the client s current marital status and the position should this be different at the client s normal retirement age. 4. This is the annual growth rate required to match the equivalent fund value of the projected scheme pension at the normal retirement age, assuming no tax-free cash is taken. 5. This is the annual growth rate required to match the equivalent fund value of the projected scheme pension at the normal retirement age, assuming the maximum tax-free cash is taken by commutation and the pension is subsequently reduced. If the tax-free cash is in addition to the pension at retirement, this field will not be shown. 6. This shows how much of the annual growth rate from Note 4 would be required to achieve a level projected scheme pension once normal retirement age has been reached. No allowance is made for indexation or any guarantee period. 7. This shows how much of annual growth rate from Note 4 is needed to match the pension increase rates in payment and the guaranteed term that the current scheme provides at the normal retirement age. 8. This is the annual growth rate required to match the equivalent fund value of the projected scheme pension at the early retirement age specified, assuming no tax-free cash is taken. 9. This is the annual growth rate required to match the equivalent fund value of the projected scheme pension at the early retirement age specified, assuming the maximum tax-free cash is taken by commutation and the pension is subsequently reduced. If the tax-free cash is in addition to the pension, this field will not be shown. 10. This shows how much of the annual growth rate from Note 8 would be required to achieve a level projected scheme pension at the early retirement age. No allowance is made for indexation or any guarantee period. 11. This shows how much of annual growth rate from Note 8 is needed to match the pension increase rates in payment and the guaranteed term that the current scheme provides at the early retirement age. 12. This is the annual growth rate needed to match the benefits that would be available in the Pension Protection Fund at the normal retirement age assuming the full pension is taken. 13. This is the annual growth rate needed to match the benefits that would be available in the Pension Protection Fund at the normal retirement age assuming the tax-free cash and a reduced pension is taken. 14. This is the annual growth rate needed to match the benefits that would be available in the Pension Protection Fund at the early retirement age assuming the full pension is taken. 15. This is the annual growth rate needed to match the benefits that would be available in the Pension Protection Fund at the early retirement age assuming the tax-free cash and a reduced pension is taken. 16. These figures are revalued to the scheme s normal retirement age. 17. The existing scheme pension is based on the benefits available at the date of leaving or an up to date value if provided. Those benefits are revalued to the date of this report using historic data, if applicable. From the current date to retirement, the benefits are revalued in line with the midrate assumptions stated on Page 16 of the report. The personal pension figures are based on the mid-fund growth rates and assume the same escalation rate as the largest portion of pension under the scheme. 18. Where the tax-free cash figure has been provided by the scheme, it will be revalued in accordance with the scheme rules where advised. Tax-free cash will be paid on a maximum post A-day 25% basis where the tax-free cash has not been notified. 19. Where post A-day tax-free cash is available from the main scheme the formula used is; 20 x x Commutation Factor / 20 + (3 x Commutation Factor). 20. The tax-free cash shown for the personal pension is based upon 25% of the projected fund value. 21. Please note that there may be exceptions to the tax-free cash maximum, if pre A-day benefits where a protected tax -free cash entitlement applies and are intended to be preserved by virtue of a block transfer to a personal pension or wind up of a scheme to a section 32 policy for each member. (NB section 32 contracts are not covered in this analysis). 22. These pension benefits may differ due to any variance in the commencement date of benefits for example if payable from age 60 within a personal pension (technically the minimum age permitted is 55), but in the main scheme GMP may not commence until the normal retirement age and/or GMP Payment Age. 20

21 Pension Transfer Analysis Report 23. NB For GMP entitlement state pension age is 65 for males and 60 for females. No account is taken of the changes to state pension ages for females as a result of the Pensions Act 1995, or for males and females in the Pensions Acts 2007, 2011 and 2014, including those due to take effect from 6 December The tax-free cash available from the scheme may be restricted if the GMP liability cannot be fully covered. 25. Initially tax-free cash of 25% is taken from the CRA and is used to provide an income equal to the scheme s full pension, net of stated income tax rate, payable from the stated retirement age. The tax -free cash which the client has received has no future investment return assumed. The client will be building a flexi-access drawdown fund alongside of the tax-free cash the client has initially received for future use. Once all tax-free cash has been used up withdrawals will continue from the flexi-access drawdown fund that has built up in the CRA. These withdrawals will be net of the stated rate of income tax. Any rate of income tax can be specified and will apply to all income calculations where applicable. No account is taken for tax-free cash to be drawn from the main scheme. 26. These figures represent the projected fund value at the stated retirement age after the deduction of the initial tax-free cash payment and subsequent years, allowing for the annual withdrawals and investment growth on the remaining fund. Where the wording fund depleted appears in the output- it means that there is no remaining value from which to make any further income withdrawals 27. This is the annual rate of return required by the CRA to provide the illustrated level of income each year until the date shown, with the fund being fully extinguished at that age. 28. This is the average life expectancy based on the member s date of birth. 29. After the assumed date of death, the withdrawals are assumed to continue as beneficiary drawdown at a level matching the spouse s pension net of any specified rate of income tax that would have been available from the scheme, these withdrawals will be paid net of the beneficiary s specified rate of income tax, The CRA offers beneficiary drawdown as a facility within the scheme. 30. This column shows the net annual withdrawal based on the assumption that tax-free cash equivalent to that available from the scheme is taken initially. by the client and withdrawals to match the main scheme s reduced pension at normal retirement age net of the specified rate of income tax are taken, as an income. The withdrawals start from any remaining tax-free cash entitlement within the CRA on which no tax will be payable. Once extinguished withdrawals will continue from the flexi-access drawdown fund and be subject to income tax deduction at the specified rate monies within the pot immediately, these will be paid net at the member s appropriate rate. The full tax-free cash available from the main scheme is assumed to be taken. 31. Where the scheme allows for early retirement the benefits will be shown for either 5 years prior to the normal retirement age or an age specifically requested, if permitted under the scheme rules. Where early retirement is not permitted under the existing scheme, benefits may still be taken early under the CRA subject to meeting the minimum age requirement of 55 years old. 32. These figures are revalued to the early retirement date. 33. The retirement benefits available from the scheme on early retirement are reduced by the factors advised by the trustees. The penalty will apply to the pension revalued to either the normal retirement age or the early retirement date in accordance with the scheme rules. Where these factors have not been provided the report assumes a reduction of 4% pa simple of the benefits revalued to the early retirement date. The CRA benefits are based upon the projected fund growth using the mid-rate assumptions, to the early retirement date. 34. Lump sum death benefits payable from the former employer s pension scheme are based on the scheme rules. Often this will be a return of member contributions with or without interest or a multiple of the annual pension. 35. This report cannot cater for children or other dependant s benefits on death. 36. The CRA is a contract based scheme established under the Old Mutual Wealth Personal Pension Scheme which is set up under deed poll to pay benefits externally of the estate in most circumstances. 37. As a statutory minimum where the individual is married or in a civil partnership a spouse s GMP (for pre 1997 service) has to be provided and a 50% spouse s pension for post 1997 benefits, where the scheme is contracted out for these time frames. 38. Where there is no spouse or civil partner the lump sum benefits for a personal pension will be 100% of the fund value. This is the personal pension fund value projected to the ages shown. 39. This graph shows the personal pension figures based on the mid-rate fund values at each age which will provide benefits on death. The scheme figures at each age represent the value of providing the spouse s pension and any applicable lump sum. As the member gets older the amount needed to purchase the equivalent of the scheme benefits will be lower, as the member s life expectancy decreases and therefore, the cost reduces. The personal pension fund value increases/decreases over time in line with the fund specific growth rates. 40. This is the cap for a member aged 65, it is revalued annually. The compensation cap varies according to the age at which compensation comes into payment. 41. The benefits will be revalued in line with the scheme rules until the pension scheme is admitted into the PPF. Subsequently revaluation is by LPI until NRA, including the GMP element. The pre 1997 benefits will be level in payment. 42. In accordance with the Barber Judgement which changed the approach to equalisation on 17/5/ These are the mid-rate figures. Projections are also shown at the lower and higher projection rates in the full report. If a comparison is to be made between this report and a report produced by another provider it should be checked that the assumptions used are the same. The scheme projections column shows the revaluation rates pre-retirement. The critical yield figures are used for the assumed escalation rates post retirement. For further information on the calculations contained in the report refer to FCA COBS The member is always assumed to be married unless advised otherwise. The current marital status should be provided if different. 45. The spouse s date of birth affects the critical yield. If unknown a female spouse will be assumed to be three years younger than the member and a male spouse will be assumed to be three years older. If the member is in a civil partnership the partner is assumed to be the same age if we have not been given a date of birth. 21

22 46. Some schemes may apply different death benefits where the member was not married/in a civil partnership with the current spouse/civil partner at the date of leaving the scheme. 47. This has no direct impact on the critical yield. If not advised otherwise, it will be assumed that the individual is employed. Alternatives include selfemployment or unemployment. 48. The dates of joining the scheme and leaving it will determine the benefits the member is entitled to. These may differ from the actual dates of employment if membership was delayed or the individual opted out of pensionable service before leaving the company. These are also used to calculate the tax-free cash if on a pre A-day basis or assumed to be. 49. Final Pensionable Earnings is the amount of remuneration eligible to accrue pension benefits at the date of leaving in accordance with the definition set out in the scheme rules. These are also used to calculate the tax-free cash if on a pre A-day basis. 50. Statutory Orders are regulations issued by Parliament that dictate the basis upon which various elements of a client s defined benefit entitlement may need to be increased by prior to retirement. The basis of the assumptions included in the analysis are included on Page 16 of the report. Important Note There is normally a three month guarantee for the transfer value amount. If a transfer request is received within this timeframe the amount to be transferred is not normally altered. A member is only entitled to one cash equivalent transfer value calculation without charge once every 12 months. Any AVCs a member holds will not be included within this analysis and will need to be assessed separately. 22

23 23

24 Please be aware that calls and electronic communications may be recorded for monitoring, regulatory and training purposes and records are available for at least five years. Old Mutual Wealth Life Assurance Limited is registered in England & Wales under number Registered Office at Old Mutual House, Portland Terrace, Southampton SO14 7EJ, United Kingdom. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services register number VAT number SK12492/ /August 2018