An update from Pace Autumn 2014 Welcome to our annual update. The big news this year is that the Government wants to change the pensions rules to give you even more flexibility and freedom to use your savings in Pace Essential or Pace Extra the way you think is best. What s inside this issue?
Before we get started... Welcome. We know that everyone has more pressures on their finances than ever before, but we want to make clear the benefits of being in a pension scheme like Pace. Pace provides a generous and flexible offer to meet the needs of Co-operative Group employees. The Group pays in more than the minimum levels required by the Government and Pace gives you options on how you can top this up so that everyone can save for retirement in a way that works for them. Share your views and WIN. The way that we communicate with you, the members of Pace Essential and Pace Extra, is an important part of running a good quality DC scheme. That s why, this year, we have decided to run an easy online survey that you can complete in just a few minutes, to tell us what you think about the information you receive about your benefits in Pace Essential and Pace Extra. Everyone who completes the survey will be put into a prize draw to win a Co-operative Food hamper, and 10 lucky winners will be selected at random. Pace Essential and Pace Extra are the two defined contribution (DC) sections of Pace. Pace has been awarded the Pensions Quality Mark by the National Association of Pension Funds (NAPF). In order to achieve this prestigious award, the NAPF had to be satisfied that the DC sections meet certain contribution requirements, are well managed and have good member communications. Legal & General is the company that manages Pace Essential and Pace Extra for us. You can contact them if you have any questions about your pension in Pace Essential or Pace Extra. 2 3
It s a pensions In a nutshell, the changes mean: More flexibility and choice to use your pension savings as you wish The pensions minister famously said that you can spend it all on a Lamborghini if you want to. Most people won t have enough in their pension pot to buy a Lamborghini and we re sure that most people will choose a more suitable option on retirement. You could take all your pension savings in one cash lump sum or spread it out over a period of time with full flexibility. Under the proposals, no one will have to buy an annuity. The changes announced by the Chancellor in his 2014 Budget speech caught many people in the pensions industry by surprise. These changes have been described as the biggest shake-up in UK pensions, ever An annuity is an insurance product that pays you a guaranteed income for life, in exchange for a lump sum payment to the insurer. However, over the last couple of years annuity rates (i.e., how much income you get for your lump sum) have been at their lowest levels for years, so some people have felt that annuities did not offer them a good deal especially if it was their only option. Even so, an annuity could still be the best option for many people, as there is something to be said for having a guaranteed amount of money coming in every month. The Trustees have appointed a specialist company called The Open Market Annuity Service (TOMAS) to help Pace members make their pension choices when they get closer to retirement. 4 5
In a nutshell, the changes mean: Tax rules to be relaxed from April 2015 This means that you will be able to take some or all of your pension savings as cash if you want to, without having to pay more than half of it (55%) as tax. You will be able to take the first 25% of your pension as tax-free cash and the balance of your lump sum would be subject to tax at your highest rate of tax. Retiring before April 2015? Don t panic... The Government has put transitional measures in place to help people retiring before April 2015 access more of their retirement savings. If you are retiring before April 2015, you may already have been contacted by TOMAS who will be able to explain all your options to you. If you are considering retiring before April 2015 and have not been contacted by TOMAS, please let Legal & General know, by calling them on 0345 026 8689. And finally These proposals could change in future, but in the meantime you may want to speak to an independent financial adviser, especially if you are close to retiring. 6
Your benefit statement explained By now you should have received your annual benefit statement from Legal & General. If we sent you one last year, you have probably noticed that this year s statement is a lot shorter. That s because we worked with Legal & General to improve it and make it clearer, based on the feedback we got from members. Getting started If you ever need to get in touch with Legal & General, you can find all their contact details here. We ve put together this guide to help you understand your 2014 benefit statement. If you are still unsure about what certain things on your statement mean, or if you have any questions, click on the link below to send us an email. Rate it. We d love to hear what you think about your 2014 benefit statement in fact, tell us what you think about ALL the communications you have received from Pace Essential and Pace Extra. Give us your feedback and we ll put you into a prize draw to win a Co-operative Food hamper. About you and your pension Mrs. A Test x.xx x.xx x.xx 7 8
About you and your pension It s important that you check your details are correct and tell Legal & General if there are any mistakes. If you are planning to retire earlier or later than the Retirement Date shown here, please tell Legal & General because it may affect how your account is invested. Mrs. A Test Please note: what Legal & General call a pension pot is another name for your account in Pace Essential or Pace Extra. x.xx x.xx x.xx The value of your pension pot This statement covers the period from 6 April 2013 to 5 April 2014. This part of your statement shows the value of your account at the start of the period and what it is worth now. This takes into account the contributions that you and your employer have paid and/or transfers in from other pension schemes, as well as any increase or decrease in the value of your investments. What your pension costs are This tells you how much you have paid to Legal & General out of your account, to cover the cost of running your pension. Pace has been able to agree competitive charges with Legal & General. Where your pension pot is invested When you and your employer pay into Pace Essential or Pace Extra, the money in your account is invested on your behalf. This section shows you where your account is invested. Most of our members are invested in Pace Lifestyle. The Trustees have set up Pace Lifestyle for members who don t want to make decisions about how the money in their account is invested. In Pace Lifestyle, your account is invested in different ways at different times in your working life. The way this happens is all pre-arranged; you don t need to get involved. There is more information about Pace Lifestyle here. 9 10
x.xx x.xx x.xx x.xx What your pension might be worth at retirement in today s terms Manage Your Account 11
What your pension might be worth at retirement in today s terms When you retire you may use your account to buy a pension (annuity) and this will pay you an income in your retirement. This page looks at what you could be entitled to when you do reach retirement. x.xx x.xx x.xx x.xx The first number shows what your account might be worth at retirement (i.e., at your Selected Retirement Date). The second number shows you how much pension you might get if you used all the money in your account to buy a pension (annuity). You also have the option to take a tax-free cash lump sum, so the third number shows how much you could take, and the final number shows how much pension you might get if you used what s left in your account (after taking a tax-free lump sum) to buy a pension (annuity). You can find out more about your options at retirement here. Assumptions No-one knows what will happen in the future, so we need to make certain assumptions about what will happen to your account and investments in the years ahead. This section explains the assumptions Legal & General have used when putting together your pension estimate. 12 13
Manage Your Account More and more of us are going online to check our bank statements so why should your pension be any different? The secure Manage Your Account area on Legal & General s website is brilliant for: â Seeing how much your account is worth on any particular day â Checking your investment choices â Making changes to your account â Reminding yourself how much you are paying into Pace. Just like a bank account, it also records all your transactions, showing you how much you and your employer have paid in each month. 14 15
Getting started with Manage Your Account Manage Your Account is a secure area on Legal & General's website where you can keep track of your pension online. â Go to www.legalandgeneral.com/coop and click on Manage Your Account in the top right corner of the screen. â Follow the links and click on Register now. â Once you have filled in your details, you will receive an email link to complete your registration. â If you have forgotten your user name, please contact Legal & General on 0845 073 0785. â If you have forgotten your password, please use the password reset link. 16
Pension myths busted Not many of us can easily fast-forward in our minds to that day in the future when we can stop working and take things easy. That may be one of the reasons people don t join their company pension scheme or don t spend much time thinking about it when they do. There are other reasons, fuelled by some common myths. Here are the top five pension myths : Rate it. We d love to hear what you think about this article and Pace communications in general. Your feedback will help us improve the way we talk about pensions and we ll put you into a prize draw to win a Co-operative Food hamper. 17 18
Myth number 1 The Government will give me a pension so I don t need to bother. The State Pension is there to help people pay for their most basic needs but is unlikely to be suitable as your only source of pension income as it will not provide enough. The Government has recently announced changes to the State pension which means that the maximum amount of pension will increase from around 5,800 a year to 7,700 a year, from April 2016. However, this still won t really be enough for most people to live on comfortably. Under the new rules, you will usually need 35 qualifying years of National Insurance contributions or credits to get the full State Pension (and at least 10 years to get anything at all). To be entitled to a qualifying year, at least one of the following should have applied to you: â you were working and paid National Insurance â you were getting National Insurance credits, e.g., for unemployment, sickness or as a parent or carer â you were paying voluntary National Insurance contributions. Also remember that the State pension is only available once you reach a certain age and that age is going UP. Unless you were born before October 1954, your State pension won t be paid until you re at least 66, and probably not until you re 68 or older. Affects you if you were born in or after 1952 Affects you if you were born in or after 1967 Affects you if you were born in or after 1976 State pension age 65 State pension age 66 State pension age 67 State pension age 68 State pension age will increase to age 65 by 2018, for women born after 6 December 1953. (It s already 65 for men.) State pension age will increase between 2018 and 2020 to age 66, for both men and women. State pension age will increase between 2034 and 2036 to age 67, for both men and women. But this isn t the end of it State pension age could reach 69 or even 70! Calculate your State pension age using the calculator at: www.gov.uk/calculate-state-pension The Government can choose to make changes to the State pension in future. If you have your own pension savings, you can use this to top up whatever pension the Government provides, to a level that is more likely to provide a better standard of living. By 2046 you ll have to wait until you re 68 to get your hands on your State pension. State pension age will increase between 2044 and 2046 to age 68, for both men and women. 19
Myth number 2 It s such a long time until I retire, I don t have to think about it now. The sooner you start to put something aside, the better, because the earlier you start to save, the longer your money has to grow. If you put if off, it could have a big effect on the amount you get when you come to retire. You would have to save a LOT more money over a shorter period of time and for most of us this simply isn t going to be an option. You can use the Retirement Planner Tool on Legal & General s website to help you work out how much you need to save. 20
Myth number 3 I won t need much money as I don t expect I ll live that long. On average, people are living longer than they ever have before, so your savings in retirement will need to last you longer. 1 2 3 4 5 Four out of five people underestimate how long they will live. A recent study showed that most people (four out of five!) underestimate how long they re going to live! In the study, the men (aged 55 to 64) thought they would live to 81 while the women expected they would live to just 79. In fact, on average, these people will live until 86 for men and 89 for women. 21
Myth number 4 Pensions can be risky. When it comes to money, there is unfortunately no 100% risk-free option. Inflation (also known as the cost of living) means that even if you put your money in the bank, it may not buy as much in a year s time. Investing your money in a pension is one of the best ways to grow your money. Pace gives you a choice of investment funds with different levels of risk. At the lowest end of the scale, you can put your pension savings into a cash fund, with similar risks to a bank account. As a general rule of thumb, the younger you are and therefore the longer you have until retirement, the more risk you can afford to take. The Trustees also offer Pace Lifestyle, a fund that will automatically move your money from higher risk investments to lower risk ones during the last 20 years until retirement. 22
Myth number 5 Being in a pension costs too much. This is a tricky one, because it can be difficult with so many things to pay for out of your wages. However, if you re at all able to make some savings, remember that being in Pace is a good way to get extra money because the Group pays in too at a higher contribution rate than you do. The Government also helps to keep the cost down through tax relief on your Pace contributions, and you can also make National Insurance savings through NICE Pensions. If you were automatically enrolled into Pace Essential and so joined without completing any forms your contribution rate is currently 1% of your Pay. Your contribution rate will be different depending on which section of Pace you join. You pay (% of Pay) The Group pays (% of Pay) Pace Essential 1% 2% So, for every 1 you put into your pension, the Group will put in another 2. Pace Essential 2017* 2% 3% Pace Essential 2018* 3% 5% Pace Extra 4% 8% * The Government requires that a minimum level of contributions (which increases in 2017 and 2018) is paid into workplace pension schemes. The Group is paying more into Pace than the minimum level of employer contributions. Example Jane earns 15,000 a year. She is a member of Pace Essential and has a contribution rate of 1% of her salary. Jane pays tax at the standard rate (20%). 1% of Jane s salary = 150 a year, which is a contribution of 11.54 each pay period. However, tax relief and National Insurance savings mean that the actual amount her pay is reduced by is 7.85. Each pay period, Jane s employer pays 23.08 into her Pace pension. 23
Keeping it simple What happens to the contributions? Thinking about Pace Extra and Essential does not have to be complicated. Here are some straightforward answers to some important questions that you may have about your pension. What happens to the contributions? The contributions are paid to Legal & General who are the administrators of Pace Essential and Pace Extra. They carry out the day-to-day running of the scheme. You have your own individual account where contributions from both you and the Group build up, along with any money that your contributions earn while they are invested, known as the return on your investment. Your payslip shows how much of your Pay is going into your pension each pay period. (Your employer pays extra contributions.) Just like checking your bank balance online, you can check to see how much is building up in your individual account whenever you like, by registering for Manage Your Account. Do you have any other questions about pensions? We are always very happy to answer any other questions you might have about Pace Essential or Pace Extra. Please contact Legal and General by phoning 0345 026 8689 or by emailing: cooppensions@landg.com. 24 25
Where do the contributions get invested? Where do the contributions get invested? As a member, you have a range of investment options that offer different levels of risk. The investments are looked after by Legal & General s investment managers. If you have been automatically enrolled into Pace, or if you did not feel confident about choosing your own investments when you joined Pace, you are invested in Pace Lifestyle. This option expects that you will want to take your pension savings at age 65 (remember, you can take your savings out but carry on working!) If you don t think you will want this money at age 65, then you should let Legal & General know. Do you have any other questions about pensions? We are always very happy to answer any other questions you might have about Pace Essential or Pace Extra. Please contact Legal and General by phoning 0345 026 8689 or by emailing: cooppensions@landg.com. 26
When can I take the money out of my account? When can I take the money out of my account? The normal pension age for Pace is age 65. If you think that you might want to retire earlier or later than this then you should contact Legal & General to let them know. Currently the earliest age you can access the money in your individual account is age 55, although this is planned to increase to age 57 from 2028. This means that if you were born in or after 1971, you would have to work an extra two years before you could take any of your pension as cash. If you leave the Group before you retire, you don t have to leave your retirement savings in Pace you may be able to transfer your fund into another workplace pension or private pension. Do you have any other questions about pensions? We are always very happy to answer any other questions you might have about Pace Essential or Pace Extra. Please contact Legal and General by phoning 0345 026 8689 or by emailing: cooppensions@landg.com. 27
What are my options when I retire? What are my options when I retire? Well, as we explained earlier in this newsletter, the Government wants to change the retirement rules to give people more flexibility and options about how they use their pension savings. The proposals could change in future. We will keep you updatated on the Group s pensions website and through these regular annual updates. Do you have any other questions about pensions? We are always very happy to answer any other questions you might have about Pace Essential or Pace Extra. Please contact Legal and General by phoning 0345 026 8689 or by emailing: cooppensions@landg.com. 28
Membership Pace continues to grow Deferred members 4,147 These are members who have left the Group or opted out of Pace. Some of these members still have benefits in Pace, although they no longer pay contributions. Active members 41,693 That s over 2,500 more people paying into Pace than this time last year. We re delighted that only a small number of members have chosen to leave Pace, with the vast majority (95%) staying in. TOTAL MEMBERS 45,850 What is Pace worth? On 5 April 2014, Pace Essential/Extra was worth an amazing 69.4 million. 29 30
Where to find out more Here are some useful websites that tell you more about pensions, investments and savings. (Please note that, with the exception of the Legal & General site, we don t endorse the sites below and have no control over their content.) Money Advice Service www.moneyadviceservice.org.uk/en Helps you manage your money better. Includes a budget planner and you can ask questions online. Pensions Advisory Service www.pensionsadvisoryservice.org.uk Free, independent advice and guidance on pensions; includes a saving for retirement planner. Unbiased.co.uk If you want advice, you can find a local independent financial adviser (IFA), mortgage advisers, accountants or solicitors on this website, along with useful information, news and guides. Money Saving Expert www.moneysavingexpert.com Martin Lewis site includes lots of information about managing your money, as well as forums where you can chat to other people who may be in the same boat as you. Legal & General Administrators for Pace Essential and Pace Extra Trustee Services Team City Park The Droveway Hove BN3 7PY Tel: 0345 026 8689 Fax: 02920 432 372 Email: cooppensions@landg.com Website: www.legalandgeneral.com/coop 31 32
Please note: Benefits are determined by the Pace Rules. If there is any conflict between any information in this members annual report and the Rules, the Rules (as amended from time to time) will be overriding. If you have any questions or would like a copy of the Rules, please contact the Group Pensions Department.