retirement account - marketplace · bigblue touch 4life enables you to leave your pension fund...

Retirement AccountMember guide

2 RETIREMENT INCOME ACCOUNT2 RETIREMENT INCOME ACCOUNT

Contents PageIntroduction 3Pension Wise and advice 3

Flexi-access drawdown 4

Background 5

Your options 6

Income payments, taxation and pension commencement lump sum 12Income payments – things to consider 14

Taxation 15

Pension commencement lump sum 17

How your money is invested 18Investment funds 20

How your Account investments are used to take income payments 22

After starting income payments 27Review your account regularly 28

Buying an annuity 28

Transfers 29

Payments on death 30

MEMBER GUIDE 3

Introduction This guide is designed to provide you with a clear explanation of your options for accessing your pension benefits if you apply for a Bigblue Touch 4life Account. It also outlines the considerations and risks involved.

Inevitably, there are some aspects of the options that require technical explanations, but we have tried to make these as easy to follow as possible.

This information should be read together with your Terms and Conditions, Key Features document, Plan Summary and the Bigblue Touch Investment Options Booklet which you will receive with your application pack when you apply to open an Account; they are also available on request.

Pension Wise and adviceWe recommend you seek guidance from the Pension Wise service or seek advice from an authorised adviser before making a decision regarding your retirement. You can access the Pension Wise service:

zz online by visiting the Pension Wise website at www.pensionwise.gov.uk

zz by calling 030 0330 1001 and requesting a telephone or face-to-face consultation.

You can also seek advice from a Financial Adviser. You can contact us on 0345 600 1870 and the BBT Member Services team can provide advice. Alternatively you can find details on how to find a Financial Adviser on the Financial Conduct Authority website – www.fca.org.uk

Please remember that a Financial Adviser will charge you for providing advice but they will discuss the cost of this before you use their services.

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Flexi-access drawdownFlexi-access drawdown gives you the flexibility to choose how much income you would like and how often you would like to receive it. But you do need to consider your investment choice, the tax that you pay, and how long your income needs to last.


MEMBER GUIDE 5

Background Bigblue Touch 4life enables you to leave your pension fund invested for future potential growth. While it is invested you can draw an income from your Account each year. This is generally known as ‘income drawdown’ or ‘flexi-access drawdown’.

Income drawdown products were first introduced over 20 years ago but, before April 2015, people were restricted as to how much income they could take from these products.

A flexi-access drawdown product, like the Bigblue Touch 4life Account, allows you to take income payments as much as you like each year to the point that you could take your whole pension pot in the first year.

REMEMBERTax on income The income payments you take from a drawdown product are treated as earned income (just like salary) and will be subject to income tax. If you take too much income from your Account in a tax year it could take you into a higher rate of income tax, so it’s important to consider this when deciding how much and when to take an income.

Drawing down too much too soon As well as the prospect of paying too much tax on some of your income, drawing excessive income may reduce your pension pot too quickly so that you have to reduce your income payments. You may also use up your pension pot sooner than you expect.


Your options You have broadly four ways to take your money from your Account – so you need to decide what is most appropriate for you.

Your Account will, at any time, consist of one or both of the following:

zz your drawdown fund;

zz your uncrystallised fund.

There are four main options for how you can access the benefits within your Account.

MEMBER GUIDE 7


1. One-off pension commencement lump sum plus income payments from Bigblue Touch 4life Account

When you first open an Account, you can choose to:

zz take up to 25% (unless you have an enhanced pension commencement lump sum entitlement) of your Account value as a pension commencement lump sum (PCLS), tax-free under current legislation; and

zz at the same time set up a level of regular income payments, that suits your needs, from the remaining amount invested in your Account. This level of income can vary between 0% (no income) and 100% (the whole) of your Account value.

Your income payments are treated as earned income for tax purposes so you will be subject to income tax, at the prevailing rates in each tax year, on any income payments you receive.

This option means all of the funds in the Account have been set into payment and is known as a benefit crystallisation event. This means you have fully designated all of the funds in the Account into drawdown funds.

As this is a benefit crystallisation event, the value of your funds must be measured against the lifetime allowance (details on page 16).


MEMBER GUIDE 9

Example of a one-off pension commencement lump sum plus income payments from a flexi-access drawdown fund:

Your pension pot £100,000

You can take £25,000 tax-free

and leave £75,000 invested

You can take funds on a monthly, quarterly, half-yearly or annual frequency.

In the above example:

zz an account is set up and has an initial value of £100,000;

zz £25,000 is immediately paid to the account holder being the maximum tax-free commencement lump sum. The remaining £75,000 is left invested in the drawdown fund;

zz each year the account holder decides how much income they want to take from their drawdown fund, which can vary from year to year and could be set as low as zero until income is required;

zz the lower the amount of income payment the more money is left invested and the longer your account should last. The higher the amount of income payments, the less money is left invested which increases the risk of the drawdown fund reducing to zero, and if the investment returns are less than the income payments made, the value of your account will reduce.


2. Pension commencement lump sum paid in instalments with income payments

With this option there is no one-off pension commencement lump sum payment up front. Instead the whole Account value is invested as an uncrystallised fund. You select the level of income payment you require and the frequency. Each time an income payment is made, the monies needed to make the payment are crystallised. 25% of the income payment will be paid to you as a pension commencement lump sum (which is tax free under current legislation), with the balance of the income payment being paid subject to income tax.

This means for example that:

zz an Account is set up with an initial value of £100,000;

zz if you decide to withdraw £1,000 each month, which means £250 (25%) of each payment is tax free and £750 will be subject to income tax;

zz after 12 months, you will have withdrawn £12,000 of which £3,000 will be tax free and the balance of £9,000 will be subject to income tax;

zz each year you decide how much income you want to take from your Account, which can vary from year to year and could be set as low as zero until income is required;

zz the lower the amount of income payments the more money is left invested and the longer your Account should last. The higher the amount of income payments the less money is left invested which increases the risk of the Account reducing to zero; and if the investment returns are less than the income payments made the Account value will reduce.

Under this option, the balance of your Account remains invested in the uncrystallised fund and any investment growth will increase the value of any PCLS available.

MEMBER GUIDE 11

3. A combination of options 1 and 2

The third way to set up an Account is to have a mix of 1 and 2.

Using our earlier example of a fund of £100,000 this could be split equally between options 1 and 2 to produce:

zz a one off tax free cash payment of £12,500 (25% x £50,000) with a variable income from the remaining £37,500 held in the drawdown fund;

zz and £50,000 held in the uncrystallised fund until such time as the Account holder wishes to take an income, when the amount of each income payment moves into the drawdown fund ahead of payment; 25% of each payment will be tax free.

4. Ability to take ad hoc payments using your account

As an alternative to taking a regular income, you can request to take ad hoc payments from your account by using Uncrystallised Fund Pension Lump Sum (UFPLS) withdrawals.

You can request up to 2 payments per tax year of a minimum value of £1,000 per payment.

Generally, subject to you having sufficient lifetime allowance, 25% of each UFPLS payment is tax free, with the remaining 75% taxed at the highest rate of income tax you pay in the tax year that the lump sum is paid.

This option can combine with option 2 as you may have uncrystallised funds remaining in your account.


Income payments, taxation and pension commencement lump sumYou need to consider the implications, and limitations, of the decisions you make, now and in the future.

MEMBER GUIDE 13


Income payments – things to consider Amount Under flexi-access drawdown you can choose an income amount, subject to a minimum pension payment per payment period, of £100 before tax. You can vary the amount of your regular income by giving at least one month’s written notice before the due date of the next payment.

Income payments can only be made on the 24th of each month (or the immediate working day prior to that date).

Under Option 4 (UFPLS) the minimum value is £1,000 per payment.

Frequency

Under flexi-access drawdown you can choose to receive your regular income on a monthly, quarterly, half-yearly or yearly basis.

You can also request one-off payments, subject to a maximum of 12 one-off payments in each year. One-off payments will be paid with any regular income payments from the next available payment date.

Under Option 4 (UFPLS) you can take a maximum of 2 payments

per tax year.

MEMBER GUIDE 15

Payment

We can only make payments by direct credit to your bank account.

Stopping income drawdown

You can elect to take zero income from your account but, once you’ve elected income drawdown and are taking income (which may be set at zero), you must continue to do.

TaxationIncome

The income you take from your Account that is not a pension commencement lump sum will be taxed under the Pay As You Eearn (PAYE) system.

Subject to you having sufficient lifetime allowance, generally 25% of each UFPLS payment is tax free, with the remaining 75% taxed at the highest rate of income tax you pay in the tax year the payment is made to you.

Investments Any growth in your Bigblue Touch 4life Account is free of UK income tax and capital gains tax. However, we cannot reclaim the tax paid on dividends from UK companies.


Lifetime allowance

There are no restrictions on the value of the total benefits payable from all of your registered pension schemes. However, anything over a certain level, called the lifetime allowance, will be subject to a tax charge of up to 55% on the excess.

Designating your account for income drawdown is a benefit crystallisation event that requires the benefits you are taking to be measured against the lifetime allowance. This may give rise to a lifetime allowance tax charge. You will need to supply us with information about the benefits you hold in other registered pension schemes to measure your benefits against the lifetime allowance. If you choose options 2 or 3 to set up your account, you will need to provide this information to us regularly on request.

For the 2015/2016 tax year, the standard lifetime allowance is £1.25 million. (From 6 April 2016 the standard lifetime allowance will reduce to £1 milion.) For most people, the lifetime allowance will be the standard lifetime allowance. However, you may be entitled to an increased personal lifetime allowance in certain circumstances. If your account has been subject to a lifetime allowance tax charge, you will receive a notification from us providing details of the tax charge that has been deducted.

General

The law and tax rates may change in the future and the value of tax relief will depend on your individual circumstances.

MEMBER GUIDE 17

Pension commencement lump sumOption 1

One-off pension commencement lump sum plus income payments

When you first designate a part or all of your account to drawdown funds, a percentage of the amount you allocate can normally be paid as a tax free pension commencement lump sum. It can only be taken at the time you first designate some or all of your pension fund to drawdown funds. If you later buy an annuity, you will not be able to have any more tax free pension commencement lump sum.

Option 2

Pension commencement lump sum, paid in instalments, plus income payments

If you take your pension commencement lump sum over time, in instalments, the balance of your funds are uncrystallised. A tax free pension commencement lump sum will be available at the time you designate more of your uncrystallised fund to drawdown or use some of the uncrystallised fund to later buy an annuity.


How your money is investedYour Bigblue Touch 4life Plan Summary and BigBlue Touch Investment Options Booklet provides full details of your investment choices in a specific section outlining Bigblue Touch 4life, but here is a quick introduction.

MEMBER GUIDE 19


Investment funds We offer a wide range of investment funds to choose from. These funds cover most investment sectors in the UK and abroad. The fund(s) you choose to invest in will have specific risks.

Each fund also has an annual management charge. These charges are expressed as an annual percentage.

When you join Bigblue Touch 4life, you will need to tell us which fund or funds you want your uncrystallised fund and drawdown funds to be invested in. On the day you apply for your account, you will need to invest your uncrystallised funds and drawdown funds in the same investment funds and in the same proportions. As soon as your account is set up, you will have the facility to switch your uncrystallised and drawdown funds into different investment funds and in different proportions.

MEMBER GUIDE 21

The whole of your account (including your drawdown fund and any uncrystallised fund) will be valued on a daily basis. You will receive a statement each year. This will show the value of your account and the amount of income (if any) you have taken during the last year.

Please see your investment options guide for more information on:

zz all of your investment fund options;

zz the annual management charge rate associated to the scheme;

zz the specific risks of the available funds; and

zz switching investment funds.


How your Account investments are used to take income paymentsIncome payments will be made by disinvesting (selling) units in the investment funds you specified in your last instruction to us. When you first select an income payment, you will need to tell us what funds the income payments should be paid from.

MEMBER GUIDE 23


Units will normally be disinvested from:

zz drawdown funds (if you are accessing your benefits as option 1),

zz uncrystallised funds (if you are accessing your benefits as option 2 or 4), or

zz proportionately across drawdown funds and uncrystallised funds (if you are accessing your benefits as option 3).

To pay your income, we’ll automatically disinvest funds to provide the amount of income (before deduction of tax) that you have chosen.

If a fund you have selected to pay your income is exhausted, you’ll be required to provide a new instruction. If no new instruction is received, we will continue to disinvest units from the remaining selected funds, in proportion to the value of each fund holding at the time of the withdrawal.

If all of your selected funds have been exhausted, units will be disinvested from your remaining funds in proportion to the value of each fund holding at the time of the withdrawal.

You can, of course, change your instructions regarding funds to be disinvested if you wish.

MEMBER GUIDE 25

‘Now that I’ve got my income, I just need to make sure it lasts.’

MEMBER GUIDE 27

After starting income paymentsChoosing a BigblueTouch 4life Account isn’t a one-off decision – you can, and should, review your situation regularly to make sure your decisions remain suitable.


Review your account regularly Your circumstances might change after you start taking your income, so you should regularly review your situation with your financial adviser, for the reasons set out below:

zz if you take too much income too soon your account may run out of money before you die;

zz if the amount of income you take from your account is greater than any investment growth the value of your account will go down. (This will affect your ability to continue drawing an income at the same rate and will mean that on your death, the remaining fund value may be insufficient to provide for the income requirements of your spouse, registered civil partner or dependant, as appropriate);

zz the value of your account is directly related to the value of the assets held within the investment fund/s to which its value is linked so will go up and down in value. If the value of your account goes down this may reduce the amount of income that you can receive in the future.

Buying an annuityYou can use your account to purchase an annuity at any time. An annuity is a contract sold by an insurance company designed to provide payments at specified intervals which can be linked to a rate of escalation.

You can contact us for further information on annuities. You can buy an annuity from the provider of your choice. The annuity may be a short-term annuity or a lifetime annuity. Once you have bought a lifetime annuity, you will be paid an agreed set level of income for the rest of your life.

It’s critically important to select the right type of annuity to meet your needs. For example, if you have a spouse you may wish to include a spouse’s level of income. This means that, should you pre-decease your spouse, your spouse continues to receive an income from your annuity contract.

MEMBER GUIDE 29

Generally speaking, the older you are when you buy an annuity, the higher the annual income you should get for your money because your life expectancy will be shorter.

However, annuity rates may worsen in the future and this could result in your pension fund providing you with a lower level of income. At the time you buy your annuity, the rates available at that time and the options you select will affect your benefits considerably.

Annuity rates can change significantly over short periods of time, both up and down so it’s important to shop around.

TransfersTransfers out

At any time you may transfer your account to another provider.

Transfers in

You may also transfer the value of benefits from another registered pension scheme (or qualifying recognised overseas pension scheme) into your account at any time, subject to Bigblue Touch 4life being able to accept it.

However, you must always check first for any potential exit penalties which could apply to the money being transferred, and for any guarantees that you might lose on transferring.

If you are in any doubt, you should speak to a financial adviser.


Payments on deathYour remaining Account value can be paid as a lump sum to your nominated beneficiaries or, subject to meeting certain limits, the value of the Account may be paid to one or more beneficiaries to set up an Account in their own name, so they can continue receiving an income.

MEMBER GUIDE 31


Death before age 75

zz Any lump sum or income payments made following your death will normally be paid free of tax to your dependants or beneficiaries.

zz If you’ve not nominated a beneficiary and do not have any dependants, the remaining pension fund will be payable at our discretion as a lump sum.

zz Income payments will not be subject to income tax.

Death aged 75 or over

zz Any lump sum payments will be subject to a tax charge of 45% which will be deducted before the lump sum is paid.

zz Income payments will be subject to income tax under the Pay As You Earn (PAYE) system.

MEMBER GUIDE 33

Death of beneficiary

If the beneficiary dies whilst taking an income, the remaining fund will be paid as a lump sum or be used to continue to provide an income to their beneficiaries.

Transfer by beneficiary

The beneficiary may transfer the value of the pension fund to another pension provider and continue income drawdown.

Nominations and inheritance tax

If you nominate a beneficiary to receive any benefit payable on your death, an inheritance tax liability will not normally arise in respect of it.

If your nominated beneficiary dies before you, you should provide us with a new nominated beneficiary to allow your death benefits to be payable as shown in the previous section.

34 RETIREMENT INCOME ACCOUNT34 RETIREMENT INCOME ACCOUNT

Want to know more?

Write to:

Bigblue Touch Pensions Administration PO Box 1325 Churchgate 1 New Road Peterborough PE1 9RN

Telephone: 0345 600 1870

Email: [email protected]

About Aon

Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world’s best broker, best insurance intermediary, best reinsurance intermediary, best captives manager, and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/manchesterunited to learn about Aon’s global partnership with Manchester United.

Nothing in this document should be treated as an authoritative statement of the law on any particular aspect or in any specific case. It should not be taken as financial advice and action should not be taken as a result of this document alone. You should consider seeking financial advice if you are unsure. References to tax in this document are based on our interpretation of current tax law and Her Majesty’s Revenue & Customs practice. Tax law, rates and the basis on which tax reliefs are granted may be subject to change.

Bigblue Touch is a brand name of Aon Consulting Limited.

Aon Consulting Limited is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales. Registered No. 3127195. Registered Office: Briarcliff House, Kingsmead, Farnborough, Hampshire GU14 7TE.

Phone: 0345 600 1870

www.bigbluetouch.com

2015 Copyright Aon Consulting Limited. All rights reserved.

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