The Government has introduced significant changes that give members of Defined Contribution pension arrangements more choice in the future, and there may therefore be changes to your pension savings that you wish to make straight away to set yourself up to take advantage of this freedom. So itâs worth reviewing this information now, even if you are not planning to retire for several years or more. Further information on how this may affect you is available in the guide âItâs your money: itâs your choiceâ. This guide can be accessed in the âFurther Informationâ section of this site and provides you with three steps to help you decide what to do at retirement:
Step 1 â Find out more about your options at retirement
Step 2 â Find out whether any of the options will be available from your scheme, and
Step 3 â Take advice and find out more.
Throughout this site, we talk about defined contribution (DC) schemes (also known as âmoney purchaseâ schemes) and defined benefit (DB) schemes (which include âfinal salaryâ schemes).
In a DC scheme, you and your employer pay into your pension scheme and the amount your fund is worth at retirement depends on the level of contributions and how your chosen investments have performed.
In a DB scheme, you pay a fixed amount each year but the pension you receive at retirement is worked out as a proportion of your earnings (depending on the number of years you have been in the scheme).
This site looks in detail at the choices for members with DC pension savings. We have, however, also referenced DB benefits in places. If you require further information on the choices open to you as a result of being a DB member, then we recommend you consult an independent financial adviser.
Individuals with DC pension savings could, from age 55, generally take up to 25% of their fund as a tax-free cash sum. Then, there were three options to access the balance:
The option used by the vast majority of people was to buy an annuity. This is a form of insurance that provides a guaranteed monthly income that lasts until death. A 65-year-old with a Â£100,000 pension fund can obtain around Â£5,400 a year from an annuity today, unless he or she suffers from medical conditions which increase the yearly payout.
If you had no more than Â£18,000 in total pension savings, the entire lump sum could be taken as cash (this is called âtrivial commutationâ).
If you had Â£2,000 or less in pension savings in any pension scheme, you could take these very small pension pots as cash lump sums.
If those pots were from personal pensions, a maximum of two small lump sums could be taken.
You also had the option to leave the pension invested and take a gradual income out of your fund. This is called âincome drawdownâ.
Unless you could show Â£20,000 a year of guaranteed pension income from other sources (for example, the State pension, final salary pensions or another annuity), there was a limit on the amount you could withdraw each year. This was called "capped drawdown".
Individuals with at least Â£20,000 a year of income from other pension sources could make unlimited withdrawals. This was called "flexible drawdown".
Note: The Â£20,000 income requirement was reduced to Â£12,000 from 27 March 2014 as an interim measure, before the more significant changes that were introduced from 6 April 2015.
The income from any of these three options was generally taxed as income. The income tax that you paid depended on your total income in each tax year. The higher your income, the greater the amount of income tax you paid.
These options applied to DC pension savings only.
The Government decided that the limited options for taking DC pension benefits may not suit everyoneâs circumstances â hence the changes announced in the 2014 Budget which came into force from April 2015.
The changes give people with DC pension savings significantly more choice at retirement. If you have DB pension savings, the changes also affect you if you have DC additional voluntary contributions (AVCs) in the same pension scheme or have pension savings in another DC scheme, such as a personal or stakeholder pension. If you only have savings in a DB scheme, you will only have these options if you transfer to a DC scheme to take advantage of them. A transfer of DB benefits may not be in your best interests.
337-299-8622 to see the current choices at retirement.
Some further proposed changes were announced in the 2015 Budget which primarily affect higher earners. These are expected to come into force from April 2016.
This section talks about the changes in general terms. Every pension scheme is different and the way in which the rules are applied in each specific pension scheme may be different. If you have any questions such as how this may affect you, then please refer to the âFurther Informationâ section.
The changes announced in the 2014 Budget were introduced in two stages with the most significant changes coming into effect from 6 April 2015. In particular:
Since 6 April 2015, if you have DC pension savings you will now have more choice over what you can do with your pension fund at retirement. There are now three options:Cash
You will be able to take some or all of your pension savings as a cash lump sum and then decide yourself how to spend, invest or save it.Pension
You will still be able to buy a pension for life (annuity) where you will receive a guaranteed monthly income until death.Income drawdown
You will be able to enter into an income drawdown facility where you can leave your pension savings invested and withdraw money as and when you like. The rules around who can opt for income drawdown have been relaxed so that more people with a Defined Contribution pension can choose this option (see Change 3 for more details).
You will also be able to do a mixture of all of the above.
The Government is also planning to change the rules relating to the retirement products that providers are able to offer, meaning that you will be faced with a wide range of choices in the future.
With all three options, 25% of the pension savings you are taking can usually be tax-free, with the remainder subject to income tax rules.
Anybody who has DC pension savings will have this flexibility once they reach age 55. If you have DB pension savings, you will be able to access the same options but you will need to transfer your pension benefits to a DC pension scheme (see Change 6 for more details).
From 6 April 2015, you are able to draw as much income as you want. Income drawdown (often referred to as flexi-access drawdown) works as follows:
One thing to keep in mind is that you need to ensure you keep sufficient money for the duration of your retirement, so drawing out too much, too soon could leave you with not enough money in future years. Receiving financial advice will help to ensure you make a decision that takes into account your short and longer-term needs.
Anybody who has DC pension savings will be able to enter into an income drawdown facility (although you may need to transfer to a different DC pension scheme) once they reach age 55. If you are in a DB pension scheme, you will be able to do the same but you will need to transfer your pension savings to a DC pension scheme (see Change 6 for more details).
Important note â If you were already in an income drawdown facility before 6 April 2015, then you will be able to move across to the new unlimited approach but there will be some changes to how much you can contribute to your pension in the future (see Change 4 for further details).
You can currently pay up to Â£40,000 a year into your pension savings (across all of your schemes) without being required to pay a special tax charge. This limit still applies after 5 April 2015. However, if you take any money out of your DC pension fund other than as an annuity (such as through income drawdown as referred to in Change 3), then this tax relieved limit on your contributions to any DC pension savings will be reduced to Â£10,000 per year.
From April 2016, the amount that higher earners can pay into their pension scheme without incurring a tax charge will reduce. For people earning over Â£150,000, the limit will reduce by Â£1 for every Â£2 of income over Â£150,000. The minimum limit (for people earning Â£210,000 and above) will be Â£10,000. Higher earners who take money out of their DC pension fund other than as an annuity (see above) will have a limit of Â£10,000 for that year.
Anybody who has a DC pension fund and takes income from it after 5 April 2015 will be affected. There are, however, three exceptions to this:
All higher earners will be affected by the changes in April 2016.
Important note â The Â£10,000 contribution limit does not apply to any benefits you may be building up in a DB pension scheme.
When approaching retirement, if you have DC pension savings then you will be entitled to free guidance to support you in making the best decision for your future retirement needs, via the Governmentâs Pension Wise service.
This guidance will be provided by organisations such as The Pensions Advisory Service (TPAS) and the Citizensâ Advice Bureau (CAB).
There will be absolutely no charge to you for receiving this guidance, and it will be offered to you through a range of different channels, such as online, over the phone or face to face.
Visit the Pension Wise website at (417) 222-5457 or call 030 0330 1001 for more information.
Anyone taking their DC pension savings after 5 April 2015.
If you have DB pension savings then you will be able to take advantage of the new rules and have flexible access to your pension savings. However, in order to be able to do this you will first need to transfer your DB pension savings into a DC pension scheme. (The Government will be considering offering the same flexibility to members of DB schemes in the future without the requirement to transfer, but the timing of this is not yet known.)
If you decide to go down this route, then you could lose valuable benefits that you may not be aware of so you will have to receive financial advice before any decision is taken if your DB pension savings are worth over Â£30,000.
Anybody who has DB pension savings and wishes to transfer them to a DC pension scheme.
As things currently stand you can start to take your pension savings from the age of 55 (the âMinimum Retirement Ageâ). The Government has said that in 2028 the Minimum Retirement Age will increase to age 57 and from then on will increase in line with, but set 10 years below, the State Pension Age.
Everyone who has not retired by the time the change is introduced.
Prior to 6 April 2015, if you were already in an income drawdown facility, had an annuity or you were 75 years of age or older and still had money in your DC pension fund, any lump sum paid to your beneficiaries after your death was taxed at 55%. Since 6 April 2015 this tax rate has been reduced to 45% (if you die after reaching age 75). Generally, no tax will be payable if you die before reaching age 75.
Anybody who has either DC pension savings in a drawdown facility, has purchased an annuity or still has money in their pension fund after the age of 75. This applies to DC pension savings only. For information on how it impacts any DB benefit, please contact your scheme administrator using the details in the Further Information section on this site.
As a member of a DB pension scheme you will have access to the increased flexibility offered by these changes. However, this is only available to you if you transfer your DB pension benefits to a DC scheme. If you wish to investigate a transfer then you must receive independent financial advice first to ensure it is the right thing for you to do (if your pension savings are worth over Â£30,000). See Change 6 in âWhat is Changingâ for more details on this. In the future, the Government may offer DB scheme members the same level of flexibility as DC scheme members without the need to change their pension scheme, but we do not know at this stage when the timing of such a change will be made.
Itâs important for you to note that the flexible access to your pension savings as described in Change 2 of âWhat is Changingâ will only be available to you once youâre 55 years of age or older.
As someone who has both DB and DC pension savings, you have more things to consider when it comes to making your retirement decisions.
For your DC pension savings, you now have access to much greater flexibility in terms of what you can do with your pension fund when you come to retire. To help you make the right decisions, you will have access to free, impartial guidance which your pension provider will tell you about. All of the options available to you are explained in greater detail in âWhat is Changingâ. You should also consider if your current approach to investing is right for how you wish to take your benefits at retirement â see âWhat happens nextâ.
As for your DB pension savings, you will also have access to the increased flexibility offered by these changes. However this is only available to you if you decide to transfer your DB pension benefits to a DC scheme. If you wish to investigate a transfer then you must receive independent financial advice first to ensure it is the right thing for you to do (if your DB pension savings are worth over Â£30,000). See Change 6 in âWhat is Changingâ for more details on this. In the future, the Government may offer DB scheme members the same level of flexibility as DC scheme members without the need to change their pension scheme, but we do not know at this stage when the timing of such a change will be made.
Itâs important for you to note that the flexibility as described in Change 2 of âWhat is Changingâ is only available to you once youâre 55 years of age or older.
As someone who has DC pension savings, you now have more things to consider when it comes to making your retirement decisions.
You now have access to much greater flexibility in terms of what you can do with your pension fund when you come to retire. To help you with this, you will have access to free, impartial guidance which your pension provider will tell you about. All of the options that will be available to you are explained in greater detail in 'What is Changing'. You should also consider if your current approach to investing is right for how you wish to take your benefits at retirement â see 'What happens next'.
It's important for you to note that the flexibility as described in Change 2 of âWhat is Changingâ is only available to you once youâre 55 years of age or older.
Even if youâre not currently a member of a pension scheme, itâs worth knowing about the significant changes that came into effect from 6 April 2015.
If you do join a pension scheme in the future, the odds are that it will be a DC pension scheme. The changes implemented by the Government mean that you will now have access to much greater flexibility in terms of what you can do with your pension benefits when you come to retire. All of the options that will be available to you, should you become a pension scheme member in the future, are explained in greater detail in âWhat is Changingâ.
The Scheme comprises a Defined Benefit (DB) Section and a Defined Contribution (DC) Section. The DB Section of the Scheme is closed to both new entrants and to future accrual. The DC Section is open to new entrants.
Members in the DC Section may have pure DC benefits (where the benefits at retirement are determined solely based on the value of their fund at retirement) or DC benefits with a DB underpin (where the benefits provided at retirement are determined based on the value of their fund, but are subject to a specified minimum level), or a combination of both.
At the date of conversion when the Scheme closed the DB benefit to future accrual and converted to DC provision, some members would have become eligible to a DB underpin. If the value of this DB underpin at retirement is more valuable than the benefit that can be secured through the DC fund, then typically the DB underpin takes precedence. Itâs important to know if a DB underpin is applicable to you as this could well influence your approach to retirement savings. Further information can be obtained by contacting Capita on 0800 328 4233 or by emailing them direct using the following details; firstname.lastname@example.org
Now that you have more options at retirement the Trustees are making changes to the investment choices available to you. In particular we have changed LifePath to make it more flexible and more tailored to suit your own choices.
Previously, if members chose LifePath then we would invest your Pension Account on your behalf, moving your money gradually into lower risk funds as you approached retirement (to protect the pension pot you had already built up).
We are in the process of creating three new Lifestyle investment profiles to replace LifePath â these options will be based on the three main options you now have at retirement (Pension Annuity, Income Drawdown or Cash Lump Sum). The default option will be the Pension Annuity route, but you will be able to decide which route suits you best. To read more about the advantages and disadvantages of each option, refer to the guide 843-877-2552 as provided in the âFurther informationâ section.
The Trustee is also making changes to the range of Self-Select funds, for those members who feel comfortable making their own investment decisions, and further details of these will be announced in the near future.
Phase 1 of the changes is already complete; we are expecting the new funds to be in place by mid-November. For more information on the changes, please contact Capita using the details provided in the âFurther informationâ section of this site.
Please read this announcement carefully as you may wish to change where your pension savings are invested.
Generally you will continue to have the option of transferring either your DB or your DC benefits or both to an alternative pension arrangement outside of the Scheme, provided you have taken independent financial advice. You can request a quotation of the transfer value of your benefits at any time, including when you are approaching retirement. You may wish to consider this option, for example, if you are interested in a flexibility that is not available directly through the Scheme.
Contact Capita for further details.
One of the temporary measures introduced by the Government in 2014 was to change the rules for pension pots that can be taken entirely as cash, and these rules still apply after 5 April 2015. This means that many more people may now fall into the category of having a âsmallâ pension pot (defined as being Â£10,000 or less). If you think you may be eligible for this option and you are interested in considering it, you should contact Capita for more information.
If you are not a member of your Company pension scheme, consider joining now before itâs too late. The fact that you will have full control over how you take your pension savings when you retire should make a pension a very attractive investment for you.
Please keep in mind that before making any changes to your pension savings, you should speak to a financial adviser to help you make the right decisions. Go to (888) 512-1043 for a list of financial advisers in your area.
The purpose of this section is to answer some of the common questions about the Government changes, and to help you understand what they mean for you. The questions are grouped under three difference sections; questions relevant to both DB and DC, questions for just DB and questions for just DC.
If you have any specific questions on what your options are at retirement, then further information can be found by reading the guide âItâs your money: itâs your choiceâ which can be found in the âFurther informationâ section of this site.
This section talks about the changes in general terms. Every pension scheme is different and the way in which the rules are applied in each specific pension scheme may be different. However, if you are in a DC pension scheme that does not offer the full flexibility as outlined here, you have the right to transfer your pension savings to another pension scheme that does. The 'What next?' section gives you more information on what is happening with your Company pension scheme.
You will need to ask Capita, but it is unlikely you will be able to change any pensions currently being paid to you, unless you would now qualify for the small pot lump sum payment options (pension savings in one scheme worth no more than Â£10,000).
You canât usually get access to your pension savings until you reach age 55. As part of the changes introduced in April 2015, the Government has stated that the minimum age at which pension savings can be taken will increase to age 57 in 2028. The Governmentâs intention is to have a Minimum Pension Age which is 10 years below State Pension Age. As such, the Minimum Pension Age is likely to increase again in future.
No; if you take all of your savings out of your pension pot then there will not usually be any benefits left for your dependants. This is different from taking part of your savings from a DB scheme as a tax-free cash sum, which does not usually change the spouseâs pension that would be paid on your death.
You will need to think carefully about this when making any decisions. If you need any help understanding what this could mean for you and your family, we recommend you get help from a financial adviser.
If you are in a DC scheme, you can take all of your pension pot as cash when you retire. The first 25% of your pension pot is usually payable tax free, but the remainder will be taxed as income when you receive it.
You can use your savings in a DC scheme to:
If you have not yet retired, the scheme administrators, in this case Capita, will normally contact you when shortly before you reach your normal retirement age to let you know if you could be eligible to take your entire pension as a cash sum under the âsmall pensionâ rules. If you are already aged 55 or over and would like to know more about this, please contact Capita.
If you had savings in a DC scheme and have already used these to buy a pension from an insurance company then you may wish to seek independent financial advice to find out if any of the new freedoms apply to you.
If you have pension savings worth no more than Â£10,000 and you are aged 55 or over, you might be able to take all of that pot as cash under the âsmall pensionâ rules.
Other than this you have five options (and you can choose a combination of the options):
Drawdown is not available in DB schemes. Even in DC schemes it is not very common for drawdown to be directly available through the scheme itself, so you may need to transfer your savings to another pension arrangement that allows it.
If you buy an annuity then the provider who you buy it from will pay you annuity (pension) for the rest of your life. You might also decide to add in pension increases each year or a pension for your spouse/partner on your death. The most important feature of this is that it will be payable for as long as you (and your spouse/partner if you choose this type of pension) are alive.
If you choose to use drawdown, then you will decide how much money to take out of your pension pot each year. Drawdown gives you much more flexibility to take your pension savings as and when you need them, but it does leave you open to the risk of running out of money. You are responsible for deciding how much of your pot to take at any time. Once your pension pot has run out, you will not be able to take any more money from it, so you will need income from other sources. If you die before you have taken all of your pension pot, the drawdown can normally be continued by a dependant or other beneficiary (although a tax charge may be applied in certain circumstances).
The combination of some guaranteed income from an annuity (or a DB scheme) plus some drawdown flexibility, might be attractive to some people. However, everyoneâs situation is different and you should take independent financial advice to decide what is best for you.
Yes, the rules on tax-free cash have not changed. This means that you are generally able to take 25% of the value of your pension savings in each scheme in which you have benefits as tax-free cash when you retire, but have to pay income tax on the rest when you withdraw it. The tax free amount available is subject to an overall maximum limit in place of 25% of the Lifetime Allowance.
No, the maximum total pension savings you can build up over your working life without paying a tax penalty, known as the Lifetime Allowance, is currently Â£1.25 million (unless you are eligible for a higher amount and have elected for one of the alternative forms of pension protection). It is expected to reduce to Â£1 million from 6 April 2016 and will then increase in line with CPI inflation from 6 April 2018.
The maximum value of pension savings you can receive tax relief on each year, known as the Annual Allowance, is Â£40,000. This is correct for the 2015/16 tax year (6 April 2015 to 5 April 2016) but will change in future (the amount will reduce for higher earners from 6 April 2016). However, for individuals who have chosen to withdraw their pension savings in one go or over time (using a âflexi-access drawdownâ facility) but wish to continue building up pension savings, there will be a limit of Â£10,000 on the amount of DC pension savings you can receive tax relief on each year. The limit will not apply if you have only taken pension savings under the small sums rules.
All DC savers will be offered free and impartial guidance when they retire, via the Governmentâs Pension Wise service. This guidance will be provided by organisations such as The Pensions Advisory Service or and the Citizensâ Advice Bureau. This is intended to help people understand their choices, which now includes a far wider range of possible alternative options, and to make sure you know where to turn to for further advice and information. Visit www.pensionwise.gov.uk or call 030 0330 1001 for further information.
It is important to understand that this guidance is not intended as a substitute for professional independent financial advice, which many people managing their own pension savings through their retirement will need.
Although they will usually charge a fee for personalised advice, it is very important that you make the right decisions about your income in retirement. You can find an adviser in your local area by going to www.unbiased.co.uk or visit www.moneyadviceservice.org.uk or www.citizensadvice.org.uk for further guidance.
You will need to ask Capita of your scheme, but it is unlikely you will be able to change any pensions currently being paid to you, unless you would now qualify for one of the small pot pensions (pension savings in one scheme worth no more than Â£10,000 or pension savings across all schemes - including any tax free cash you may have taken - worth no more than Â£30,000).
You canât usually get access to your pension savings until you reach age 55. The Government has stated that the minimum age at which pension savings can be taken will increase to age 57 in 2028. The Governmentâs intention is to have a Minimum Pension Age which is 10 years below State Pension Age. As such, the Minimum Pension Age is likely to increase again in future.
If you have pension savings worth no more than Â£10,000 in a DB scheme and you are aged 55 or over, you can usually take all of those savings as cash.
If your total pension savings across all pension schemes (excluding State pensions) are worth no more than Â£30,000 and you are aged 55 or over, then you can usually take all of your pension savings as cash, even if you have savings worth more than Â£10,000 in one scheme.
If you donât qualify for either of the two tests above and you are aged 55 or over, you can usually take up to 25% of the value of your pension savings in any defined benefit pension scheme as a tax-free cash sum. The rest of your pension savings in the defined benefit scheme will be paid as a pension.
The Government will consider whether defined benefit scheme members should be offered the same flexibility as defined contribution scheme members.
Most pension scheme members are able to transfer their pension savings from a DB scheme to a personal pension arrangement. It is compulsory to take independent financial advice before transferring your savings, if they are worth over Â£30,000.
In general, the intention is for the same flexibility to apply to DC Additional Voluntary Contributions (AVCs) as for all other DC savings. However, different schemes will have different rules about taking AVCs, so you should speak to Capita to find out your options.
Any contributions you choose to make above the standard level of contributions within your pension scheme.
An insurance contract that you can enter into at retirement to buy a pension for life (regular guaranteed income) with your Defined Contribution pension savings.
A type of pension scheme where you pay a fixed amount each year but the amount you receive at retirement is worked out as a proportion of your earnings (depending on the number of years you have been in the scheme).
A type of pension scheme where contributions are paid into your pension pot and the amount your pot is worth at retirement depends on the level of contributions and how your chosen investments have performed.
A type of Defined Benefit scheme.
A type of income drawdown facility whereby you can withdraw as much money as you choose each year.
A facility that you can enter into at retirement which allows you to keep your pension pot invested as you choose, but you can still have access to it and withdraw money from it over time.
The earliest age from which you can start to take your pension benefits (unless you are retiring due to ill health).
A type of Defined Contribution scheme.
A type of DC pension scheme which some companies offer, although you can also start one yourself. They have low minimum contributions and must meet certain standards set by the Government.
The extra tax that you may be liable to pay if you have paid more than the prescribed limits into your pension pot over the year for a Defined Contribution scheme (or if the value of your pension has increased by more than the prescribed limits, for a Defined Benefit scheme).
You now have a great deal of choice over how you take your retirement savings from Defined Contribution (DC) pension schemes, as well as certain other arrangements. Having choice is a good thing, but if you make the wrong choices it could cost you a lot of money, possibly leaving you without enough to live on in your retirement.
On average, people retiring at age 65 are currently expected to live for around 22 years, meaning that half are expected to live longer than that. Many people will live into their 90s and a small (but growing) number will live to be over 100.
If you are one of these people, how are you going to ensure that you spend your retirement savings wisely, so that they last for your whole retirement and give you the comfortable, secure lifestyle that you want? Follow these three stepsâ¦
To find out more about all of the options available to you at retirement, please read the guide âItâs your money: itâs your choiceâ by clicking (864) 867-9792
Find out whether your scheme is eligible as the options explained in the guide above may not be applicable in your scheme. You can contact Capita using the details below if you have any questions.
If you are a Wyeth member, you must find out whether you are eligible for a DB underpin. Contact Capita in the first instance to find out more.
Take advice and find out more. To decide how to take your benefits, speak to a suitably qualified and FCA-regulated independent financial adviser who will be able to talk you through the different options available to you.
If you have any specific questions in relation to your pension benefits or if you have any questions about your pension scheme more generally, please contact Capita using the details below:
Telephone: 0800 328 4233
Further information on your pension benefits can be found at the Scheme website www.mypfizerpension.co.uk. If you are a current Pfizer employee you can access this via the Single Sign On facility with hrSource. Once logged in you can access a variety of different functionality such as:
If you need advice based on your personal circumstances, you should speak to an independent financial adviser. A list of local advisers can be found on (772) 284-1341
If you would like to read more detailed information about the April 2015 pension changes, go to (470) 418-0217 for the Government publications on the subject or visit the Pension Wise website at www.pensionwise.gov.uk.
This site does not constitute legal or financial advice. It is based on Mercerâs current understanding of the proposed changes and further developments are expected over the short term. You should seek financial advice before making any changes to your pension savings.