NEWS

Retirement flexibility

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Your Pension. Your Choice

 

Your retirement savings are exactly that, yours, and from April 2015 you will have the freedom to take your savings in a way that suits you.

What this means for you will depend on whether you have savings in the Defined Contribution (DC) Section of the Plan or the Final Salary Section or both. To understand the impact on your Final Salary Pension click here.

DC Section Members

Currently, when you retire from the Plan:

  • You have the option to take 25% as a tax-free cash lump sum
  • You can buy a regular income known as an annuity with the rest of your retirement savings.

From April 2015 the rules on retirement are changing. You will still have the option of taking 25% tax-free cash lump sum, but you will no longer have to buy an annuity with the rest of your savings. Instead you will be able to choose to:

Or you can do a combination of the above.

For example, if you had £40,000 of retirement savings, you may choose to take:

  • £10,000 as a tax-free cash lump sum
  • Buy an annuity with £10,000
  • Drawdown the remaining £20,000 as and when you need.

Your New DC retirement options

There are some important things to consider when deciding what to do with your retirement savings. You're likely to have many years to enjoy in retirement, therefore it's important to plan how much you need, make your savings last and don't pay more tax than you need to.

Let's take a closer look at each of the options:

 

Cash

  • You can take all your DC savings from the plan as cash in one go, to do with what you please.
  • It's important to plan how much you'll need in retirement. It may be tempting to spend all your savings in the first few years but this could mean in the later years you have to rely on the State Pension alone, which may not be enough to meet your needs.
  • If you choose to withdraw your DC savings from the Plan as cash and you don't need to spend all of your savings straight away, it's important to consider what you are going to do with them and the impact inflation will have. If your savings don't at least keep up with inflation they will be worth less and less over time.
  • 25% will be tax free and you will pay income tax on the rest at your marginal rate. If you take all your savings in one go this could mean you pay more tax than if you took it more slowly.

 

Example

Sally has £40,000 of DC savings. For ease, let's assume she has no other income (including State or personal income) and that her marginal rate of tax is 20%.

If Sally takes all her pension in one go...

...She will pay £3,880 tax and receive £36,120 in total.

It's important to be tax smart. Sally may have been better off taking her DC savings more slowly if she could afford to.

In reality, you are likely to receive a State pension and may have other income which will affect your tax position. If you choose to take your pension whilst you are still working, this is likely to increase your tax bill.

If Sally also received £7,000 of other income each year, she would pay £5,280 of tax in Year 1.

To find out more about your State pension go to https://www.gov.uk/state-pension-statement.

 

Income for life

  • You can buy a regular income for life from an annuity provider. This means you know how much you'll get and when and it will be paid until you die.
  • Different providers will offer you a different level of income. It's important to shop around to ensure you get the best deal.
  • If you have certain health or lifestyle conditions, you could be eligible for an enhanced or impaired life annuity which may provide a higher income.
  • The amount you get each year is agreed at the start so it won't run out if you live a long time.
  • You can tailor the annuity you buy, to you. For example you can buy an annuity where the annual payment increases with inflation, or one that pays the same amount each year. You can buy an annuity that continues paying to your spouse if you die or one that doesn't.
  • You can take up to 25% as a tax free cash lump sum when you retire.
  • Each payment from the annuity is subject to income tax at your marginal rate.
  • If you buy an annuity it's irreversible, you can't change your mind later.

 

 

A bit at a time

  • This option is often called drawdown this is because you draw down your retirement savings a bit at a time. It's a bit like a bank account except that your savings are invested until you take them.
  • Under this option you will first need to transfer your DC savings out of the Plan to a retirement provider. Different providers will charge different fees and will offer different investment options. It's important to consider what different providers will offer you to ensure you get the best deal.
  • You can vary the amount you take and when, or you can take the same amount each time. It's up to you.
  • It's important to plan how much you'll need in retirement. It may be tempting to spend all your savings in the first few years but this could mean in the later years you have to rely on the State Pension alone, which may not be enough to meet your needs.
  • Your savings are invested, therefore they can go down as well as up. There is a risk that returns are poor and your savings don't last as long as you thought they would.
  • This option allows you to keep your options open; you can adapt if your circumstances change. For example, you could later buy an annuity with any remaining savings, or cash out.
  • You have the option to take up to 25% as a tax free cash lump sum when you retire, further withdrawals will be subject to income tax at your marginal rate.
  • Using this option, you could take your DC savings as cash over a period of time and possibly reduce your tax bill.

 

Example

Sally has £40,000 of retirement savings. For ease, let's assume she has no other income (including State or personal income) and that her marginal rate of tax is 20%.

If Sally takes a bit each year...

...She will pay no tax and receive £40,000 in total. This is because the amount she takes each year is less than the current personal tax-free allowance which is £10,600 for 2015/16.

In reality, you are likely to receive a State pension and may have other income which will affect your tax position. If you choose to take your pension whilst you are still working, this is likely to increase your tax bill.

If Sally also received £7,000 of other income each year, she will pay £780 each year in tax.

To find out more about your State pension go to https://www.gov.uk/state-pension-statement.

How is the Plan changing?

The Trustee is working with Telefonica and its advisers to consider the impact of these new flexibilities and how the Plan should evolve.  More information will become available over the coming weeks.

Investment options

We will be updating the Lifestyle options to reflect the new flexibility. We'll let you know more information on this soon.

Benefit flexibility

Members of the DC Section of the Plan will have the option to:

  • Take 25% of retirement savings as a tax-free lump sum
  • Cash out of their retirement savings in one go
  • Purchase an annuity to provide a guaranteed income for life
  • Pass their DC savings to a retirement provider who will invest their retirement savings and allow them to take money as and when they need it

Members can choose to do one or a combination of these options.

Final Salary members

Final Salary members are provided with a defined income from the Plan. This will not be affected by the new flexibility.

If you would like to access the new DC flexibilities, you will need to transfer your Final Salary benefits out of the Final Salary Section. If you choose to transfer you are giving up the right to a defined pension from the Plan.  This is a significant decision which you should consider carefully and take independent financial advice before doing so.

You can find an independent adviser by going to www.unbiased.co.uk. You will need to agree any costs for this service.

Where do I get more information?

We realise this will be a big decision for you therefore we want to give you all the information and support you need.

Guidance

From April 2015 the Government are making available to anyone with DC retirement savings a free and impartial service to help you understand what your choices are and how they work at retirement.  See https://www.gov.uk/pensionwise for more information.

Website

We are working hard to update this Website so that it contains all the information you need.

Other resources

In the meantime if you want to read more go to https://www.gov.uk/government/news/budget-2014-support-for-savers-announced

Before you make any decision we strongly recommend you consider taking professional advice. You can find an independent adviser by going to www.unbiased.co.uk.

The Pensions Advisory Service (TPAS) is an independent, non-profit organisation that provides free information, advice and guidance on pensions. It can also deal with potential complaints from members regarding their scheme.

The Pensions Advisory Service
11 Belgrave Road
London
SW1V 1RB

Telephone: 0845 601 2923

Website: www.pensionsadvisoryservice.org.uk

Pension scams are on the increase in the UK. Check the facts before you make an irreversible decision.  Have a look at the guidance from the Pensions Regulator on its website if you need more information www.thepensionsregulator.gov.uk/pension-scams.aspx.

The Financial Conduct Authority also has details on its website www.fca.org.uk/consumers as to how to avoid being scammed and how to check whether your adviser is authorised.