inside welcome help with retirement planning pension reforms pension people plan news updates and reminders PENSION MATTERS University of Newcastle upon Tyne Retirement Benefits Plan December 2015
Caroline Armstrong I currently work in the School of Architecture, Planning and Landscape as the Programme and Placement Secretary... Page 6 Page 5 welcome to another Pension Matters with up-to-date news and information about our Plan and pensions in general. Plan your future Planning for your future is important, but easy to overlook in today s busy world. As a member of our Plan, you have valuable benefits that give you a good head start on your retirement planning. Your Plan benefits are final salary. Under the Plan s current rules they build up based on: your salary close to the date you retire, and the number of years you are, or were, an active contributing member. The reason your benefits are so valuable is that the opportunity to build up a final salary pension like this is increasingly rare. On the next page we ve set out some ideas to help you with your retirement planning, with lots of contact details and links to more information that we hope you ll find useful. A better understanding It s much easier to plan properly if you understand what s going on in the wider world of pensions. On pages 4 and 5 we ve outlined some recent and forthcoming developments, including changes to the pension tax allowances and the new State Pension arrangements that start next year. There s also an update on last year s big news story, the introduction of more flexibility for certain types of pension. We hope this helps you make sense of recent changes. Margaret Levy Chair of the Trustee Behind the scenes A lot of work goes on behind the scenes to maintain your benefits and help keep the Plan in a healthy position. We commission regular checks of the funding level the balance between the money building up in the Plan, and the benefits it will need to pay out, now and in the future. The summary funding statement that came with this newsletter gives you an update on the Plan s funding level at 1 August 2015. We also review the Plan s investments regularly so they remain appropriate for a pension scheme in today s economic environment. There s an outline of recent developments in the Plan s investment strategy on page 7. Finally, we re pleased to welcome a new face to our trustee board Caroline Armstrong, whom we introduce on page 6. We look forward to working with Caroline in the future. 2
help with retirement planning It s a good idea to review how your retirement benefits are building up from time to time. Here are some suggestions to help you do this. Look at your benefit statement If you are an active contributing member, you get a statement every year showing how your pension is building up. It will show an estimate of the amount of pension you might receive from the Plan when you retire. If you are a deferred member you are no longer contributing to the Plan (usually because you have left the University and may be working somewhere else now) you should have received a leaver s statement showing the value of the benefits you had built up at your leaving date. If you cannot find your leaver s statement, or it is some time since you left, please contact the Plan administrators, Aon Hewitt, to ask for another copy. Their contact details are on the back page. Get statements from other pension schemes If you are currently an active contributing member of another employer s pension scheme, or you have deferred benefits in previous employers pensions schemes, they may also send you a benefit statement each year. If you don t think you ve had a statement within the last year, you can contact them to ask for one. If you have benefits in a pension scheme you cannot find or cannot remember the name of, the Pension Tracing Service may be able to help. Log on to: www.gov.uk and search for Find a lost pension. You can fill in an online form. Or, phone: 0345 6002 537 An estimate of your State Pension To get the best possible picture of how your retirement savings are building up, you ll also need an estimate of your possible future State Pension. You can get this by contacting the Government s Future Pension Centre. Log on to: www.gov.uk and search for State Pensions. You can fill in an online form. Or, phone: 0345 3000 168 The website also has a State Pension age calculator you can use if you are not sure what your State Pension age will be. If you are already claiming your State Pension, or you reach State Pension age before 6 April 2016, you can top up the amount of your State Pension by paying a one-off cash sum. You could receive an additional 1 to 25 a week as long as you make your one-off contribution before 6 April 2017. Visit www.gov.uk/statepensiontopup for more details about how to do this, and how to work out your one-off contribution. On track? Once you ve collected your pension estimates together, consider whether your retirement planning is on track, or whether you might need to save more. The following organisations can provide more information about pensions and retirement planning. The Pensions Advisory Service (TPAS) is an independent, non-profit organisation that provides free information and guidance across the whole range of pensions, including State, occupational and personal. Phone: 0300 123 1047 Email: enquiries@pensionsadvisoryservice.org.uk Website: www.pensionsadvisoryservice.org.uk The Money Advice Service is an independent service set up by the Government to provide a range of information about consumer finances, including obtaining independent financial advice. It also has a directory of financial advisers that specialise in providing advice about retirement, which you can search by postcode. Website: www.moneyadviceservice.org.uk Phone: 0300 500 5000 (call rates may vary) You can also find contact details for financial advisers in your local area by going to the www.unbiased.co.uk website and putting in your postcode. You should also check whether any financial adviser you might want to use is registered with the Financial Conduct Authority by looking on its website, www.fca.org.uk Remember: you will need to pay for financial advice, so remember to ask any adviser you are thinking of using what their charges are. 3
PENSION reforms In last year s Pension Matters we outlined the Government s proposed pension reforms. These reforms, which became law in April 2015, introduce more flexibility with pension benefits for many people. However, it is important to understand that the pension reforms outlined here currently only apply to defined contribution (DC) benefits, and your main Plan benefits in the Scheme are not DC. (DC benefits build up from contributions and investments.) Taking all your benefits as cash. One-quarter of the amount would be tax-free and you would pay tax at your highest rate for the year on the rest. Alternatively, you might be able to take a series of smaller cash sums. The first quarter of each would be tax-free and you would pay tax at your highest rate for the year on the rest. Buying a pension (an annuity) from an insurance company (until recently this was the only option available for most people with DC pension savings). A wide range of different choices is available, including increases or no increases, or providing a dependant s pension. Income drawdown leaving your pension savings invested and taking income out as and when you want it. Guides to the new retirement flexibility We have produced a guide with the aim of clarifying what you can and cannot do with different types of benefits in the Plan. You can download a copy from the University intranet at www.ncl.ac.uk/hr/benefits/pensions/rbp-scheme or obtain a copy from the administrators using the contact details on the back page. The Government s Pension Wise website, www.pensionwise.gov.uk, has more information about the changes and the kind of benefits they apply to. If you are over age 50 and have DC benefits you may also request free guidance from Pension Wise on your options. Call 0300 330 1001 to make an appointment with an adviser. Additional Voluntary Contributions (AVCs) If you have paid additional voluntary contributions (AVCs) in the Plan, these are DC benefits, so you have more choice over how to use your AVCs when you come to take them. You can take all your AVCs as cash. If you take them at the same time as your main Plan benefits, this cash sum can be free of tax as long as it is within the limits for taking tax-free cash. (The Plan administrators can provide more information about this.) You now also have the option of taking your AVCs as cash at an earlier date than your main Plan benefits, as long as you are over age 55 (the minimum age for taking retirement benefits). However, if you do this only one-quarter would be free of tax. The rest would be taxed at your highest rate for the year. Alternatively, you may transfer your AVCs out of the Plan and into another registered pension arrangement (such as a personal pension) while leaving your main benefits in the Plan. Taking your AVCs separately from your main Plan benefits might be beneficial for some people, but less so for others. You would be wise to take independent financial advice if you are considering this option. From time to time we review the investment options available for your AVCs to ensure they continue to offer an appropriate range of choice. If we change the options in future we will let you know. main plan benefits Your main Plan benefits are part of a defined benefit (DB) arrangement. To take advantage of any of the flexible options outlined above left, you would need to turn your DB Plan benefits into DC benefits by transferring them out of the Plan and into a DC pension arrangement. If your DB benefits are worth 30,000 or more, the law says you must be able to show us, as the trustees, that you have taken independent financial advice from an adviser who is authorised to give advice on pension transfers, before you would be allowed to transfer your benefits out. Please see the item headed On track? in the Help with retirement planning article on page 3 for contact details to help you find this kind of financial advice. 4
National Insurance and the single State Pension On 6 April 2016, the current two-tier State Pension arrangements will be replaced by a new single-tier State Pension. Anyone reaching State Pension age on or after 6 April 2016 will be able to claim this new State Pension (it doesn t apply to anyone reaching State Pension age before this date). The second tier of State Pension (currently known as State Second Pension or S2P, and previously known as State Earnings Related Pension Scheme or SERPS) will no longer exist and our Plan will no longer be contracted out of it. Contracted-out pension schemes promise to provide a pension at least equivalent to the second tier of State pension. If you are a member of a contracted-out pension arrangement whether this is our Plan, or another employer s contracted-out pension scheme you pay reduced-rate National Insurance contributions to reflect the fact you are building up only the basic State Pension. When contracting out ends, the National Insurance contributions paid by active contributing members will increase. Here is an example showing how this could work in practice. Angela earns 25,000 a year With the current reduced-rate National Insurance contributions, her National Insurance works out at around 150 a month When contracting out ends and the National Insurance contributions increase, Angela s National Insurance will increase to around 170 a month This is an increase of around 20 a month 240 a year The fact that the Plan was contracted out may also affect your eligibility for the full amount of single State Pension. You will need 35 qualifying years in which you paid fullrate National Insurance contributions. As you have paid reduced-rate National Insurance contributions as a member of a contracted-out Plan, you may not qualify for the full amount of State Pension, although you can pay catch-up National Insurance contributions. For more information, go to www.gov.uk and search for State Pensions. Pension tax allowance changes The rules for the annual allowance which covers the total amount your pension savings can increase in a year and still benefit from tax relief are changing. However, the changes are only likely to affect people with high levels of earnings (generally around 110,000 a year or above). The basic annual allowance is currently 40,000 a year. Some people generally high earners may have a temporary annual allowance of up to 80,000, depending on how much of the 40,000 annual allowance they had used up by 8 July 2015. From April 2016, people with income (including earnings and the amount added to pension savings) of 150,000 a year or more will have a reduced annual allowance. The lifetime allowance which covers the total amount of pension savings you can take when you retire without having to pay extra tax is currently 1.25 million and due to reduce to 1 million in April 2016 (although from April 2018 it will start to increase in line with inflation). This is only likely to affect people with large amounts of pension savings (which would give them a pension of 50,000 a year or more). Pension scam warning We have issued warnings about pension scams in previous newsletters. Sadly, the new freedoms for DC benefits seem to have created further opportunities for scammers to prey upon your savings. The Pension Regulator has produced an updated guide, Scamproof your savings, which you can download from its website, www.thepensionsregulator.gov.uk If you are tempted by any kind of pension offer, please consider taking independent financial advice before choosing to accept it and never allow anyone to rush you into a decision. You can report any offer you think might be a scam to Action Fraud by calling 0300 123 2040 or through their website: http://www.actionfraud.police.uk/report_fraud 5
Caroline Armstrong The whole experience to date has been a huge learning curve... PENSION PEOPLE An active interest New trustee Caroline Armstrong tells us why she wanted to get involved. I wanted to become a pension trustee as I have an active interest in pensions, and wanted to be more involved in ours. Making decisions I was keen to know more about how our Plan functions and to be involved in decisions which will directly affect me and my colleagues. Recently I was involved in decisions about changing the investment strategy and appointing new investment managers (see Investment insights on page 7). I m impressed by the wealth of expertise and experience our professional advisers have, and how much it helps us with our decisions. Gaining an insight I ve worked at the University for just over seven years since August 2008 and during that time I ve had the opportunity to work with a wide range of different people. I currently work in the School of Architecture, Planning and Landscape as the Programme and Placement Secretary. For several years I was part of the Interaction Team (which deals with student service enquiries) and I also worked briefly in the support team for Postgraduate Research students in the School of Mechanical and Systems Engineering, and as Clinical Secretary in the School of Education, Communication and Language Science. I believe this cross-university experience has given me a good insight into the needs of colleagues in different areas who are fellow members of the Plan. I m surprised at the number of questions I now get asked about pensions! Caroline Armstrong Adapting to change There have been so many changes to pensions within recent years, including the new retirement freedoms such as flexible drawdown, that it can feel difficult to keep up. I think it s important we, as trustees, adapt to the changes and ensure as we go forward that we have sound strategies in place to cope with them. I believe we re well-placed to do this. Learning curve The whole experience to date has been a huge learning curve, especially with the legal and financial frameworks that pension schemes have. I very much appreciate the knowledge of the other trustees and am grateful for their experience and opinions which have helped me immensely during the first few months. 6
We have now adopted liability-driven investment for the Plan. plan NEWS Investment insights The Plan is basically a large pot of money, managed to deliver the benefits promised under the current Plan rules to all members and beneficiaries. One of our responsibilities as the trustees is to invest this money to help it grow and protect it from the effects of inflation. We need to: invest in the best interests of members and beneficiaries; think about how secure and high quality our investment choices are, and how easy it would be to change them; ensure we use a range of different investments and managers, across a wide spread of regions and markets (known as diversification); and take into account the benefits the Plan will need to pay now and in the future, how much these might increase, and how long they might need to be paid for. Recently we have been looking at how the money in the Plan could be invested so as to provide a better match for the benefits it is currently paying and will pay in the future. We also aim to reduce the impact of changes in interest rates and future inflation on the Plan s funding position. The traditional approach was to invest in bonds loans to companies or the Government, paid back with interest. Bonds tend to hold their value well and the interest they pay is regarded as a good match for the cost of paying out pensions. However, nowadays it is becoming increasingly popular to build on this approach by adopting a liability-driven investment strategy, aiming to match the choice of investments more precisely and efficiently to the benefits the Plan promises. We have now adopted liability-driven investment for the Plan. It enables us to keep more of the Plan s money in growthseeking investments such as shares, so we can target a higher level of growth to match the value of benefits building up in the future. Within the growth-seeking investments, we are also investing in new areas that we expect will achieve strong returns over the longer term. More information about the Plan s investments, and its financial progress during the most recent Plan year (which runs from 1 August to 31 July each year), is available in the trustees formal Report and Accounts. You can download a copy of the Report and Accounts from: Website: www.ncl.ac.uk/hr/benefits/pensions/rbp-scheme Or, ask for a copy by email or phone. Email: pensions-enquiries@ncl.ac.uk Phone: 0191 208 6496/6487 Changes to the USS In last year s Pension Matters we highlighted a change to the rules of the Universities Superannuation Scheme (USS). As a reminder: if you were a member of our Plan, and then became eligible to join the USS, you would have to leave the Plan and join the USS you had no other choice. The USS has since changed its rules so that you do not have to leave our Plan if you become eligible to join the USS. You may stay in our Plan if you prefer. But remember: if you do this, you have to stay in the Plan. You cannot change your mind and join the USS later. This is an important decision and you should look into it carefully, and read all the information available, before making up your mind. 7
updates and reminders Email call We continue to try to move in the direction of using less paper. You can help us do this by providing a current email address we can use. If you are an active contributing member, we will automatically use your work email unless you ask us to use a different one. Please send your preferred email address to the Finance Department at pensions-enquiries@ncl.ac.uk Personal updates Please remember to tell the Plan administrators about any changes to your personal details, including changes to your name or address. Please, also, remember to update your expression of wish form. This form tells us, the trustees, whom you would like to receive the benefits that are paid if you die before you retire, or in the first five years after you retire. We have discretion over who receives these benefits (which enables them to be paid without inheritance tax) but we will usually take your wishes into account unless there is a good reason not to. If you have not updated your form recently or you are not sure you have ever filled one in please download a copy from the University intranet or ask for one from the Finance and Planning Office (see For more information on the right for contact details). Once you have filled in your form, please return it to the Finance and Planning Office at the address on the right. For more information Active contributing members For more information about anything to do with the Plan or your benefits, look on the University intranet at www.ncl.ac.uk/hr/benefits/pensions/rbp-scheme Or, contact the Finance and Planning Office. Email: pensions-enquiries@ncl.ac.uk Phone: 0191 208 6496/6487 Or, write to: Finance and Planning Office, Newcastle University, King s Gate, Newcastle upon Tyne NE1 7RU Deferred and pensioner members For more information about anything to do with the Plan or your benefits, please contact the Plan administrators, Aon Hewitt. Email: uniofncl.pensions@aon.co.uk Phone: 0114 203 4033 Or, write to: University of Newcastle Retirement Benefits Plan, Aon Hewitt Limited, PO Box 196, Huddersfield HD8 1EG All photos copyright University of Newcastle Get in touch! Email: pensions-enquiries@ncl.ac.uk Phone: 0191 208 6496/6487 8