RETIREMENT OPTIONS JTI UK RETIREMENT SAVINGS SCHEME Ensuring you have the information you need to make the right decision for you
LET S TALK RETIREMENT A happy and fulfilling retirement means different things to different people. Inevitably you will develop a new identity when you retire. Yes, part of you is the same as it was before, but a large part of you will change. You may look on retirement as an opportunity to explore new ways of living your life, but it is also a chance to gradually change the way you view what s happening around you. One common thread in everyone s retirement is money. This booklet will show you each option available to you on retirement as a member of the JTI UK Retirement Savings Scheme. We will highlight some of the key considerations and risks associated with each option in order to help you make the right decision for you. This booklet can be used in conjunction with the Pension Wise service which is free and impartial, provided to help you understand the options available. Please visit www.pensionwise.co.uk to book an appointment. In addition, the AON retirement service will provide you with a retirement option summary which will give you a reasonable estimate of what the various benefits will provide for you. This service is available from within 5 years to your retirement date. Remember to look at all your sources of income when considering what you elect to do with your benefits under our scheme. The options available to you are as follows: Option 1 Buy an Annuity (either Lifetime or Fixed-Term) Option 2 Take all your fund as cash Option 3 Take Flexible Drawdown via our Pension Scheme Option 4 Transfer your benefits out to another provider Option 5 Defer taking your retirement until a later date Please note if you were a member of the Gallaher A or M Pension Schemes when they were closed to future accrual, you may be able to transfer your JTI UK RSS fund into the A or M Scheme. The Pensions department will provide the relevant details as part of your retirement options. For impartial financial advice, please visit www.unbiased.co.uk for details of an independent financial adviser in your area. The following pages of the booklet will explore each option in more detail.
OPTION 1 BUY AN ANNUITY (FIXED OR LIFETIME) An annuity is another term for a pension which is a guaranteed income for life. Alternatively, you can elect a fixed term annuity which provides a guaranteed income over a fixed period (i.e. five years). If you choose this option, you can still take up to 25% of your total fund as tax-free cash and the remainder will then be used to buy an annuity from a provider. The AON Retirement Service is available to you to shop around for the most competitive income for you. People who have a medical condition, are in poor health, smoke or are overweight, may be able to get a significantly higher income through taking an enhanced annuity. The AON Retirement service will include access to these providers. Level annuities provide a higher income to start with when compared to annuities that increase but the payments will stay the same for life. Whilst a lifetime annuity gives you the security of a fixed income for life and no further decisions need to be made, once a lifetime annuity is purchased you are locked in, so you relinquish any flexibility for the future. You may want the security of an annuity but don t want to be tied in for life. With a fixed term annuity, you get a guaranteed income for a set number of years. After this, the income stops and you will have the opportunity to choose again which option you would like to take with the remainder of your money (known as the guaranteed maturity value). Sometimes, a relatively small fund value will mean a less competitive annuity. The lower your fund value is, the fewer annuity providers you will have to choose from. Annuity pricing is linked to long term interest rates (known as long term gilt yields) and have offered poor value for money in times where gilt yields have been low.
OPTION 2 TAKE ALL YOUR FUND AS CASH When you take all your fund as a cash sum, 25% of the fund at your retirement date will be tax-free. The remaining 75% of your fund will be subject to income tax, payable at your marginal rate. Consider your own personal tax circumstances and the impact of taking a taxable lump sum on the tax you pay there is a possibility that you could have to pay a higher rate of tax than normal depending on the amount in your fund. Also bear in mind any money you may have already earned in the current tax year. When the payment is processed via our payroll, if you are a deferred member we will have to apply the emergency tax code which may mean you will pay more tax than you need to initially. There is a facility to reclaim any overpaid tax and we can provide the necessary forms for you to do this. Taking a cash withdrawal may have implications for people with debt or those who may be entitled to means-tested benefits. People often underestimate their life expectancy and overestimate how long money will last. If you are planning on investing your cash sum elsewhere, be aware that scammers may operate in these markets. With investing it, there may be other tax considerations and costs involved.
OPTION 3 TAKE FLEXIBLE DRAWDOWN THROUGH OUR PENSION SCHEME There is an option to take a simplified version of income drawdown where you may take up to five withdrawals from your fund on the anniversary of your retirement each year. At retirement you can take up to 25% of your fund as tax-free cash. In addition, you can take further monies at retirement and these monies will be taxable (and will count as one of your five withdrawals available). The remaining fund will stay invested over the term. On the anniversary of your retirement each year you will have the option to withdraw some, all or none of your money. Any amounts withdrawn will then be taxed as income. You may make a maximum of five taxable withdrawals from your fund and the fifth withdrawal must take all the remaining funds to either transfer out to another provider or be taken as cash. At any stage, you can take the whole of your remaining fund out as a cash payment or transfer to another provider. We have designed a fund that is a suitable investment vehicle for a short to medium term drawdown option the Through Retirement Fund. Your monies will automatically be invested in this fund unless you want to choose your own funds instead from our range. As the money you have in the Scheme stays invested, you still carry that risk as investments can go down as well as up Careful budgeting is required as you are limited to taking one withdrawal each year although there is potential for tax efficiencies to be gained by using this to your advantage when compared to taking the whole fund as cash in one go. Regarding tax treatment, each withdrawal made will be processed via our payroll system This option can be used as a preliminary stage before taking another option later (i.e. buying an annuity) so it allows greater flexibility. Compared with many flexible drawdown providers, this is a lower cost alternative our fund charges are low and there are no additional costs to you regarding administration services. If you die before age 75, your remaining monies will be paid to your beneficiary tax-free. If you elect this option, the amount you are permitted to contribute to a pension scheme (known as the Annual Allowance) will reduce to 4,000. This is only a consideration if you are continuing to contribute to a pension arrangement.
OPTION 4 TRANSFER YOUR FUND OUT TO ANOTHER PROVIDER You may choose to transfer your fund out of our Pension Scheme. There are several options regarding where you transfer your monies to. They can be transferred to another pension scheme or you can transfer out to a flexible drawdown provider. There are things to consider, particularly if you want to take flexi-access drawdown (FADD) or the uncrystallised funds pension lump sum option (UFPLS). By using an external provider, when compared to our in-house drawdown, you will have greater choice and flexibility regarding investment options and how frequently you can change the amount of income you drawdown together with the frequency of payment. Fees can vary greatly between providers as can the level of flexibility. For example, high investment fees can reduce the money you receive and there may be administration fees applied. Withdrawal charges could also reduce the amount of money you receive. There is always the risk that your invested fund can go down as well as up for both the FADD and UFPLS options. People often underestimate how long they are likely to live and overestimate how long their money will last. Some providers will be unwilling to take funds below a certain level. Taking cash withdrawals may have implications for people with debt or who may be entitled to means-tested benefits. Pension Wise will be able to help if this is a potential issue. If you die before age 75, your beneficiary is currently permitted to receive any remaining monies tax-free. After age 75, the benefits can be drawn down and will be taxed at the beneficiary s marginal rate of tax.
OPTION 5 DO NOTHING You may not want to take retirement at this stage, meaning that your money will remain within our Pension Scheme, invested in line with your current fund selection. Decide when you would like to retire this date can be changed in future, but it is important for future planning let us know what future date you choose. The date that you set as your target retirement date could automatically alter your investments if you have selected the Lifestyle fund. If you are not in the Lifestyle fund, it is important that you check your current investment choices to see whether they are still suitable.