YOUR GUIDE TO RETIREMENT

YOUR GUIDE TO

RETIREMENT

CONTENTS Page

Purpose of this guide 3

Your pension options - Buying your pension income (annuity) from us 4

Your pension options - Buying your pension income 5

(annuity) from another company

Why might you go elsewhere 5

Tax free lump sum 6

A pension for you or a pension for you and your dependant(s) 6

Pension income increases 7

Guarantee periods 7

How often will I be paid and when? 7

Tax 8

Different quotes available to you 8

Taking your pension as a taxable lump sum 8

Check whether you are eligible for a taxable lump sum 8

Benefits not exceeding £2,000 8

Transferring your fund to another pension provider 9

Taking your pension at a later date 9

Lifetime allowance 10

‘Recycling’ your tax free lump sum 10

Other considerations 11

Guaranteed annuity rates 11

Market Value Reduction 11

Glossary of terms 12

Purpose of this guide

This guide has been designed to provide you with the right amount of information in respect of your retirement.

As you approach retirement, you have to make some important financial decisions that will affect the rest of your life. We want to make sure you have all the information you need to help you make a decision and strongly advise you read this guide to help assess the options available to you.

We recommend that you speak to your financial adviser.

This guide is not intended as a substitute for legal and / or taxation advice. You should always speak to your financial adviser for advice on your pension. This guide is based on our understanding and interpretation of current law and HM Revenue & Customs (HMRC) practice. You should bear in mind that the Government can alter or withdraw tax benefits at any time and they depend on individual circumstances. Any change could affect the amount of benefits you receive.

We are here to help

If you have any questions about the pack you have received please call us on the number at the top of the accompanying letter. On calling, please quote the plan number, which can also be found in the letter.

You can also write to us quoting your plan number using the address at the top of the accompanying letter.

Money Advice Service

We would also recommend that you look at the guide ‘Your pension it is time to choose’ which is offered to consumers by the Money Advice Service.

The free booklet provides you with helpful information on the options available to you. It can be

obtained from their website, www.moneyadviceservices.org.uk or by calling them on 0300 500 5000.

Your pension options – Buying your pension income (annuity) from us

There are a number of options that may be available to you now that you are taking your retirement benefits. We have explained these below.

If you would like to buy your pension from us, you can only do so by buying a lifetime annuity. This provides a pension income that will be payable to you for the rest of your life.

The lifetime annuities that we offer may give you benefits that suit your individual circumstances.

You can choose to:

• take a tax free lump sum of any amount, normally up to a maximum of 25% of your plan value and will be paid when the pension income starts;

• provide a dependant’s pension after your death;

• have a pension that increases each year;

• have a minimum period your pension is guaranteed to be paid for; and

• have your pension paid at regular intervals that suit you.

The amount of pension income you may receive will vary depending on the benefits you choose.

For example, buying a pension that increases each year will mean that your starting level of pension income will be lower than if you have a pension income that does not increase.

The cost of providing a spouse or dependant’s pension will vary depending on the age of your spouse or dependant. The younger your spouse or dependant, the lower the pension income you will receive if you choose to provide a pension for them.

Buying a pension income from us is not your only option. Please read the other options before making your decision, as they may be more suitable for your individual needs.

If you do buy a pension income from us, you will have 30 days following the return of the forms in

which to change your mind. After this 30 day period, you will not be able to cancel your pension

income from us.

Your pension options - Buying your pension income (annuity) from another company

You don’t have to buy your pension from us. You can shop around and buy a pension from another company. This is known as the ‘Open Market Option’. The best pension for you depends on your individual circumstances. You may get a higher income with some companies than with others and other companies may provide different types of benefits.

Why might you go elsewhere?

You may get a bigger pension income from another company for the same fund value.

There are different types of products now on the market such as;

• index linked annuities;

• investment linked annuities; and

• enhanced and impaired life annuities which may provide a higher level of income if you are a smoker, or have a history of illness.

We do not offer these types of products.

As we do not offer all types of retirement options and benefits, transferring to another pension provider may offer these alternatives, which may be more suitable for your individual needs. For more information on these types of products, you should contact a financial adviser.

The easiest way to shop around is to go to a financial adviser who should be able to look at all the different pensions on offer and decide whether alternative retirement options are more suitable for you.

Please remember that if you buy a pension from another company and guaranteed annuity rates

apply to your pension, you will lose them. If you are unsure whether or not guaranteed annuity rates

do apply to your pension, please contact us.

Tax free lump sum

You can choose whether you would like to use the whole value of your plan to buy a pension or you can usually take part of your pension fund as a tax free lump sum. The remainder of your fund will then be used to buy a pension. The bigger the tax free lump sum you choose, the lower your pension income will be.

The maximum amount you can take is normally 25% of your whole pension fund. However, if you were a member of an occupational pension scheme before 6 April 2006, you may be entitled to a higher amount.

If you choose to take any tax free cash, and use this to significantly increase the payments you make to any of your pension plans, you may be subject to a tax charge. Further details are given in the

‘Recycling your tax free lump sum’ section of this guide.

If you reached age 75 before 22 June 2010, you may no longer be entitled to receive any of your pension fund tax free.

Tax treatment depends on individual circumstances and may change in the future. If you have any queries, please consult a financial adviser.

A pension for you or a pension for you and your dependant(s)

A pension for you will provide a regular income throughout your lifetime. It will not provide an income for anyone else and will stop when you die, unless you select a dependant’s pension and / or a guarantee period (see ‘Guarantee periods’ section below).

If you choose a pension for you and your dependant, it will provide a regular income throughout your lifetime. If, on your death, your dependant is still alive they can receive a regular income. You can choose the level of income your dependant will receive on your death, which is usually a proportion of your pension.

Typical levels chosen are:

• half of your pension;

• two-thirds of your pension; and

• the full level of your pension.

The higher the proportion of dependant’s pension you choose, the lower your initial income will be.

If you choose to have both a dependant‘s pension and a guarantee period you can also choose whether you want to have the dependant’s pension paid with or without ‘overlap’.

With ‘overlap’ means that the dependant’s pension will be paid immediately following your death.

Your pension will also continue until the end of the guarantee period and will be paid to your beneficiary or estate.

Without ‘overlap’ means that the dependant’s pension will only be paid after the end of the guarantee

period. Your pension will continue until the end of the guarantee period and will be paid to your

beneficiary or estate.

Pension income increases

You can have the option of choosing a pension which remains the same throughout your lifetime or one that increases (escalates) each year.

The options you could choose may include a pension that:

• does not increase over time (known as a level pension);

• increases by a fixed percentage each year (for example 3% each year); and

• increases in line with inflation up to a maximum of 5% each year.

The higher the rate of increase you choose, the lower your initial pension will be.

If you do not choose to have a pension which increases, the amount of pension income you receive will remain the same throughout your lifetime and the buying power of your pension income will reduce due to inflation.

Guarantee periods

Your pension will be paid throughout your lifetime. When you die it will normally stop unless you choose a guarantee period and / or a dependant’s pension (see ‘A pension for you or a pension for you and your dependant(s)’ section above).

So for example, if you choose a guarantee period of five years and you die after three years, your pension will continue to be paid to your beneficiary or your estate for a further two years.

If you live past the end of the guarantee period, your pension will continue for the remainder of your life. The pension income will then stop on your death unless you choose to provide a dependant’s pension.

You will receive a little less income if you choose a pension with a guarantee period rather than one with no such guarantee.

The maximum guarantee you can choose is 10 years.

How often will I be paid and when?

You can usually choose to receive your pension to be paid in equal instalments, either:

• every month;

• every three months;

• every six months; or

• yearly.

The option you can choose may depend on the amount of pension income you buy. For example, if the amount of pension income you buy is below a certain level, your pension income may be paid to you only in equal yearly instalments.

You can also choose to receive your pension ‘in advance’ or ‘in arrears’.

You will receive slightly less income if you choose to have your income paid in advance rather than in

arrears.

Tax

The income you receive from your pension is taxable as earned income. This means you may have to pay standard or higher rate tax on the pension income you receive. In addition, your pension income may affect any tax allowances and credits you are entitled to.

Tax treatment depends on individual circumstances and may change in the future. If you have any queries, please consult a tax adviser.

Different quotes available to you

If you believe you need any different quotes to help you decide on the best pension for you, please contact us using the details at the top of our letter.

Taking your pension as a taxable lump sum

Since 2006, if your total pension benefits are below a minimum level, instead of choosing an income, you can choose to take all of your benefits as a taxable lump sum. In the pensions industry, this is known as a ‘trivial commutation lump sum’.

If you choose to take a taxable lump sum, normally the first 25% of the lump sum is tax free and the remainder will be subject to income tax.

For you to be able to take a taxable lump sum:

• you must be at least 60 years of age;

• the total value of your benefits from all registered pension schemes, as at a specific date, known as the nominated date, must not be more than £18,000; and

• if you have already taken a taxable lump sum at any time after 5 April 2006, you must take any further taxable lump sums within 12 months following the first ‘trivial commutation lump sum’

payment. This includes plans with us and any other pension providers.

Your nominated date may be different from the taxable lump sum payment date but cannot be more than three months before the date the first lump sum payment is made.

Benefits from any premiums paid into your pension after the nominated date cannot be taken as a taxable lump sum.

Check whether you are eligible for a taxable lump sum

You need to be aware that there may be financial penalties if you claim the taxable lump sum when you are not eligible to claim it.

The enclosed forms to take your pension as a taxable lump sum provide information for you to check whether you are able to take your benefits as a lump sum rather than a pension income. If you are not sure whether you are eligible, we recommend that you seek further advice from a financial adviser.

Benefits not exceeding £2,000?

If you are at least 60 years of age, you may be able to receive all your benefits as a taxable lump sum.

If you want further details about this option please contact us.

In addition, where you are entitled to a tax free lump sum of more than 25% under your Occupational

pension scheme and the value of your remaining benefits does not exceed £2,000, you may be able to

choose to have the remaining money paid to you as a taxable lump sum.

Transferring your fund to another pension provider

Instead of buying a pension from us or another company, the transfer value of your fund can be transferred to another pension provider. After transferring to another pension provider, you do not have to take your pension income straight away. You can choose to allow your fund to remain invested with your new pension provider.

Included in the things you should consider when deciding whether to transfer your pension to another provider are:

• you may not have to take all your pension in one go with other pension providers. For example you could take some income now from your pension whilst leaving the remainder of your pension to remain invested to provide further income at a later date(s);

• if you can meet certain income requirements, you may be able to take all of your pension fund as a taxable lump sum;

• investment funds available vary between pension providers and products; and

• charges vary between pension providers and pension products.

Taking your pension at a later date

If you are not ready to take your pension yet, there are a number of other factors that you should be aware of.

• Your pension fund may remain invested and, therefore, the fund value that you use to buy a pension income when you retire may be higher or lower than the current fund value.

• On your 75th birthday, normally, any remaining funds will be switched to a cash fund basis if they haven’t already.

• The amount of pension income that you can buy with a given level of fund changes depending on investment market conditions. The rate at which you can buy your pension income will change depending on your age.

• Any guaranteed annuity rates (GAR) may only apply if you retire at certain ages. If you are unsure whether or not GARs do apply to your pension, please contact us.

• A Market Value Reduction will usually not apply on your selected retirement date but may apply if you retire at other dates. If you are unsure whether or not a Market Value Reduction does apply to your pension, please contact us.

• All lump sum death benefits paid on or after your 75th birthday will be subject to a 55% tax charge.

• If your death benefits are used to buy a pension for your spouse, civil partner or dependant the tax charge will not apply.

• The earliest age that you will normally be able to take your pension is 55.

These are very important issues and we strongly recommend that you seek financial advice.

Lifetime allowance

The Government places a limit on the total value of all pension benefits you can take in your lifetime without having to pay an additional tax charge. This limit is known as the lifetime allowance. Any benefits taken above this limit may be subject to these additional tax charges. The current standard lifetime allowance is £1,500,000.

You may, however, be entitled to take benefits worth more than the standard lifetime allowance, without penalty. This will apply if you have been given a lifetime allowance enhancement certificate by HMRC.

It is your responsibility to confirm that your pension benefits are within the lifetime allowance.

There may be severe financial penalties if you fraudulently or negligently provide incorrect information.

If you think you may exceed the lifetime allowance, or would like further information on the lifetime allowance we recommend you seek financial advice.

‘Recycling’ your tax free lump sum

If you take a tax free lump sum from your plan and as a result you significantly increase your premiums to any of your pension plans - this is known as ‘recycling’. This will have serious tax consequences which could mean that your lump sum becomes subject to a tax charge.

HMRC will treat this as recycling and apply a tax charge if:

• you take a tax free lump sum and because of that you significantly increase premiums to any registered pension schemes;

• the additional premiums are either paid by you, or someone else, such as your employer, on your behalf;

• the total amount of this tax free lump sum plus all other tax free lump sums paid out in the last 12 months is more than 1% of the lifetime allowance; and

• the total additional premiums made are more than 30% of your tax free lump sum.

If you recycle all or part of your tax free lump sum in this way you must let us know within 30 days of

doing so. If you are a member of a pension scheme you must let the scheme trustees know.

Other considerations

Guaranteed annuity rates

If you are unsure whether or not guaranteed annuity rates apply to your pension, please contact us.

The amount of money you will receive as income depends on the ‘annuity rate’ when you buy an income from your pension fund. These annuity rates vary due to investment market conditions and can go down as well as up.

Some plans have guaranteed annuity rates. Guaranteed annuity rates remove some of the

uncertainty of the level of income you will receive when you take your pension income. They provide a level which your annuity rate will not fall below.

In many circumstances, this will mean you will get a higher pension than would be the case if your plan did not offer guaranteed annuity rates.

If applicable to your plan, guaranteed annuity rates will apply on your selected retirement but may not apply at other times. If you are retiring at your selected retirement date, you will need to consider whether guaranteed annuity rates mean you are better off taking your benefits with us rather than buying a pension from another company.

If you are considering taking benefits at any other time, you will need to consider if your plan provides a guaranteed annuity rate at that time. If you are unsure about which dates, if any, your plan provides a guaranteed annuity rate, please contact us. Alternatively, please refer to your plan conditions.

Market Value Reduction

Market value reductions (MVR) mainly apply to plans which invest in the unitised with profits (UWP) fund. An MVR may apply to certain other funds, if you are unsure whether your plan is affected by the MVR, please contact us.

The purpose of an MVR is to ensure that, where a plan is cashed in or switched out of the UWP fund, the plan’s value is not unfairly higher than the plan’s share of the underlying value of the fund’s assets. This protects the interests of the plan holders that remain invested in the UWP fund.

The MVR is set so that the cash in or switch value of the units reflects the actual returns achieved by the fund, after tax, charges and other profits or losses. This ensures that plan holders receive a fair value for their units. When we apply an MVR, the value of the units you would receive when you cash in or switch out of the UWP fund, is less than the face value of those units.

We guarantee not to apply an MVR for claims made at your selected retirement date, or on earlier

death. Some of our plans allow this guarantee to apply at other dates close to retirement. If you

change your selected retirement date, these guarantees may no longer apply. Please contact us if

you want further details of how this affects your plan.

Glossary of terms

Annuity / Lifetime annuity

Cash in

Civil partner

Commutation

Contracted out

Data Protection Act 1998

Defined benefit

Dependant

Enhanced protection

Escalation

Estate

Financial Services Authority (FSA)

Former Protected Rights (also known as Ex Protected Rights)

Fund value Gross income GMP

An annuity is a type of plan that pays you a regular income for the rest of your life.

To take your benefits earlier than the selected retirement date, either by transferring your benefits to another pension provider or buying a pension income.

Someone who has entered into a formal arrangement (known as a

‘civil partnership’) with a same sex partner, in accordance with the Civil Partnership Act 2004.

This is when you exchange part of your pension income for a tax free lump sum.

See ‘Former Protected Rights’.

An Act of Parliament that sets out the rules that an organisation has to follow when they store or use personal information about people. This Act also gives a person certain rights to see information about them.

A type of pension income that is calculated on your salary and length of service or any other factor other than a fund value.

An individual who is financially dependant on the person receiving the pension income. This includes spouse, civil partner or children.

Protection from a potential lifetime allowance charge was available for individuals with pension rights at 5 April 2006 valued at more than £1.5million.

A regular increase to pension income payments (normally yearly), either by a fixed amount, such as 3%, or linked to inflation.

The property, including financial property, of the deceased.

The body that regulates the financial services industry in the UK.

Benefits that have built up in a money purchase pension scheme from contributions paid by the Government. From 6 April 2012, protected rights cease to exist and become subject to the same rules as Personal Rights.

The pot of money available when you take your retirement benefits.

Income before tax.

Guaranteed Minimum Pension benefit resulting from membership

of a contracted out Defined Benefit/Final Salary scheme between 6

April 1978 and 5 April 1997

Guarantee period

Guaranteed annuity rate / Guaranteed annuity option

Her Majesty’s Revenue &

Customs (HMRC)

Independent Financial Adviser (IFA)

Inflation

Level pension Lifetime allowance Lifetime annuity/annuity

Market Value Reduction (MVR)

Net income Nominated date

Personal Rights (also known as Non Protected, Ordinary, Excess or Additional Rights)

Open market option

Pensions regulator Quote

Registered pension scheme

Scheme rules

The period during which the pension income will be paid even if you die.

The guaranteed terms under which a fund value can be exchanged for an income.

The Government department responsible for tax formed from the merger of Inland Revenue and HM Customs and excise departments.

The only type of financial adviser that can choose from all the products available on the market.

A measure of the increasing cost of living, which is sometimes used to escalate pension income.

A pension income which does not increase over time.

See the ‘Lifetime allowance’ section of this guide.

An annuity is a type of plan that pays you a regular income for the rest of your life.

See the ‘Market Value Reduction’ section of this guide.

Income after deductions (such as tax).

The date chosen by you for calculating the total value of your pension benefits for comparison with the triviality limits.

The benefits that are built up from the contributions paid by either you or your employer.

The option to buy your regular pension income from another company.

A UK regulator, set up under the Pensions Act 2004.

The estimate of the amount of pension income that you may be able to receive on your retirement date.

A pension scheme which is approved by HM Revenue & Customs and is entitled to tax privileges.

The rules which define how the pension benefits will be paid.

Tax free lump sum

Transfer value

Triviality

An amount of cash you can take from your pension fund on retirement, usually up to 25% of the pension fund value.

The amount that can be transferred to another pension plan or pension scheme.

The term used when a pension fund is less than a certain amount

and can be paid as a lump sum known as a ‘trivial commutation

lump sum’.