Pension Scheme Newsletter 2019 Introduction Welcome to your 2019 Pension scheme newsletter. The Petrofac Group Flexible Retirement Plan, with the support from our pension advisers, 1825, is a unique employee benefit and Petrofac is committed to continuing to provide excellent and competitive benefits to our staff. The newsletter provides a number of meaningful updates and will hopefully be a useful reference point for you going forward. If you have any questions, please get in touch with the dedicated Petrofac pension support team at 1825. Des Thurlby Group Director of Human Resources Key links petrofacpensions@1825.co.uk 01292 269 909 www.mypetrofacpension.co.uk Call charges will vary. Email is not a secure form of communication so please don t send sensitive information. What s inside Investment update 2 SMART PAY overview 4 FAQs 5 State Pension update 7 Tax planning opportunities 8 Pension lifetime allowance 10 Watch out for pension scams 11 Important reminders 11 Petrofac Pension Scheme Newsletter 2019 1
Investment update: your default funds Unless you ve decided to select your own investment option, you ll be invested in a default fund. In April 2016, the requirements for those being enrolled into a workplace pension scheme changed, which resulted in the decision to change the default pension fund. If you joined the pension scheme before April 2016 Your default fund is the Standard Life Multi-Asset Managed (20 60% Shares) fund. The majority of Petrofac pension scheme members invest in this fund. Performance over 5 years Here s how your default pension fund, the Standard Life Multi-Asset Managed (20-60% Shares) Pension Fund, performed over the past five years. If you had invested 1,000 on 31 December 2013, it would be worth 1,216 at 31 December 2018. 21.6% 5 years 13.6% 3 years -4.9% 1 year The information shown relates to the past. Past performance is not a reliable guide to the future. The value of investments can fall as well as rise and you could get back less than you paid in. The chart above shows performance over the full five years. The table below shows individual 12-month periods. Year-on-year performance 31/12/14 31/12/15 31/12/16 31/12/17 31/12/18 4.9% 2.0% 11.3% 7.3% -4.9% 2 Petrofac Pension Scheme Newsletter 2019
Unless you ve decided to select your own investment option, you ll be invested in a default fund. If you joined the pension scheme after April 2016 Your default is the Standard Life Active Plus III Universal Strategic Lifestyle Profile. New employees since April 2016 will have been enrolled into this fund. Performance over 5 years Here s how the growth fund in your lifestyle profile, the Standard Life Active Plus III Pension Fund, performed over the past five years. If you had invested 1,000 on 31 December 2013, it would be worth 1,214 at 31 December 2018. 21.4% 5 years 10.9% 3 years -5.5% 1 year The information shown relates to the past. Past performance is not a reliable guide to the future. The value of investments can fall as well as rise and you could get back less than you paid in. The chart above shows performance over the full five years. The table below shows individual 12-month periods. Year-on-year performance 31/12/14 31/12/15 31/12/16 31/12/17 31/12/18 6.9% 2.4% 8.8% 7.8% -5.5% This investment option automatically reduces the risk you take as you get closer to retirement. Please note, depending on how many years you have to go until you retire, you may be invested in a different fund. Action point Register for online access to see your pension www.mypetrofacpension.co.uk Petrofac Pension Scheme Newsletter 2019 3
Smart Pay overview Petrofac Pension Smart Pay From 1st July 2018 Petrofac moved to a Smart Pay structure (also known as salary sacrifice) for pension contributions. What is Smart Pay? It s a more tax efficient way to make contributions to your pension. You agree that your employer will hold back part of your gross salary to invest in your pension. Your employer takes this and adds it to their contribution. The total amount is paid into your pension. How does this benefit me? Because you ve agreed to reduce your salary, you save on National Insurance Contributions and reduce the amount that s subject to income tax. This means that the exact same total amount is paid to your pension but your take home pay will be higher each month. If you re a higher rate taxpayer, it also means that you no longer need to complete a tax return to reclaim any further tax relief on your pension contributions. It s important to note that your full salary, before Smart Pay is applied, is used for all other employee benefits such as death in service, so you re not disadvantaged by this change. Are there any issues I should be aware of? The only issue to be aware of is where you ve had your personal allowance increased by HMRC for the 2018/19 tax year, to take account of what you normally paid as personal contributions to pension. As tax relief is now granted at source, this increased allowance doesn t apply. To avoid a tax bill at the year-end for underpaid tax, there are draft letters on the Petrofac Pension website to allow you to update HMRC accordingly. Key Points You are still able to increase your pension contributions as normal. For 2018/19 tax year, you ll see 3 months where there are both employer and employee contributions. Thereafter, the contributions will show as employer only. This can be viewed online, through your Standard Life Aberdeen account, at www.mypetrofacpension.co.uk You can choose to deselect from the Smart Pay basis at anytime. Smart Pay isn t right for everyone. It could affect your state benefits, other company benefits or your ability to borrow. Laws and tax rules can change. The value of tax benefits will depend upon individual circumstances. 4 Petrofac Pension Scheme Newsletter 2019
Frequently asked questions In the 2018/19 tax year, I ve paid some contributions under the old basis and some via Smart Pay do I need to take any action? There ll be 3 months in the current tax year that are on the conventional basis (with a separate employer and employee contribution). The remaining 9 months will only show employer contributions. Therefore, it may be worth checking with HMRC or through your self-assessment that you ve received your full tax relief on the first 3 contributions in the tax year. Are there any changes to pension legislation on the horizon? At the moment there are no major changes ahead. Despite the lower annual and lifetime allowances that are available, pension funding is still incentivised by generous tax benefits. What information is available via www.mypetrofacpension.co.uk? Up to date valuation of your pension, tax relief template letter, retirement planning tools, contribution amendment form and death benefit nomination form. What services does 1825 provide to members of the pension scheme? A dedicated Petrofac Pension Website, an Annual Newsletter, Pension Seminars, New Joiner Communications, Approaching Retirement Communications and Contribution & Investment Advice for New Joiners are the key services provided. What can I do with my pension if I leave employment? You can leave your pension fund unchanged, held with Standard Life. You can continue to pay contributions to your plan. You can transfer your fund to your new employer s scheme (assuming it s in your best interest to do so). What are the changes to income tax bands? This table shows how the different tax bands work across the country for the 2019/20 tax year. Rate Scotland Rest of the UK Personal allowance 12,500 12,500 19% (starter rate) 12,500 14,549 n/a 20% (basic rate) 14,550 24,944 12,500 50,000 21% (intermediate rate 24,945 43,430 n/a 40% (higher rate) n/a 50,001 150,000 41% (higher rate) 43,431 150,000 n/a 45% (top rate) n/a Over 150,000 46% (top rate) Over 150,000 n/a Please note, your personal allowance will reduce by 1 for every 2 you earn above 100,000. See page 10 for an example of how this works and what you can do to mitigate this. Petrofac Pension Scheme Newsletter 2019 5
Frequently asked questions (continued) How much can I earn before I start paying tax in the 2019/20 tax year? 2018/19 11,850 Personal Allowance Increase 2019/20 12,500 Increase of: 650 National Insurance lower earnings threshold increase (per week) 2018/19 116 2019/20 118 Increase of: 2 I ve nominated my spouse as my beneficiary in the event of my death, can I nominate subsequent beneficiaries? Yes, it s important to record alternative beneficiaries in the event that your main beneficiary pre-deceases you. For example: The main beneficiary in the event of my death is, however in light of the pension flexibility rules and in particular, the changes to death benefits, I would like you to note on your records that in the event of either pre-deceasing me or a joint calamity that would become my nominated beneficiaries. Please note that while nominating your beneficiaries will be taken into account, it is not a binding agreement. Action points Reclaim your additional tax relief www.gov.uk/self-assessment-tax-returns Or use our letter template on www.mypetrofacpension.co.uk Check and update your death benefit nomination form www.mypetrofacpension.co.uk 6 Petrofac Pension Scheme Newsletter 2019
State Pension update The state pension has undergone a huge change in recent years. While the Government s aim has been to make it fairer for all and easier to understand retirement income, it s still a minefield for most. A flat-rate state pension came into force on 6 April 2016 and applies to anyone reaching their state pension age on or after this date. What is the state pension now for 2019/20 tax year? How it s made up Maximum weekly payout NI years needed for full rate NI years needed to qualify for min payment Old State Pension 2 parts: basic pension + additional pension 129.20 basic + 40 average additional New State Pension 1 flat rate payment + any protected payments 168.60 + any protected payments 30 35 Any 10 When will I get my state pension? Just as under the old system, you receive the new state pension when you reach the Government s official retirement age. But what that is depends on when you were born and your gender. When born Retirement Age How do I claim my state pension? It might feel like an official life milestone but you won t get your state pension automatically it s up to you to claim it. Four months before you reach your state pension age you should get a letter from the Government s Pension Service telling you what to do. If you still haven t got a letter three months before your state pension age, call the telephone claim line where staff will be able to discuss with you what you need to do. You ve three ways to claim: i. online by filling in a claims form ii. over the phone by calling 0800 731 7898 iii. or by downloading a claim form at Gov.uk, printing it off and sending it to your local pension centre, whose address can found on the Government website. How much state pension will I get? Assuming you re the right age, what you get depends on how many so-called qualifying years of national insurance (NI) contributions you have. These are earned over your lifetime and the number you get will depend on how many years you re in work. You can also build them up as national insurance credits instead, for time spent: raising a family caring for the sick or disabled in full-time training. Between 6 October 1954 & 5 April 1960 Between 6 March 1961 & 5 April 1977 66 67 You can check your national insurance record at www.gov.uk/check-national-insurance-record As life expectancy increases, the official retirement age is gradually being raised. It will rise to at least 66 for both men and women by 2020, and possibly to 68 in the 2030s. Further consultations are required before any additional changes will be implemented. Petrofac Pension Scheme Newsletter 2019 7
Tax planning opportunities It s always worthwhile looking at pension funding to manage your tax position. Reclaiming the Personal Allowance and Child Benefit As well as building up retirement benefits in a tax-efficient way, paying personal contributions to a pension can help reclaim the income tax personal allowance and avoid the high income child benefit tax charge. In both instances, the underlying income measure that makes this possible is adjusted net income, which is total taxable income before deducting the personal allowance less relief at source pension contributions and gift aid payments. In the current tax year, part of your contributions will be paid via this method, but the majority will have been paid via Smart Pay. The relevant income band for the personal allowance is 100,000 to 125,000 in 2019/2020. Every 2 of adjusted net income above 100,000 reduces the personal allowance by 1. Therefore, as the personal allowance in 2019/2020 is 12,500, it is reduced to 0 when income exceeds 100,000 by at least 25,000 (2 x 12,500). For child benefit, the relevant income band is 50,000 to 60,000. Every 100 of adjusted net income above 50,000 of the highest earner of a couple, one of whom receives child benefit, triggers a tax charge of 1% of the benefit received. Therefore, when income exceeds 60,000 the tax charge equals 100% of the benefit received, effectively withdrawing the benefit. If child benefit has not been claimed (perhaps because the couple knew one of their incomes would be too high) there is no charge. Personal allowance Child Benefit Relevant income band: 100,000 to 125,000 Relevant income band: 50,000 to 60,000 8 Petrofac Pension Scheme Newsletter 2019
Personal allowance example David receives an annual salary of 120,000. In addition, he benefits from a 7% employer pension contribution of 8,400, which requires him to pay 3.5% or 4,200 gross. His adjusted net income is: Income 120,000 Pension 4,200 Adjusted Net income 115,800 Based on this he is set to lose 7,900 of his personal allowance. If David can afford further contributions of 15,800 gross, he will reclaim his full personal allowance. The contribution will cost him 12,640 initially, but he will benefit from higher rate tax relief of 3,160 and an income tax reduction of 3,160 (owing to the increase in the personal allowance) when his selfassessment tax return has been submitted. The contribution will ultimately cost him just 6,320, thus benefitting from 60% tax relief and within his annual allowance for 2019/2020. Child benefit example Anna, who receives child benefit for two children, receives an annual salary of 55,000. In addition, she benefits from a 7% employer pension contribution of 3,850, which requires her to pay in the same amount. Her adjusted net income is: Income 55,000 Pension 3,850 Adjusted Net income 51,150 Her child benefit entitlement is 1,788.80 and her high income child benefit tax charge will be: * 1,150 / 100 = 11.5% x 1,788.80 = 205.71 (*every full 100 above 50,000 is included) If Anna can afford further contributions of 1,150 gross, she will avoid this tax charge. The contribution will cost her 920 initially, but she will benefit from higher rate tax relief of a further 230 and avoid a tax charge of 205.71. These examples use the traditional contribution structure, however, those who pay contributions via Smart Pay have the added benefit of national insurance savings. Laws and tax rules may change. The value of tax benefits will depend upon individual circumstances. Your pension is an investment. As with all investments, their value can go down as well as up, and could be worth less than what was paid in. Petrofac Pension Scheme Newsletter 2019 9
The pension lifetime allowance What is it? It s a limit on the total value of payouts from your pension plan(s) that can be made without triggering an extra tax charge. Applies to all your pensions, including workplace pensions, but excludes the State Pension and overseas pensions. Whenever you start taking money from your pension, a statement from your scheme should tell you how much of your lifetime allowance you are using up. You will need to keep track to ensure you know how much in total (%) you have used. How much is the lifetime allowance? For most people, 1,030,000 for tax year 2018/19. It increases with inflation each year and goes up to 1,055,000 from 6 April 2019. The allowance was introduced in 2006. There have been different limits in the years that followed. Entitlement to an increased lifetime allowance how does that work? There are several ways of protecting your lifetime allowance so that you don t get penalised if your pensions exceed the lifetime allowance. Currently, the most common way looks to protect pension values of up to 1.25m, from back in April 2016, when the lifetime allowance fell to 1m. Depending on the form of protection selected, there are rules around whether or not you can continue to save into your pension and there could be further tax implications. There may be other ways such as if you qualify for an overseas enhancement for periods when you left the UK. You ll need to make an application to HMRC for this to become effective. What if I exceed the lifetime allowance? You ll face an extra tax charge which will need to be settled before you can take benefits when your total payouts exceed your limit. The charge will be: 55% on any amount over your lifetime allowance that you take as a lump sum, or 25% on any amount over your lifetime allowance that you take as a regular income. This is on top of income tax at your marginal rate. You only pay this when you take money out of your pension, or as a result of breaching the allowance at the age 75 test. What happens at age 75? On reaching age 75, any untouched pension savings and any drawdown funds over the original amount invested will be tested against your remaining lifetime allowance. You may be liable to an extra tax charge, at 25%, if you exceed your lifetime allowance at this time. Should I stop saving in to my pension plans? If you have exceeded your lifetime allowance, the temptation may be to stop funding your pension so that you don t incur additional tax. But that may not be the right thing to do. Your pension could still be the best place to save. For example, if you keep paying into a workplace pension, you ll still benefit from tax relief as well as continuing to get any employer contributions. And don t forget, the lifetime allowance will rise with inflation. There s not one course of action that s right for everyone. If you re unsure what to do, please speak to an adviser. Who should be concerned? People nearing retirement, who ve gathered a few different pensions along the way and not absolutely clear on the total value of their pensions. Anyone with final salary pension schemes. For those who maybe need to take action before the age 75 test. 10 Petrofac Pension Scheme Newsletter 2019
Watch out for pension scams Unfortunately there are unscrupulous people out there who would think nothing of depriving you out of your pension savings. These pension scammers will do whatever it takes to get their hands on your money and enjoy your retirement. Get yourself protected www.fca.org.uk/scamsmart The UK Financial Regulator, the Financial Conduct Authority, has set up the above website to alert you to many of the typical scam tactics used and help protect you against the pension scammers. Important reminders your key action points Register for online access to see your pension www.mypetrofacpension.co.uk Higher rate tax payer? Reclaim your additional tax relief www.gov.uk/self-assessment-tax-returns Update your death benefit nomination form www.mypetrofacpension.co.uk Double check your State Pension age www.gov.uk/state-pension-age Request your State Pension statement to get a personalised forecast of how much you could receive www.gov.uk/check-state-pension The information in this newsletter should not be regarded as financial advice. Tax rules are based on your individual circumstances and may change in the future; this is based on our understanding in March 2019. Petrofac Pension Scheme Newsletter 2019 11
1825 is the brand for Standard Life Aberdeen group s UK financial planning and advice business. 1825 is a trading name used by The Munro Partnership Limited, which is part of Standard Life Aberdeen group (Standard Life Aberdeen plc and its subsidiaries). The Munro Partnership Limited (SC219557) is registered in Scotland at Citadel House, 6 Citadel Place, Ayr, KA7 1JN and is authorised and regulated by the Financial Conduct Authority. ETF255_MP 0319 2019 Standard Life Aberdeen, images reproduced under licence. All rights reserved.