The member options exercise is being run to ensure that all members are aware of and fully understand the various options currently available to them in the Plan, particularly in light of the increased flexibilities to pensions applying from April 2015.
As noted in the 2018 newsletter, the Plan’s strong funding position means that, within the next few years, the Trustees will look to insure all pensions (including those not yet in payment) with an insurance company and the Plan will cease to operate in its current form. This is otherwise known as a ‘buy-out’ (please refer to the 2018 newsletter for further information, a copy of which is available on the Plan website ntlpensionplan.com).
As the Plan nears buy-out it is important that you, as a member of the Plan, understand the benefit options which are and will in future be available to you. After pensions have been secured with an insurance company the availability and terms of these options may change from those offered now. Although the Trustees will try to ensure that all options available now are available from the insurer, this may not prove possible in all cases.
A transfer value quotation sets out the value of the benefits to which you are entitled under the Plan were you to decide to transfer them to another pension arrangement (such as a personal pension).
Your transfer value quotation will be guaranteed during the member options exercise period. If you choose to take a transfer from the Plan after that period then your transfer value would be re-calculated and may increase or decrease in value, depending on movements in financial market conditions.
It is not possible to directly ‘cash in’ your benefits from a ‘Defined Benefit’ pension scheme such as the Plan.
However, if you choose to transfer your benefits out of the Plan to ‘Defined Contribution’ arrangement, you will have access to a wider range of flexibilities and you could opt to cash-in your whole pension at retirement (noting there are tax implications of doing so).
A financial advisor will be able to provide further advice in relation to these options.
The normal retirement age of the Plan is 60 but under the current HM Revenue & Customs’ legislation, you can retire once you reach age 55 (unless you are entitled to certain protected benefits within the Plan when you may be able to retire from age 50). If you are over age 55 but under age 60, you are eligible for ‘early retirement’ and if you take early retirement, your benefits will be reduced to take into account their early payment and therefore the longer expected period your pension will be paid for.
Once your pension is in payment it will increase each year. At retirement it is possible to exchange a portion of these yearly increases to receive a one-off but permanent increase to your pension. This type of option is commonly referred to as a Pension Increase Exchange (‘PIE’). Further details will be provided on this option in due course.
If the value of your pension in the Plan is below certain limits then you may be eligible to exchange your entire pension for a one-off cash lump sum. We will write to all members who are eligible for this option as part of the member options exercise, in order to provide you with further information.
The member options exercise will be run for a period of three months and is expected to commence from early September 2019.
If you choose to take a transfer value out of the Plan, or choose to take early retirement and exchange part of your pension under the PIE offer, you will have a two week period (from submitting the relevant forms) in which you can change your mind. Once this two week period has passed, however, the decision to accept the option cannot be reversed irrespective of your circumstances.
As part of the member options exercise the Trustees have appointed a firm of independent financial advisors (‘IFAs’) who will be able to give you individually tailored and impartial advice on your options.
The contact details of the IFA appointed by the Trustees will be included in your information pack, along with further information around the advice process.
If you are using the appointed IFA there will be no cost to you for accessing the advice and there is no obligation for you to accept any of your options if you take the advice.
You may choose to receive ongoing advice from the IFA after the exercise has been carried out. There is no obligation for you to do so, but if you do decide to receive ongoing advice then you will need to pay for that advice yourself.
You are very welcome to use your own financial adviser, should you prefer, but you will need to pay for that advice yourself.
The Money Advice Service website at www.moneyadviceservice.org.uk provides useful generic (i.e. not tailored to your circumstances) information about finances including pensions.
You can contact the Financial Conduct Authority with any concerns about the independent financial advice provided at 25 The North Colonnade, Canary Wharf, London E14 5HS, telephone 0300 500 5000, website www.fca.org.uk.
You can use the Pensions Advisory Service website www.pensionsadvisoryservice.org.uk. This free and impartial service can be used to address any questions or concerns that you may have. The Pensions Advisory Service can be contacted at 11 Belgrave Road, London SW1V 1RB, telephone 0845 601 2923.
If you take no action in relation to the exercise there will be no change to your pension benefits held in the Plan.
Your IFA will be able to advise you on setting up a suitable arrangement.
Any transfer values taken as part of this exercise will be paid within 4 weeks of receiving the completed paperwork.
Your information pack will set out the process you will need to follow should you decide to accept an option under this exercise.
The option to take a transfer value or to retire immediately, with or without a tax-free cash lump or Pension Increase Exchange (PIE), will stay available to you until the Plan is formally transferred to an insurance company (known as a “buyout”). Once transferred to the insurer, the PIE option is unlikely to be available.
The transfer value option will be based upon financial conditions at the date the transfer value is issued and the insurer’s own terms.
The Plan’s current transfer value terms are likely to be similar to those that an insurer would use, as the Trustees looked at this as part of their recent review of the transfer terms, but you should note that a future transfer value could be higher or lower than that currently offered to you.
The same is true for the factors applied to your pension should you retire before or after age 60 (your “normal retirement date”). The insurer will use its own factors which may be different to those used in your current offer, though terms currently available in the Plan are likely to be similar to those that an insurer would use, as the Trustees looked at this as part of their recent review of the retirement terms.
Currently within the Plan, for every year before age 60 that you take your pension, your pension is reduced by around 4% per year (i.e. if you retire at age 57 your pension will be reduced by around 12%). This reduction is made to reflect that your pension will be paid for a longer period. We note that a small number of members have enhanced early retirement terms.
For every year after age 60 that you take your pension, your pension is currently uplifted by around 7% per year (i.e. if you retire at age 63 your pension will be uplifted by around 21%). This uplift is made to reflect that your pension will be paid for a shorter period.
The Trustees will keep members informed throughout the process, which will occur in two stages.
The first step involves the Trustees securing an insurance contract within the Plan. The Trustees are currently awaiting prices from the insurance market, but should those prices be affordable, a transaction could occur in the first half of 2020. The Trustees will keep members updated on this stage of the process. Following this transaction the Plan would remain responsible for paying your benefits and you will see no change to the way in which your pension is administered or your contact point if you have any queries.
The second stage involves transferring the Plan to the insurer such that they will assume responsibility for administering and paying your pension. There will be a period of 12-18 months between stages 1 and 2 (and perhaps longer). The Trustees will communicate with you regularly throughout this period and the chosen insurance company will also begin to communicate with you as part of the transition to them.
No. The Trustees secure an insurance contract that will pay a pension that is the same as that available to you in the Plan. For example, the amount of your pension, the way in which it increases in payment, and benefits available to your dependants after death will all be in line with what is paid under the Plan.
As mentioned in the answer to the first question, were you to retire before or after age 60, or should you choose to transfer your benefits before you retire, the terms will be set by the chosen insurer and may differ from those currently available in the Plan.
Once the Trustees have purchased an insurance contract within the Plan (see the second question) your pension is extremely secure.
All of the insurers that operate in the pension scheme market are required, by the regulatory regime under which they operate, to invest in low-risk asset classes that will provide an income that closely matches the pensions they need to pay. On top of this, the insurers also hold additional capital to help mitigate any periods of potential poor investment performance.
Finally, the insurance contract will be covered by the Financial Services Compensation Scheme which provides protection in the unlikely event that the chosen insurer would subsequently cease to operate.
No. The chosen insurer will pay your full pension, regardless of whether its invested assets have had poor performance over certain periods.
It is quite possible, although not in all cases - it depends on the tax rules in force at the time you took your tax free cash and your specific circumstances. If your lump sum had been higher, your pension would have been reduced more, both over the period to date and in future. The terms on which pension can be exchanged for cash are set in the rules: typically £1 p.a. of pension had to be given up to provide £15 of lump sum. As a result of the smaller lump sum you received at retirement, you have received a larger recent increase in your pension and a larger arrears payment.
In most cases - no. HMRC’s and our own rules allow members one tax-free lump sum only. Furthermore it is both administratively and practically difficult to permit members retrospectively to elect to take another lump sum. The Trustees have taken the view that they should deliver the correct benefit entitlement which is the additional pension. However, if you retired in the Plan within the last year HMRC rules may permit you to convert some of your pension for an additional lump sum, should you wish to. If you wish to explore this option further, please contact the XPS administration team. Please note that as a result of the smaller lump sum you received at retirement, you have received a larger recent increase in your pension and a larger arrears payment.
In respect of members who took advice from Informed Pensions and transferred-out as part of the recent offer of advice, the benefits and transfer values paid were corrected for this issue, in the same way as for other members. For members who died or transferred out before then, we are considering professional advice on what action is necessary. It is a complex area but we expect a definitive legal ruling later this year: it is one of the subsidiary questions arising from last year’s judgement in the Lloyds Bank case about equalising GMPs, which we expect to be settled in a hearing later in 2020.
The same issue of interest payable on underpaid amounts from a pension scheme was considered in last year’s judgement in the Lloyds Bank case, which was about equalising GMPs. The court ruled that the appropriate rate was bank base rate plus 1% without compounding. In part this approach was stated to be because in that case back-payments were limited to six years, and interest rates had been very low over that six-year period. We took legal and actuarial advice and we were advised to follow this legal precedent, which we are advised is at a higher level than prior legal precedents relevant to payments to individuals from trusts, which usually adopted a rate of base rate less 0.5%. Our trust deed is silent on the issue of whether and how much interest should be paid so we had authority to act in accordance with the requirements of law, but not to go further than this.
Our rules say that payments due but not claimed by members from more than six years ago are forfeited, unless the trustees decide otherwise. We took the view that since members were unaware of the underpayment (as we were) they could not reasonably have “claimed” it, so it would be inappropriate to apply this six-year cut-off. Hence the arrears lump sum takes into account all relevant past payments.