The ITW Pension Fund Your guide to the 60 th section March 2005
Contents About the 60 th section of the ITW Pension Fund 1 Summary of benefits 2 Membership 3 Contributions 4 Benefits 5 On leaving the Company 9 On leaving the Scheme but staying with the Company 10 Help and information 11 Pensions terminology 17 The Scheme is governed by a Trust Deed and Rules. The purpose of this guide is to give a brief description of the main features of the benefits offered by the Scheme. It is only a guide and should there be any conflict, the Trust Deed and Rules will take priority over this guide. For a copy of the Trust Deed and Rules please write to the Scheme Secretary at the address given on page 14. Benefits payable under the Scheme are subject to Inland Revenue rules, which may in some circumstances limit the benefits payable. The information contained in this Guide is based upon the Trustees' understanding of law and practice at March 2005.
About the 60 th section of the ITW Pension Fund What is a final salary pension scheme? A final salary scheme provides pension benefits linked to your salary and length of scheme membership. Benefits can be worked out in advance but the cost of providing them can vary greatly. The cost is shared between you and your employer. One of the most important financial decisions you will ever make is to save for your retirement. And one of the easiest and most tax-effective ways of doing this is through a company pension scheme. The 60 th section of the ITW Pension Fund (the Scheme) is a final salary pension scheme and membership provides a wide range of benefits, giving you and your dependants financial protection while you re working as well as when you ve retired. These include: a pension linked to your earnings close to retirement; the option of a tax-free cash lump when you retire; benefits if you are off work because of a long-term illness or injury; life assurance cover for your dependants if you die while still working for the Company, and a pension for your spouse if you die while still working for the Company or after retiring. This guide summarises how the 60 th section of the Scheme works for eligible ITW employees and the benefits offered. It is intended to give you a straightforward explanation of how the Scheme works and therefore contains a number of simplifications of the Trust Deed and Rules which governs the Scheme. The Trust Deed and Rules will always take priority over this guide if any questions of interpretation arise. This section will close to new members on 6 July 2005. The Scheme is contracted-out of the State Second Pension (S2P) and, as a result, you pay lower National Insurance contributions; for more information see page 6. You may not have come across some of the words or phrases used in this guide before, or they may have special meanings. Throughout this guide they appear in italic type and are explained on pages 17 to 19. For further information about the Scheme, please contact: Email: pensions@itwuk.com Post: The Pensions Department The ITW Pension Fund ITW Ltd Ringwood Road Bournemouth BH11 9LH Phone: 01202 596287 1
Summary of benefits receive from all sources including the Scheme. There are Inland Revenue limits on the maximum retirement benefits you can receive from all sources including the Scheme. If you leave With less than two years membership you will normally receive a refund of your contributions less your share of the cost of buying you back into the State Second Pension (S2P) less tax on the balance (currently 20%). With two or more years membership you can either: keep your benefits preserved in the Scheme to be paid from normal retirement date (your 65 th birthday) or transfer the cash equivalent value of your benefits into an approved pension policy of your choice, or a new employers pension scheme. If you retire at 65 You will receive a pension based on your final pensionable salary and pensionable service. You will normally be able to exchange part of your pension for a tax-free cash lump sum. If you die while still working Your dependants receive: A refund of your contributions. Life assurance cover of three times your pensionable salary. A spouse s pension (or dependent childrens pension). You may be able to retire earlier or later, with Company consent. If you die in retirement Your spouse will receive a pension equal to half of your pension, plus all relevant increases. 2
Membership Joining The Scheme is currently open to all eligible employees who work for a business unit that currently participates in the Scheme and are aged between 18 and 60. However, the 60 th section closes to new members on 6 July 2005 when a new section will become available. For eligible employees joining the Company on or before 5 April 2005, the last dates for entry into the 60 th section are 6 April and 6 July 2005. Until then you are only covered for a life assurance benefit of one times your pensionable salary. If you are not already a member, to join you will need to complete a joiner pack (available from your local pensions coordinator) and return it to the Pensions Department at least one week before the relevant entry date; contact details are given on page 1. Transferring in benefits from another pension scheme Once you are a member, if you have been a member of another approved pension scheme, you may be able to transfer the value of your benefits into the Scheme provided that the transfer value exceeds a minimum level (currently 10,000 and revised by the Trustees from time to time). All individual transfers-in will, however, be subject to the consent of the Trustees and the Company. Benefits provided by a transfer-in will be on the terms and basis decided by the Trustees, on the advice of the Scheme Actuary. This is currently done by providing an additional fixed pension. Temporary absence If you are temporarily absent from work, for example on adoption, maternity, parental or paternity leave, you will normally remain a contributing member of the Scheme for up to 12 months (or 30 months in the case of sickness) and continue to be entitled to all benefits the Scheme offers. If you are absent for longer periods because of illness, you may be covered for benefits under the Long Term Disability policy; for more information see page 7. Personal pensions If your gross earnings do not exceed a legal limit (currently 30,000), you may also be able to make contributions to a personal pension or Stakeholder plan. In this case, you can currently pay in up to 3,600 a year, in addition to your contributions to the Scheme. 3
Contributions Your contributions Contributions to the 60 th section are to rise from 4% to 5% on 6 July 2005 and then to 6% on 6 July 2006. However, the real cost of membership to you is lower than this because your contributions are taken from your pay before tax is calculated. Currently you receive tax relief on your contributions at the highest rate of tax you pay. Also, as the Scheme is contracted out of the State Second Pension (S2P), you pay lower National Insurance (NI) contributions, which further reduces the actual cost to you. For example: You are a basic-rate tax payer, earning 18,000 a year and contributing 5% of your pensionable salary into the Scheme: You contribute 18,000 x 5% = 900 a year ( 75 a month) less tax relief 900 x 22% = 198 a year ( 16.50 a month) less NI rebate = 222 a year ( 18.50 a month) Actual cost to you = 480 a year ( 40 a month) Company contributions The Company pays the balance of cost (above member contributions) of your pension benefits, as advised by the Scheme Actuary. In addition, the Company also pays for Scheme administration expenses and the cost of providing life assurance and disability benefits. Additional voluntary contributions (AVCs) You can also pay additional voluntary contributions (AVCs) to increase your benefits. Just like your regular contributions, AVCs are tax efficient as they are taken directly from your pay before tax. You can currently pay up to 15% of your gross taxable earnings in pension contributions in any tax year; this includes your regular Scheme contributions and is subject to the earnings cap. AVCs must currently be used to provide an additional pension. If you are interested in paying AVCs please contact your local pensions coordinator. 4
Benefits Your benefits cannot be used as security for a loan or assigned in any other way. Your pension At normal retirement date (your 65 th birthday) Your annual pension is worked out as: 1/60 th of your final pensionable salary for each year of pensionable service For example: You retire at 65 with a final pensionable salary of 18,000 For each year of service, you would have built up 300 of annual pension ( 18,000 x 1/60 th ) If you completed pensionable service of: 20 years 30 years 40 years your annual pension would be: 6,000 9,000 12,000 If you complete 40 years pensionable service you would get a pension of ⅔ rds of your final pensionable salary (ie 40 years pensionable service = 40/60 ths ). Payment of your pension Your pension is calculated in annual terms and you will receive 1/12 th of this annual amount each month for the rest of your life. Your pension is payable from the month following your retirement and is taxed in the same way as your pay is now. There are Inland Revenue limits on the maximum retirement benefits you can receive from all sources including the Scheme. Your pension will receive pension increases once in payment. information on how your pension will increase see page 18. Cash lump sum option For more When you retire, you can normally exchange part of your pension for a tax-free cash lump sum. The actual amount will currently depend on your age and service when you retire, and your pension will be reduced proportionately if you take a cash lump sum. 5
Cash lump sum option continued You will normally be able to take a cash lump sum of up to: 3/80 th of your final pensionable salary for each year of pensionable service For example, if you complete 40 years pensionable service, the maximum cash lump sum you would get is currently 1½ times your final pensionable salary. Early or late retirement You may be able to retire from age 50 with the Company s consent. If you retire directly from service, and with Company consent, your pension will be calculated as shown above but will be reduced because it is being paid early (but only for the years you retire before age 60). If you retire after age 60 (again directly from service and with Company consent) your pension will not be reduced. In certain circumstances, you may be able to retire earlier than age 50 if in the opinion of the Company and the Trustees you qualify for an incapacity pension. If you wish, and with Company and the Trustees consent, you are able to delay taking your benefits when you reach normal retirement date. Your pension will be increased to allow for the fact that it is being paid later than expected, and will be adjusted when you do decide you wish to take your pension. State pensions There are two parts to the State pension: The Basic State pension this is a flat-rate pension paid from State Pension Age to everyone who has paid enough National Insurance contributions during their working life The State Second Pension (S2P) S2P replaced SERPS in April 2002 and currently provides three bands of benefits based on an individual s earnings. Because the Scheme is contracted-out of S2P you will pay reduced rate National Insurance contributions. As a result, you will only be eligible to receive the Basic State Pension from the Government when you retire for the period you are a contributing member of the Scheme; your earnings-related pension for this period will effectively be paid by the Scheme, that is as part of your annual pension. To find out more about State benefits visit the Government s website at: www.thepensionservice.gov.uk 6
Disability benefits are only provided for contributing members. Disability If you are away from work for an extended period of time due to accident or a longterm illness, you may qualify for a benefit under the Company s Long Term Disability policy, which is separate from the Scheme. The potential benefit will be 75% of your pre-disability pensionable salary less an amount equal to the single person's State Long Term Incapacity benefit. In addition, both Company and member contributions to the Scheme will be paid under the policy. Both these benefits will only be paid after 26 weeks continuous absence and will potentially be paid until you return to work, reach normal retirement date or die (see death benefits below). If you die whilst receiving these benefits, your death benefits under the Scheme will be based on your pre-disability pensionable salary. As this cover is provided by an insurance policy, certain limits and restrictions apply and you may have to provide satisfactory evidence of good health before cover can be provided. Additionally, the payment of any potential claims, both initially and on an ongoing basis, will be subject to the specific assessment and approval of the insurance company providing the policy. If you do not qualify for benefits under the Long Term Disability policy, you may be able to retire early and take benefits from the Scheme (with Company consent). This is a brief summary of the main benefits available and the terms of the insurance policy take priority over this guide. Death benefits In certain circumstances, you may be required to provide satisfactory medical evidence to the Trustees, the Scheme s insurers or the Long Term Disability policy s provider before your full level of life assurance and/or disability benefits can be provided. You will be advised if this applies to you. If you die while still working for the Company before your 65 th birthday (your normal retirement date) the following benefits would be paid: a refund of your contributions; life assurance cover of three times your pensionable salary, and a spouse s pension of half your expected pension had you retired at normal retirement date (but based on your pensionable salary at the date of your death). If you die after retiring the following benefits would be paid: a spouse s pension of half of your pension at retirement (before you exchanged any for a cash lump sum) plus half of all pension increases you received; and if you die within the first five years of your retirement, a lump sum equal to the unpaid balance of five years pension. 7
If your personal circumstances change, for example if you marry or divorce, you must update your nomination details. You can obtain a new Nomination Form from your local pensions coordinator. Please complete and return it as detailed to the right. Death benefits continued Payment of spouse s and dependent children s pensions If you do not leave a spouse, or if your spouse dies, a pension of the same value as the spouse s pension would be paid to any dependent children. If you do not leave dependent children or a spouse, the Trustees have absolute discretion to consider paying a benefit to another person who, in their opinion, was wholly or partly financially dependent on you at the date of your death. These are calculated in the same way as your normal retirement pension (see pages 5 and 6 for more information). Payment of life assurance benefit Under current law, the Trustees have to decide who receives the life assurance benefit. This means that the money can usually be paid free of Inheritance Tax and as quickly as possible. However, the Trustees will consider your wishes when making their decision so it is important that you complete the enclosed Nomination Form and return it in a sealed envelope, marked ITW Pension Fund Nomination Form: only to be opened on the death of [your name] to the Pensions Department ; contact details are given on page 1. Further information about the amount of pension, cash lump sum and any dependant's pension that you can take will be provided before you retire. 8
On leaving the Company Your benefits will depend on how long you have been a member of the Scheme. With less than two years qualifying service With two or more years qualifying service You will receive a refund of your contributions less your share of the cost of buying you back into the State Second Pension (S2P) less tax on the balance (currently 20%). Alternatively, if you leave at the Company s request You will have a choice of either: keeping your benefits preserved in the Scheme until normal retirement date* (age 65). They will then be increased (as required by law) and paid to you (or to your spouse if you die in retirement) as detailed on pages 5 to 8. If you are entitled to a preserved pension, but die before it is paid, your spouse may be entitled to a deferred spouse s pension and a refund of your contributions. or transferring the cash equivalent value of your benefits into an approved pension policy of your choice, or a new employer s pension scheme. * You may be able to retire earlier or later, with Company consent. Please note that your entitlement to life assurance cover of three times your pensionable salary and benefits under the Long Term Disability policy will stop immediately you leave the Company, as your pensionable service will have ended 9
On leaving the Scheme but staying with the Company Your life assurance cover of three times your pensionable salary will stop immediately you stop contributing to the Scheme and you will only be entitled to cover of one times your pensionable salary. Also, your entitlement to benefits under the Long-term Disability policy will stop immediately, as you will have left pensionable service. After having joined the Scheme you may opt out by giving one month s written notice; your membership will stop at the end of this notice period. You will then start paying full-rate National Insurance contributions. If you have more than two years qualifying service you can choose: to keep your benefits preserved in the Scheme until normal retirement date (age 65). They will then be increased (as required by law) and paid to you (or to your spouse if you die in retirement) as detailed on pages 5 to 8. You may be able to retire earlier or later, with Company consent if you are entitled to a preserved pension but die before it is paid, your spouse may be entitled to a deferred spouse s pension and a refund of your contributions to transfer the cash equivalent value of your benefits into an approved pension policy of your choice or a new employers pension scheme. If you have less than two years qualifying service, your contributions will be refunded to you, less your share of the cost of buying you back into the State Second Pension (S2P), less tax on the balance (currently 20%). If you leave the 60 th section after 6 July 2005, you will not be allowed to rejoin it at a later date. Transfer values After you have left the Scheme, you can request a cash equivalent transfer value, once a year, free of charge; the Trustees reserve the right to charge for additional requests. The transfer value will include the pension benefits you are entitled to (including any pension increases). They are calculated using methods and assumptions set by the Scheme Actuary (as required by law). For more information please contact the Pensions Department; contact details are given on page 1. 10
Help and information Benefit Statements Every year you contribute to the Scheme you will receive a statement showing your potential benefits at normal retirement date (age 65) and your life assurance benefits. These benefits are based on your current pensionable salary, assuming that you remain in the Scheme until your normal retirement date and are shown in current terms. Benefit statements only show potential benefits and are not guaranteed in any way. Changing your working hours If your working hours change you will receive benefits calculated on a pro-rata basis. For example, if your working hours reduce from 40 to 20 in the period approaching retirement, you will receive a pension that takes account of the fact that part (or most) of your benefits were built up when you earned a higher salary. The reduction in benefits relating to your period of reduced hours would only be applied on a pro-rata basis. Data protection The Trustees hold your personal details manually and on computer and other data about you for the purpose of running the Scheme, paying benefits, and for internal statistical and reference purposes in relation to the Scheme. This data may be passed to the Company, to the Scheme s professional advisers or other third parties involved in running the Scheme or in connection with any corporate transactions entered into by or involving the Company and, if requested, to Government or regulatory organisations (such as the Occupational Pensions Regulatory Authority). Except where permitted by the Data Protection Act 1998, your sensitive personal data (as defined by the Act and which includes data such as your racial or ethnic origin and your physical or mental health) will not be processed or passed to a third party without your consent. The Trustee Company has registered with the Data Protection Commissioner and all data is held and processed in the strictest confidence and in accordance with the Data Protection Act 1998. The Trustee Company is regarded as 'Data Controller' in relation to the data processing referred to above. 11
Data protection - continued You have the right to see personal data held about you on request. You should contact the Pensions Department; contact details are given on page 1 if you believe any information is incorrect or out of date or to see your personal data. You may have to pay a small fee to see your personal data. Disclosure of information You are entitled to receive certain information about the Scheme, such as the Annual Report and Statement of Investment Principles. You can request copies from the Scheme Secretary; contact details are given on page 14. Divorce In a divorce settlement, pension rights are normally taken into account as part of a couple s assets. There are a number of options available to the Court in dealing with pension rights. If you need pension information, please contact the Pensions Department; contact details are given on page 1. Certain information can be provided free of charge, although some may need to be charged for. If you are getting divorced, you must update your Nomination Form; for more information see page 8. Financial advice The Company and the Trustees are not allowed, by law, to give you financial advice. If you need to find details of local Independent Financial Advisers (IFAs), contact IFA Promotion Ltd either at www.unbiased.co.uk or on 0800 0853250. Future changes The Company is committed to the Scheme, but is legally entitled to change it (subject to the approval of the Trustees), in accordance with the Trust Deed and Rules. This includes the power for the Trustees or the Company to vary the Scheme Rules, vary the contribution rate from members or from the Company, or discontinue the Scheme at any time in the future If the Scheme is discontinued, your benefits would be secured in accordance with the Trust Deed and Rules and would be subject to statutory legislation. Should there be insufficient funds to provide the benefits due to members, a debt calculated in accordance with legislation would become payable by the Company. 12
Future changes - continued Under current law, the debt would be calculated based on the cost of meeting all members full past-service entitlements. In the event that the debt paid by the Company did not produce sufficient money to provide all the benefits due to members, or the Company was unable to pay the debt in full (or at all), member benefits would be restricted in accordance with the terms of the Trust Deed and Rules and legislation. Although the Government is establishing the Pensions Protection Fund to assist under funded schemes that go into wind up after 5 April 2005 (where the sponsoring employer is insolvent), even if the Scheme was accepted into the Pensions Protection Fund, benefits would still be subject to certain restrictions. The Company will normally pay contributions directly to the Scheme. However, in certain circumstances the Company s contributions may be met from the general assets of the Scheme, if the Company and the Trustees agree. The Company may also change or discontinue the Long Term Disability policy at any time. Although it is associated with the Scheme, you do not have an automatic right to any benefits under the policy, or under your contract of employment. Inland Revenue approval The Scheme is approved for tax purposes under Chapter I, Part XIV of the Income and Corporation Taxes Act 1988. As a result, the payment of contributions and the provision of benefits are subject to Inland Revenue rules and in some cases these may lead to restrictions on benefits and contributions payable. The government is introducing two important changes which will have an impact on pensions in the UK. The first is tax simplification, which will mean that many of the current Inland Revenue restrictions will change or be removed altogether. This should apply from April 2006. The other is a new Pensions Act, which is aimed at increasing security for pension schemes and will introduce many new features, including the Pensions Protection Fund and a new Pensions Regulator. A number of the provisions of the Act will apply from April 2005. 13
Internal disputes procedure If you have a pensions issue that cannot be resolved within your business unit or informally by the Pensions Department, the Scheme has a formal procedure for resolving disputes. Please write to: The Scheme Secretary ITW Pension Funds Trustee Company Admiral House St.Leonard s Road Windsor Berkshire SL4 3BL You will receive a response in writing within two months. If you are not satisfied with the response, you can then refer the issue to the Trustees. They will respond within two months. Pensions Advisory Service (OPAS) OPAS is available at any time to help members and their beneficiaries with pension questions and any issues they have failed to resolve with the Scheme Secretary or Trustees. You can contact a local OPAS adviser through your Citizens Advice Bureau or at: Post: 11 Belgrave Road London SW1V 1RB Phone: 0845 6012923 Email: enquiries@opas.org.uk Web: www.opas.org.uk If OPAS fails to resolve your issue, you can contact the Pensions Ombudsman. The Ombudsman can help investigate complaints or disputes of fact or law connected with pension schemes. The Ombudsman can be contacted at the same address as OPAS but he has a different phone number, email and website address: Phone: 020 7834 9144 Email: enquiries@pensions-ombusdsman.org.uk Web: www.pensions-ombudsman.org.uk 14
Pensions Registry The Scheme is registered with the Registrar of Occupational and Personal Pension Schemes. It can help members of pension schemes trace former employers, or the Trustees or providers of previous schemes. You can contact the Registrar at: The Pensions Scheme Registry PO Box 1NN Newcastle-upon-Tyne NE99 1NN Pensions Regulator The new Pensions Regulator replaces the Occupational Pensions Regulatory Authority (Opra) on 6 April 2005. The Regulator's objectives are to: protect the benefits of occupational and personal pension scheme members; reduce the risk of schemes having to draw on the new Pension Protection Fund; and promote good administration of pension schemes. You can contact the Regulator, via Opra, at: Post: The Pensions Regulator Opra Invicta House Trafalgar Place Brighton BN1 4DW Phone: 01273 627600 Email: helpdesk@opra.gov.uk Web: www.thepensionsregulator.gov.uk Trustees The Scheme is set up under trust and all assets are held separately from the Company and managed by the Trustees. The Trustees ensure that benefits are paid correctly to members and their beneficiaries, in accordance with the Scheme Trust Deed and Rules and ensure that contributions paid to the Scheme are properly invested. They are helped by professional advisers. The names of the directors of the Trustee Company and their advisers are published in the Scheme's Annual Report. These directors are appointed by the Company and they have a duty to act in the best interests of the members and other beneficiaries. 15
Trustees continued There are currently seven directors. In accordance with the Pensions Act 1995, the Scheme opted out of the member-nominated trustee director requirements and the membership approved alternative arrangements. Directors are normally expected to serve for a term of three years, although there is no fixed term of office for any director. In practice, each director remains in office until he or she leaves ITW or retires from office. These arrangements will be reviewed by 2007. 16
Pensions terminology Company ITW Limited and any other group company participating in the Scheme. Dependent child A child of yours, or a child financially dependent on you, who is under 18 (or under 25 and in fulltime education). Deferred spouse s pension A pension payable to your spouse, if you are entitled to a preserved pension but die before it is paid. This will be a pension of half of your pension at your date of leaving (for any service after 6 April 1997), increased (as required by law) to your date of death. For service prior to 6 April 1997, additional benefits due as a result of contracting out (see GMP below), or as a result of previously transferred benefits may be payable. Earnings cap For members who joined the Scheme after 3 May 1989, the maximum earnings that may be taken into account for pension and life assurance purposes is capped by the Government at 105,600 for the tax year 2005/06. Guaranteed minimum pension (GMP) The minimum level of pension that the Scheme had to provide as a condition of contracting out of the earnings-related part of your State pension up before April 1997. The GMP is paid as part of your Scheme pension, not in addition to it. Final pensionable salary The highest average of any three consecutive years pensionable salaries in the 10 years before you retire or leave. 17
Incapacity If, in the opinion of the Company, you are prevented from following your normal occupation or your earning ability is seriously reduced as a result of ill-health, an incapacity pension may be granted. This would be on a basis determined by the Trustees and may be payable prior to age 50. In this context, ill-health includes partial or total incapacity as a result of mental or physical disability (as the Company decides). Normal retirement date Your 65 th birthday. Pension increases Your pension (or your spouse s pension) in excess of any GMP, earned after 6 April 1993 will be increased each year in line with inflation, as measured by the Retail Prices Index (RPI), up to a maximum of 5% a year. Pensionable salary Your gross earnings from the Company in the year ending on the previous 5 April, subject to the earnings cap. Pensionable service Your period of Scheme membership (in years and complete months), subject to Inland Revenue limits. Qualifying service Your period of Scheme membership plus any pensionable service that may have been credited if you transferred in from a previous scheme. Spouse Your legally married husband or wife. Marriages after your pension starts, of less than six months duration, are not recognised (except for contracting out of the State Second Pension - S2P). 18
State Pension Age 65 for all men and for women born after 5 April 1955. For women born before 5 April 1950 it is 60. For women born between these two dates, State Pension Age will be a date between the 60 th and 65 th birthdays. Trustees The ITW Pension Funds Trustee Company. The above definitions apply to the majority of members of the Scheme. There are, however, variations in the Rules which may apply to particular classes of member. This may be relevant if you are an existing member and you were previously in a scheme that has merged with the ITW Pension Fund, or if you have transferred in other benefits since joining. As this guide is only a summary of the Scheme, not all such variations have been reproduced here. The Pensions Department can provide further information and clarification on this issue, should you need it. 19