Click to begin A guide to saving for your future Retirement Guide Capita Group Money Purchase Scheme Powered by Atlas
Contents Section Page 1. Introduction 3 2. When do you want to retire? 5 3. Annuity (Secured Income) 6 4. Flexi-Access Drawdown (Variable Income) 13 5. Cash Lump Sums (known as Uncrystallised Funds Pension Lump Sums [UFPLS]) 25 6. Combination of options 34 7. Small Lump Sums 37 8. Transfer Out 39 9. Summary of options 40 10. Important Information 43 11. Useful contacts 47 12. Glossary 49 13. Notes 53 14. Next Steps 54 Capita Employee Benefits operates a pension scheme called the Atlas Master Trust ( Atlas ). The Capita Group Money Purchase Scheme (CGMPS) is a section within Atlas for current and former employees of Capita. In this guide we will refer to Atlas as the Scheme and the Capita Group Money Purchase Scheme section as CGMPS. Atlas is run by a single Trustee company which is called the Atlas Master Trust Trustee Limited. The Trustee company is legally responsible for making sure that Atlas is run properly and is composed of directors who are a select group of pension experts. The CGMPS section of Atlas is overseen by a Governance Committee formed and appointed by Capita. They meet quarterly and set the direction for the CGMPS section as well as carrying out many of the key duties (for example, determining where discretionary death benefits should be paid). Please note that whilst every effort has been made to ensure the information in this booklet accurately reflects the Scheme s Definitive Deed and Rules and any amending legislation, if there is any difference, the Definitive Deed and Rules, and legislation will apply. Members subject to the tax laws of the Isle of Man, Jersey or Guernsey should disregard the information contained within this booklet and instead contact the Scheme Administrator for further information on the options available at retirement. Correct as at October 2016 2
1. Introduction Contents This booklet is designed to help you understand the options available to you on retiring, or when you are considering retiring, from the Capita Group Money Purchase Scheme (CGMPS). It also acts as a guide to the overall process of taking your benefits from the CGMPS. As a member of the CGMPS you have built up a fund value, which is the total value of all: The contributions paid to your personal account (from both employer and employee); You are reminded that the Governance Committee have produced a separate Scheme Guide and Investment Booklet which are available from the Scheme Administrator. In particular, the investment options that are selected by you should be considered in relation to what option you are considering taking at retirement, either by choosing the most appropriate lifestyle strategy or by self selecting funds which are appropriate for the length of time until you plan to retire. Any transfers into the CGMPS of other pension benefits, Investment returns achieved on your personal account; Tax relief given to your fund by the Government; and Deduction of any Investment Management Charges. 3
Pension Guidance The Governance Committee recommends that you consider taking Independent Financial Advice, particularly if you are thinking of taking Drawdown or Cash. If you do not have a financial adviser, the Government s Money Advice website provides free and impartial information on choosing a financial adviser and links to details of financial advisers. The website can be accessed at: www.moneyadviceservice.org.uk/en/articles/choosing-afinancial-adviser. The Government has also set up a free and impartial guidance service to assist you with your retirement decisions at: www.pensionwise.gov.uk. If you are aged over 50 you can book an appointment over the phone or face to face, although please note that Pension Wise will not recommend any products or tell you what to do with your money. Pension Scams If you are taking a cash lump sum from your pension to invest somewhere else, or plan to take drawdown, be aware that scammers may operate in these markets. You can find out more about how to identify scams here: www.pensionsadvisoryservice. org.uk/content/publications-files/uploads/members_detailed_ booklet_7_page.pdf Terminology Unfortunately, the pensions world is full of jargon. Although as little of this has been used as far as possible, it could not be removed completely. Please see the Glossary for an explanation of the some of the terms that have been used in the guide. 4
2. When do you want to retire? Contents You are entitled to receive your retirement benefits from your Normal Retirement Age, which is age 65. However, you can opt to take your benefits at any time from the age of 55. If you are currently employed by Capita, you do not have to stop working in order to be able to take a pension from the CGMPS. The age at which you retire will have an effect on the level of your personal account that you have built up. Retiring earlier will mean that you will have less time to build up your personal account and any income you receive in retirement may be lower than if you chose to retire later. What if I don t want to retire now? You can delay taking your benefits, past your Normal Retirement Age if you wish and you should let the Scheme Administrator know that this is your intention when you are contacted about your retirement. Options available to you at retirement When you take your pension, whether at Normal Retirement Age or at another time, your personal account will be used to provide retirement benefits for you. You have a choice as to what type of retirement benefits you can take, which means you can tailor your choices to your personal circumstances. Your options at retirement are: An Annuity (Secured Income) see Section 3 Flexi-Access Drawdown [FAD] (Variable Income) see Section 4 Cash Lump Sum (otherwise known as an Uncrystallised Funds Pension Lump Sum [UFPLS]) either as a one off lump sum or series of lump sums see Section 5 Combination of the above see Section 6 Small Lump Sum see Section 7 Transfer to another provider see Section 8 Please see Section 9 for a summary and comparison of the three main options. 5
3. Annuity (Secured Income) Contents Are you happy to secure income for the rest of your life? It is a common misconception that a pension is paid directly out of the CGMPS. Instead, the personal account that you have built up through your career is used to purchase a lifetime annuity from an insurance company. A lifetime annuity is an insurance contract which pays you an annual income for the rest of your life. Annuity income is taxed by the annuity provider as Pay As You Earn (PAYE) income. Annuity purchase is the most common method of securing pension income from a money purchase scheme. It has the advantage of providing you with certainty that once you have agreed what you would like with an insurance provider and signed up to it, then you know what you will receive for the rest of your life. What affects the cost of an annuity? Long term interest rates (low long term interest rates mean annuities are more expensive and will result in a lower pension) Age annuity rates tend to get higher the older you are (higher annuity rates mean higher pensions) The tailoring of your annuity (e.g. pension increases and guarantee periods) Health & Lifestyle the cost of an annuity is affected by lifestyle elements, such as whether or not you are a smoker. You may also be able to claim an immediate annuity on enhanced terms if you are suffering from poor health, such as high blood pressure, diabetes, heart condition, kidney failure, certain types of cancer, multiple sclerosis and chronic asthma. This is called an impaired life annuity. Provider as with any purchase, different providers charge different annuity rates 6
Where do you want to shop for your annuity? When you are nearing your Normal Retirement Age or your selected Target Retirement Date, the Scheme Administrator will arrange for an illustration of your retirement benefits to be provided approximately six months prior to that date. This will give you the option to review what benefits you could receive when you decide to retire. The illustration will include an option form which will enable you to provide an instruction of how you wish to proceed. If you wish to retire at that time, the Scheme Administrator can arrange for the Annuity Services Team within Capita Employee Benefits to provide the most competitive annuity quote they are able to obtain. Open Market Option The Open Market Option is your right to shop around the various annuity providers to obtain your best quote. The Annuity Services Team within Capita Employee Benefits is not an annuity provider, rather they will obtain the best possible quote for you from the market, tailored as much as possible to your specific circumstances and requirements. However, you may wish to use your own Independent Financial Adviser (IFA) to carry out this search on your behalf, or you can even do this yourself. One of the issues that the Annuity Services Team within Capita Employee Benefits or an IFA will be able to assist you with is whether you can obtain better annuity rates by applying for an impaired life annuity. These are annuities which may offer better rates if you are in poor health. Please note pension scheme funds may only be used to provide relevant retirement benefits so the funds can only be used to secure an income with an appropriate annuity provider. 7
The Annuity Services Team within Capita Employee Benefits provides a full Open Market Option annuity broking service and is part of Capita plc which is authorised and regulated by the Financial Conduct Authority ('FCA'). The FCA Register number is 142484 and further details can be obtained from the FCA website: https://register.fca.org.uk If you have a small level of funds within your personal account (less than 1,000) some firms may not be able to provide an annuity or advice and may still charge for the service. However, the Annuity Services Team within Capita Employee Benefits may be able to locate an annuity provider on your behalf who will accept a small pension account. Charges The Annuity Services Team within Capita Employee Benefits will not charge you for a completed annuity purchase. However, if you choose not to go ahead with your retirement, or compare their offer with other options and decide to use an alternative provider, then a fee of between 50 and 100 will be deducted from your fund value when it is disinvested for each incomplete annuity request made. If you use your own financial adviser, they may receive commission from the company the annuity is purchased from, which will have the affect of marginally reducing the amount of pension you will receive. You should also ask your financial adviser if you will have to pay any other charges. If you take your annuity from the CGMPS, your adviser may ask you to pay a fee for the advice they have given you. Further considerations In order to aid your decision making you can use: The Pension Advisory Service online annuity planner, which can be found at: www.pensionsadvisoryservice.org.uk The FCA comparative annuity tables found at: www.moneyadviceservice.org.uk/en/tools/annuities You are also able to find an Independent Financial Adviser in your area by looking on the Government s Money Advice website: www.moneyadviceservice.org.uk/en/articles/ choosing-a-financial-adviser. 8
The Government has set up a free and impartial guidance service to assist members aged over 50 with their retirement decisions at: www.pensionwise.gov.uk When purchasing your annuity, you have a choice as to what type of pension benefits you can take. This is so you can tailor your retirement benefits to your personal circumstances. Your options are as follows: A Tax Free Cash Lump Sum The maximum value of Tax Free Cash you are entitled to will be shown in the retirement benefits Illustration provided by the Scheme Administrator and is generally 25% of your personal account. The technical term for Tax Free Cash is a Pension Commencement Lump Sum. If you choose to take Tax Free Cash, this will be paid direct to you from your personal account, and will reduce the amount of money available for purchasing an annuity. Please note that due to current legislation, the CGMPS will not pay out a Pension Commencement Lump Sum until funds are transferred to your chosen annuity provider. A Pension for a beneficiary This benefit would be payable should you die whilst you are in receipt of your annuity. The benefit, if chosen, would provide a percentage of your pension (e.g. 50%) to your beneficiary for the rest of their life, to help protect them after your death. A Guarantee Period An Annuity Guarantee Period offers a guaranteed period over which the annuity will be paid usually this is over five or ten years but may be longer. This means that if you die within a guarantee period, the remaining pension payments are passed to beneficiaries either as income or as a lump sum. A lump sum can be paid to your estate if you do not have any beneficiaries. For example, if you were to take out a guarantee period of five years, and die three years after retiring then the remaining pension payments for the two years left of the guarantee period would be paid to your beneficiaries as a lump sum. 9
Pension Increases Pension payments can remain the same for the whole of your retirement, or can increase each year to help protect you against inflation. The increases can be either a fixed percentage, for example 3% per annum, or can be linked to a specific index, for example the Consumer Price Index which measures increases in the cost of living. Please note that if you choose more generous benefit options, the cost of the annuity contract providing them increases, and so your starting pension would be lower. When you receive detailed quotes, you will be able to see exactly how much effect the various options will have. Flexibility to increase or decrease As well as the increasing pension option to protect against inflation, the level of pension provided by a lifetime annuity can increase or decrease throughout the lifetime of an annuity to suit your needs. This is known as a flexible annuity. The terms of the annuity contract will state when an increase or a decrease can be applied. Tax Any annuity income received will be taxed once in payment at your marginal rate of income tax. Buying an annuity and receiving a Pension Commencement Lump Sum will mean that your benefits are tested against the Lifetime Allowance. Further information on this is contained within Section 10. If you elect to take a Pension Commencement Lump Sum you should be aware of the restrictions about recycling this sum by reinvesting it as a pension contribution to another scheme. Where recycling is deemed to have occurred, it will be subject to penal tax charges. Further information about this is contained within Section 10. If you purchase a lifetime annuity you will remain subject to the standard Annual Allowance of 40,000 p.a., as the taking of an annuity does not trigger the Money Purchase Annual Allowance ( 10,000 p.a.). The only exception to this is if you take a flexible annuity (one that would allow you to increase or decrease the amount in payment). Further information on 10
the Money Purchase Annual Allowance will be provided in your retirement pack. Death If you select an annuity at retirement, you will choose whether or not you wish to have a pension for a beneficiary and/ or a pension guarantee. Therefore, the benefits payable on death will depend on the options you choose at retirement. In accordance with current legislation, annuity income paid to your beneficiaries in the event of your death will be tax free if you die under age 75 and meet certain criteria set by HMRC. If you die after reaching the age of 75, or the HMRC criteria are not met, then income tax will be payable at the beneficiaries marginal rate of income tax. Further details on the death benefits payable can be obtained from the annuity provider when you select your annuity. Guidance The Governance Committee recommends that you consider taking Independent Financial Advice if you re considering this option. If you do not have a suitably qualified Independent Financial Advisor (IFA), you can find one in your area by looking on the Government s Money Advice website: www.moneyadviceservice.org.uk/en/articles/choosing-afinancial-adviser The Government has also set up a free and impartial service setting out the options available at: www.pensionwise.gov.uk. If you are aged over 50 you can book an appointment over the phone or face to face, although please note that Pensions Wise will not recommend any products or tell you what to do with your money. 11
Examples of Annuity Purchase (with and without tax free cash) Annuity Purchase with tax free cash* A member who has a total personal account at retirement of 100,000 decides to take their maximum tax free cash sum of 25%, i.e. 25,000, and use the remaining 75,000 to buy an annuity with an insurer for a lifetime annuity of 4,500 p.a. Annuity Purchase without tax free cash* A member who has a total personal account at retirement of 100,000 decides not to take any tax free cash, and uses the fund to buy an annuity with an insurer for a lifetime annuity of 6,000 p.a. *Please note, these figures are for illustration purposes only the annuity you receive depends on your personal circumstances and economic conditions at the time. 12
4. Flexi-Access Drawdown (Variable Income) Contents Instead of using the value of your personal account to purchase an annuity, you can use all or part of your fund for Flexi-Access Drawdown ( Drawdown ). This is a more complicated concept than an annuity, which involves designating all, or part of your fund to a drawdown arrangement which will provide an annual income whilst the balance remains invested. As this income comes direct from your fund, rather than an annuity, this option has the risk that it may deplete the value of your fund over time. Your fund value would still be subject to investment risk (such as adverse market conditions) and so is not guaranteed in the way that an annuity is. You are able to take Drawdown and remain in pensionable service, still actively contributing to the CGMPS and receiving a contribution from the employer. If you are considering this option you should think about how much you would plan to take as income each year and how long your money needs to last. If too much money is taken too quickly, the available retirement income could fall drastically or even run out, especially if stock markets fall. As this option is more complex than purchasing a lifetime annuity at retirement, the Governance Committee of the CGMPS strongly recommend that if you are considering Drawdown, you should consider taking independent financial advice. You are able to locate an Independent Financial Adviser (IFA) in your area by looking on the Government s Money Advice website: www.moneyadviceservice.org.uk/en/articles/ choosing-a-financial-adviser Drawdown is likely to be suitable if: You want to be able to have greater flexibility in your retirement planning and to be able to alter your income to reflect changes in your circumstances, e.g. for tax planning or if your earned income is likely to fluctuate; You want to retain the potential for investment fund growth in your fund, and are prepared to accept the risk that its value may fall as well as rise; You have other sources of income and therefore may not be solely dependent on income from drawdown; or You want to maximise the benefits and choices your family receive on your death. 13
The main drawbacks of taking an income from the CGMPS via drawdown include: Unlike with a lifetime annuity, the income you receive via drawdown is not guaranteed for the rest of your life. It depends on the level of income you take, and on the investment returns your drawdown fund receives. If the drawdown fund does not achieve the expected investment return, the benefits you receive could be lower than if you had chosen the traditional annuity route; As annuity rates vary over time, there is the possibility that they may not improve above their current levels, and may in fact worsen. Conversely, by deferring the purchase of an annuity, you may be able to take advantage of any improvement in annuity rates. Also, annuity rates increase as you get older and life expectancy reduces; and The charges that you pay for taking an income via the drawdown method tend to be higher than those charged for a conventional annuity. Further Considerations Full/ partial designation to Drawdown You are able to designate all or part of your personal account to drawdown. Where you only designate a proportion of your fund to drawdown, the remaining fund is classed as uncrystallised. This means that you can assign more funds to drawdown at a later date, or use an alternative method to secure these benefits. A Pension Commencement Lump Sum (i.e. tax free cash which is generally 25%) is available whenever funds are designated as drawdown. Therefore, if you make multiple designations into drawdown, then you will have the option of taking a Pension Commencement Lump Sum at each of these designations. The amount designated to Drawdown Please note that you are unable to designate a specific monetary amount to drawdown and will therefore need to specify a percentage of your personal account to be designated to drawdown. You can work the percentage out by calculating the amount you wish to receive in comparison to your total fund value, which is available on the website. The Scheme Administrator will then disinvest the equivalent percentage of sufficient units. 14
Maximum number of changes in regular income withdrawal in a calendar year The Governance Committee has restricted the number of changes that you can make to your regular income to 4 per year, after which an activity fee will be payable as detailed later on in this Section of the guide. Investment options for Drawdown Please refer to the Investment Guide for further detailed information on your investment options, investment strategy, risk profile and individual manager information, benchmarks, targets and charges. This booklet is available from the Scheme Administrator. Lifestyle Options Drawdown provides a longer period to maximise returns on investment, and therefore will influence your investment choices. This is particularly relevant to the Lifestyle Option, as you may not wish to fully move away from growth seeking assets (like equities) as you approach your target retirement age. If you are considering taking drawdown you should check whether you are in the most appropriate strategy relative to the option that you are targeting at retirement. Because of this, the Governance Committee has created a Lifestyle Option, the Drawdown Lifestyle Strategy, which specifically targets drawdown. The Drawdown Lifestyle Strategy reduces, but does not remove, investments in growth-seeking assets as you approach your target retirement age. Hence, at retirement, if you are in the Drawdown Lifestyle Strategy you will still be exposed to the risk that investments could go up or down in value. Please note the default fund is the Annuity Lifestyle Strategy. If you are interested in the Drawdown Lifestyle Strategy you will need to make a positive election to enter into it. 15
Self Select Options Alternately, if you are self selecting your own investments, then you should consider if these are appropriate in relation to the length of time to when you will drawdown your fund. In particular, if you are currently invested in the UK Direct Property Fund you may wish to switch any funds to an alternative investment if you want to opt for drawdown. Unless you switch these investments into an alternative fund(s) beforehand, these will be disregarded for transfer to your drawdown fund. This is because these funds are incompatible with drawdown, due to the infrequency of the investment dealing dates for this type of fund. Disinvestment process Each withdrawal will be taken in equal proportions from all the funds held by you at the time of instruction. You may change your investment options in your drawdown fund once the funds have been transferred from your personal account. The Scheme Administrator will ask for your choice as part of the drawdown arrangement You should consider consulting an independent financial adviser regarding the suitability of your current selected investment choices for drawdown. 16
Interaction with Benefit Statements and Statutory Money Purchase Illustrations As a member of the CGMPS, you currently receive an Annual Benefit Statement, along with a Statutory Money Purchase Illustration (SMPI) which details the level of benefits you could expect to receive, based on certain assumptions about investment returns, salary rises etc. If part of your fund is designated to drawdown and part does not, you will receive a benefit statement with a SMPI based on how you have invested your personal account for the portion which is not in drawdown. You will not receive a SMPI projection for the portion that is designated to drawdown, but you will receive an Annual Review letter on the anniversary of designating funds to drawdown setting out further information on how you are invested and how this is expected to perform. If your whole fund goes into drawdown, you will no longer receive an Annual Benefit Statement or SMPI projection. Tax Any income received from drawdown will be taxed once in payment at your marginal rate of income tax. You should take care as any drawdown withdrawal will be added to any other income you receive during the tax year and may lead to a higher rate of tax being paid than expected. Until a tax code is received from HMRC, income payments (other than the Pension Commencement Lump Sum) will be taxed using the Emergency Code on a week 1 / month 1 basis. Any overpayment of tax can later be reclaimed from HMRC. Where funds are designated as drawdown and the first income withdrawal has been taken, then a new Money Purchase Annual Allowance (MPAA) of 10,000 will apply for future money purchase savings. The MPAA was introduced to ensure that individuals do not avoid tax on their current earnings by diverting their salary into their pension with tax relief, and then immediately withdrawing 25% tax free. Please note this is not triggered when just a Pension Commencement Lump Sum is paid. 17
In addition, the ability to Carry Forward unused allowances is lost once the MPAA rules are triggered. Further information on the Money Purchase Annual Allowance will be provided in your retirement pack. When funds are designated to drawdown, this will be tested against the Lifetime Allowance, even if income is not taken until a later date. Further information on the Lifetime Allowance is contained within Section 10. Please note that if you choose not to receive any of your Pension Commencement Lump Sum when you designate your funds to drawdown, you will not be able to receive any Pension Commencement Lump Sum from this particular designation of your fund at any time in the future. You do not need to take a minimum level of income from your drawdown fund. If you wish, you can take no income at all. You might choose to do this if you simply want to take your Pension Commencement Lump Sum as early as possible, but you do not need a regular income at the moment. If you elect to take a Pension Commencement Lump Sum you should be aware of the restrictions about recycling this sum by reinvesting it as a pension contribution to another scheme. Where recycling is deemed to occurred, it will be subject to penal tax charges. Further information about this is contained within Section 10. Death If you have remaining drawdown funds or funds that have not yet been taken on your death, your beneficiaries will have the option to receive a lump sum death benefit which will be tax free where you die before age 75. For deaths after age 75, a lump sum death benefit charge will apply and will be charged at the beneficiaries marginal tax rate. Alternatively, beneficiaries will have the option to transfer any remaining funds to either receive drawdown from the remaining fund, or to purchase an annuity. Income from either of these two options will be tax free if you die under 75 and other criteria set by HMRC are met. If you die after reaching age 75, or the 18
HMRC criteria are not met, then income tax will be payable at the beneficiaries marginal rate of tax. Further details can be obtained from the Scheme Administrator. Please note that your beneficiaries cannot elect to receive drawdown or an annuity within the CGMPS, and so would have to transfer to an alternative provider. In most cases, the Governance Committee will distribute the death benefit in accordance with the wishes you have expressed. As it is classed a discretionary benefit, in most cases this will allow the benefits to be paid tax free. You are reminded of the importance of completing an Expression of Wish form. In particular, it is vital to update this if you experience a change in circumstance, e.g. marriage, divorce or birth of a child or grandchild. Forms are available from the Scheme Administrator. Guidance The Governance Committee recommends that you consider taking Independent Financial Advice if you re considering this option. If you do not have a suitably qualified Independent Financial Advisor (IFA), you can find one in your area by looking on the Government s Money Advice website: www.moneyadviceservice.org.uk/en/ articles/choosing-a-financial-adviser In addition, the Governance Committee recommends that you review your fund on an annual basis to ensure that your income is sufficient, you are aware of the amount in your remaining pot and also the way you re invested remains appropriate. The Government has also set up a free and impartial service setting out the options available to members at: www.pensionwise.gov.uk. If you are aged over 50 you can book an appointment over the phone or face to face, although please note that Pensions Wise will not recommend any products or tell you what to do with your money. 19
Pension Scams If you are taking a cash lump sum from your pension to invest somewhere else, be aware that scammers may operate in these markets. You can find out more about how to identify scams here: www.pensionsadvisoryservice.org.uk/content/publications-files/ uploads/members_detailed_booklet_7_page.pdf Debt implications Taking cash withdrawals via drawdown can have implications for people with debt or who may be entitled to means-tested benefits. People who are concerned about this aspect can contact Pension Wise, the Citizens Advice Bureau or the Money Advice Service. Charges Member fees There are no explicit costs for taking drawdown, as this is covered by the member borne fee for each investment fund. If you make more than 4 changes per calendar year, an activity fee of 50 per transaction is levied. Financial Adviser fees There are also financial adviser fees to consider. Whilst this is not a requirement, the Governance Committee strongly recommends that you consider taking advice due to the complexity of the subject. If you would like to find an independent financial adviser (IFA) in your area please visit: www.moneyadviceservice.org.uk/en/articles/ choosing-a-financial-adviser Please note you may be charged for any advice provided, and neither Capita nor the Governance Committee can take any responsibility for the advice you receive or any action you take as a result of it. There are also investment manager fees to consider if you switch your funds. 20
Examples of Flexi-Access Drawdown Flexi-Access Drawdown; (no income, tax free cash only) This is where you put all (or part) of your fund into drawdown, so that you can take your Tax Free Cash Sum at the earliest opportunity this may even be before you retire from service with your employer. There is no minimum fund value required to take your Tax Free Cash Sum via drawdown and it can be taken from age 55. Whole fund into drawdown, no income and tax free cash* A member who has a fund at age 55 of 100,000 decides to take the maximum Tax Free Cash Sum of 25%, i.e. 25,000 and designate the remaining 75,000 to drawdown. The drawdown fund remains invested within the CGMPS according to their investment strategy until the member decides that they want to start making income withdrawals. It is important to note that the maximum Tax Free Cash Sum is calculated as 25% of the fund value at the date that the drawdown designation is made it cannot be recalculated at a later date if the remaining fund achieves positive investment returns. *Please note, these figures are for illustration purposes only 21
Flexi-Access Drawdown; (with an income, with and without tax free cash) This is where your fund remains invested within the CGMPS and you draw an income directly from the fund, without the immediate purchase of an annuity. Whole fund into drawdown, no income and tax free cash * A member who has a fund at retirement of 100,000 decides, after taking financial advice to designate their entire fund to drawdown and take an income of 6,500 p.a. whilst their drawdown fund remains invested within the CGMPS. Whole fund into drawdown, maximum tax free cash* A member who has a fund at retirement of 100,000 decides, after taking financial advice to take the maximum 25% tax free cash sum of 25,000 and designate the remaining fund to drawdown. The member chooses to draw an income of 4,500 p.a. whilst the balance of their drawdown fund remains invested within the CGMPS. *Please note, these figures are for illustration purposes only 22
Flexi-Access Drawdown; (partial designation only) This is where part of your fund is designated into drawdown, with a Tax Free Cash Sum taken with your remaining fund staying invested until a further decision is taken. Portion of fund is placed into drawdown with maximum tax free cash* A member has a fund of 50,000. At age 55 they decide to take 40% of their fund ( 20,000). The maximum Tax Free Cash Sum of 5,000 is taken and the remaining 15,000 is designated to drawdown. The member s drawdown fund of 15,000 remains invested according to their instructions until they choose what to do with it. Again, it is important to note that the maximum Tax Free Cash Sum is calculated as 25% of the fund value when it is put into drawdown it cannot be recalculated at a later date if the remaining fund achieves positive investment returns. The member s remaining personal account of 30,000 also remains invested according to their instructions, and therefore fluctuating with investment returns, until they choose to: Purchase an annuity with the total value of the personal account valued at the point the annuity is purchased; Take maximum Tax Free Cash Sum of 25% of the value of the personal account with the remaining 75% of the fund being used to purchase an annuity (the fund values being as at the point the annuity is purchased); Put the entire remaining personal account into drawdown, and take a maximum Tax Free Cash Sum of 25% as described above. Put part of the remaining personal account into drawdown. For example, in the period between age 55 and 65, if the personal account valued at 30,000 at age 55 has grown by 25% it will be valued at 37,500 by age 65. The member could choose to take a further 20,000 of their personal account taking a further Tax Free Cash Sum of 5,000 (25% of 20,000), leaving a second drawdown fund of 15,000 ( 20,000 less 5,000) and a remaining personal account of 17,500 ( 37,500 less 20,000). This would remain invested until the member chose to purchase an annuity or put the remaining funds into drawdown. Defer making a decision. 23
Portion of fund is placed into drawdown with maximum tax free cash* (continued) If, a year later the invested funds had not changed in value, and the member decided to put their remaining funds ( 37,500) into drawdown, whilst taking their maximum tax free cash sum of 9,375 ( 37,500), a further 28,125 ( 37,500 9,375) would be put into drawdown. In total, the member would have received three Pension Commencement Lump Sums, totaling 19,375 ( 5,000 + 5,000 + 9,375). Note that if the member had designated all their fund to drawdown at age 55, the maximum tax free cash that the member could have taken would have been 12,500. The member has benefitted from the investment returns in leaving their fund invested, and also received a higher tax free amount. However, the member would have been exposed to adverse investment returns which could have led to a lower amount of both tax free cash and total personal account. *Please note, these figures are for illustration purposes only investment return could be either positive or negative 24
5. Cash (Uncrystallised Funds Pension Lump Sums) Contents The Uncrystallised Funds Pension Lump Sum (UFPLS) option allows you to withdraw your personal account as a one-off lump sum or as a series of lump sums. 25% of the lump sum amount is payable tax free (note, this is not a Pension Commencement Lump Sum), with the remaining 75% taxed at your marginal rate of income tax. Before selecting the UFPLS option, you are advised to consider your own personal tax considerations and the impact of taking a taxable lump sum on the tax you pay including the possibility that you may have to pay a higher rate of tax than you normally would. If you are considering this option you should think about how much money you plan to take as a lump sum and how long your personal account money needs to last you. As this option is more complex than a traditional annuity purchase, the Governance Committee of the CGMPS strongly recommend that if you are considering UFPLS, you should consider taking independent financial advice. You are able to locate an Independent Financial Adviser (IFA) in your area by visiting: www.moneyadviceservice.org.uk/en/articles/choosing-afinancial-adviser The UFPLS option does not provide you with a guaranteed income in the way that an annuity does. If you choose this option any remaining funds not taken as an UFPLS would remain invested and therefore would still be subject to investment risk (such as adverse market conditions). Furthermore, as your income would come from your fund, this option has the risk that you may deplete the value of your fund over time and not have sufficient retirement income. 25
Further Considerations Single vs. multiple UFPLS You can elect to take your whole fund as a single UFPLS (although you should bear in mind the potential tax consequences of this). Alternatively you can take a part of your fund as an UFPLS, leaving your remaining funds invested and uncrystallised. These remaining funds can then be used for future UFPLS ( multiple UFPLS ), or you can select another option such as drawdown or annuity purchase. The amount of the UFPLS Please note that you are unable to request a specific monetary amount that you wish to be paid as an UFPLS and will instead need to specify a percentage. If you do request a specific monetary amount, the Scheme Administrator will calculate this as a proportion of your total pot, and then disinvest the equivalent percentage of units to pay at least the amount you have requested. In all likelihood, because of the unit pricing you will probably receive slightly more than your specified amount but this is not guaranteed. Maximum number of UFPLS payments in a calendar year The Governance Committee has restricted the number of UFPLS payments that you can take to 4 per year, after which an activity fee will be payable as detailed later on in this Section of the guide. Investment options for remaining funds if UFPLS is taken Please refer to the Investment Guide for further detailed information on your investment options, investment strategy, risk profile and individual manager information, benchmarks, targets and charges. This booklet is available from the Scheme Administrator. 26
Lifestyle Options The UFPLS option gives you the opportunity to take as much of your personal account as cash as you like, and therefore may influence your investment choices. This is particularly relevant to the Lifestyle Option, as you may not wish to be fully invested in growth seeking assets (like equities) as you approach your target retirement age. If you are considering taking an UFPLS you should check whether you are in the most appropriate strategy relative to the option that you are targeting at retirement. Because of this, the Governance Committee has created a Lifestyle Option, the Cash Lifestyle Option, which invests in growth-seeking assets as you approach your target retirement age, until one year prior to retirement when the entire fund is invested in Cash. This makes it very easy to disinvest and is unlikely to see any volatility as retirement approaches, which would be hard to make up. Please note the default fund is the Annuity Lifestyle Strategy. If you are interested in the Cash Lifestyle Strategy you will need to make a positive election to enter into it. Self Select Options Alternatively, if you are self selecting your own investment choices, then you should consider if these are appropriate in relation to the period of time to your retirement when you will take the UFPLS. In particular, if you are currently invested in the UK Direct Property Fund you may wish to switch any funds to an alternative investment if you want to opt for multiple UFPLS. Unless you switch these investments into an alternative fund(s) beforehand, these will be disregarded for multiple UFPLS. This is because these funds are incompatible with multiple UFPLS, due to the infrequency of the investment dealing dates for this type of fund. You should consider consulting an independent financial adviser regarding the suitability of your current selected investment choices for UFPLS payments. 27
Disinvestment process Each payment will be taken in equal proportions from all the funds held by you when instructed to do so. You may change your investment options at any time. Interaction with Benefit Statements and Statutory Money Purchase Illustrations As a member of the CGMPS, you currently receive an Annual Benefit Statement, along with a Statutory Money Purchase Illustration (SMPI) which details the level of benefits you could expect to receive, based on certain assumptions about investment returns, salary rises etc. If part of your fund is paid as an UFPLS and part remains within the CGMPS, you will receive a benefit statement with a SMPI based on the value of your personal account remaining in the Scheme. If the whole of your fund is paid as an UFPLS, you will no longer have any benefits within the CGMPS and therefore you will no longer receive a SMPI projection or Annual Benefit Statement. Debt implications Taking cash withdrawals as an UFPLS can have implications for people with debt or who may be entitled to means-tested benefits. People who are concerned about this aspect can contact Pension Wise, the Citizens Advice Bureau or the Money Advice Service. Tax An UFPLS will be taxed once in payment at your marginal rate of income tax. You should be aware any UFPLS will be added to any other income you receive during the tax year and may lead to a higher rate of tax being paid than expected. Unlike with an annuity and drawdown, there is no tax free Pension Commencement Lump Sum payable for UFPLS. However 25% of each UFPLS is payable tax free. Therefore, only a portion of the total tax free cash is paid at any one time, which if investment returns are positive could lead to a higher tax free sum at a later date. This could suit you if do not need all the Pension Commencement Lump Sum up front. Please note this is not guaranteed. 28
Until a tax code is received from HMRC, the taxable element of the UFPLS will be taxed using the Emergency Code on a week 1 / month 1 basis. Any overpayment of tax can later be reclaimed from HMRC. Where funds are taken as either a single or multiple UFPLS, then a new Money Purchase Annual Allowance (MPAA) of 10,000 will apply to future money purchase savings. The MPAA was introduced to ensure that individuals do not avoid tax on their current earnings by diverting their salary into their pension with tax relief, and then immediately withdrawing 25% tax free. In addition, the ability to Carry Forward unused allowances is lost once the MPAA rules are triggered. Further information on the Money Purchase Annual Allowance will be provided in your retirement pack. When funds are taken as UFPLS, this will be tested against the Lifetime Allowance. For an UFPLS to be paid, you must have some Lifetime Allowance remaining. Further information on the Lifetime Allowance is contained within Section 10. Death If you have remaining uncrystallised funds that have not yet been taken on your death, your beneficiaries will have the option to receive a lump sum death benefit which will be tax free where you die before age 75. For deaths after age 75, a lump sum death benefit charge will apply and will be charged at the beneficiaries marginal tax rate. Alternatively, beneficiaries will have the option to transfer any remaining funds to either receive income from the remaining fund, or to purchase an annuity. Income from either of these two options will be tax free if you die under 75 and other criteria set by HMRC are met. If you die after reaching age 75, or the HMRC criteria are not met, then income tax will be payable at the beneficiaries marginal rate of tax. Further details can be obtained from the Scheme Administrator. Please note that your beneficiaries cannot elect to receive drawdown or an annuity within the CGMPS, and so would have to transfer to an alternative provider. 29
In most cases, the Governance Committee will distribute the death benefit in accordance with your wishes you have expressed. As it is classed a discretionary benefit, in most cases this will allow the benefits to be paid tax free. You are reminded of the importance of completing an Expression of Wish form. In particular, it is vital to update this if you experience a change in circumstance, e.g. marriage, divorce or birth of a child or grandchild. Forms are available from the Scheme Administrator. Guidance The Governance Committee recommends that you consider taking Independent Financial Advice if you re considering this option. If you do not have a suitably qualified Independent Financial Advisor (IFA), you can find one in your area by looking on the Government s Money Advice website: www.moneyadviceservice.org.uk/en/articles/choosing-afinancial-adviser In addition, the Governance Committee recommends that you review your fund on an annual basis to ensure that you are aware of the amount in your remaining pot and also that how you re invested remains appropriate. The Government has also set up a free and impartial service setting out the options available to members at: www.pensionwise.gov.uk. If you are aged over 50 you can book an appointment over the phone or face to face, although please note that Pensions Wise will not recommend any products or tell you what to do with your money. Pension Scams If you are taking a cash lump sum from your pension to invest somewhere else, be aware that scammers may operate in these markets. You can find out more about how to identify scams here: www.pensionsadvisoryservice.org.uk/content/ publications-files/uploads/members_detailed_booklet_7_page. pdf 30
Charges Member fees There are no explicit costs for taking UFPLS payments, as this is covered by the member borne fee for each investment fund. If you take more than 4 payments per calendar year, an activity fee of 50 per transaction is levied. Financial Adviser fees There are also financial adviser fees to consider. Whilst this is not a requirement, the Governance Committee strongly recommends that you consider taking advice due to the complexity of the subject. If you would like to find an independent financial adviser (IFA) in your area please visit: www.moneyadviceservice.org.uk/en/articles/choosing-afinancial-adviser Please note, you may be charged for any advice provided, and neither Capita nor the Governance Committee can take any responsibility for the advice you receive or any action you take as a result of it. There are also investment manager fees to consider if you switch your funds. 31
Examples of Single vs. Multiple UFPLS Single UFPLS* A member who receives an income of 70,000 and a fund at retirement of 120,000 decides to take their entire fund as a single UFPLS. The member can receive 30,000 tax free (25% of 120,000) and the remaining 75% ( 90,000) will be taxed at their marginal rate of tax. As a result of the payment of the UFPLS, for 2016/17, the member s total income would be 160,000. This is in excess of the additional rate threshold for 2016/17 meaning that the member would be an additional rate threshold payer. Multiple UFPLS* If the same member in the example above had elected to only take 100,000 as a UFPLS (leaving 20,000 uncrystallised), they would have received 25,000 tax free, with the remaining 75% ( 75,000) taxed at their marginal rate of tax. As a result of the payment of the UFPLS, for 2016/17, the member s total income would have been 145,000, which is lower than the additional rate threshold of 150,000 meaning that the member would not be an additional rate payer for 2016/17. The member could then take the remaining funds as a second UFPLS in a subsequent tax year (e.g. 2016/17). 75% of the amount of the remaining funds would count as taxable income for the tax year in which the UFPLS is taken. * Please note, these figures are for illustration purposes only - investments could be either positive or negative. Tax rates are as at 2016/17 and are illustrative only 32