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Contracting out – an update The Government is making changes to the State Pension system from April 2016 with the aim of creating a clearer and fairer system. At present the State Pension is a two-tier system made up of the Basic State Pension and the State Second Pension (S2P). In the future, the State Pension will be a single-tier scheme. Under the current legislation, defined benefit (DB) schemes such as our Scheme are ‘contracted out’ of S2P. Contracting out means that, rather than paying full-rate National Insurance (NI) contributions and building up benefits in S2P, you instead pay reduced-rate NI contributions. In return, the Scheme provides benefits that are in most cases better than S2P – so effectively, part of your Scheme pension replaces S2P. The Company also pays reduced-rate NI contributions. From April 2016, S2P will no longer exist. As a result, DB schemes such as ours will no longer be able to contract out of S2P from April 2016, as they do at present. If you still pay NI contributions, you will be contributing to the new single-tier State Pension. Please note that if you are already receiving your State Pension, none of these changes affect you. i If you are an active or deferred member and think you may exceed either the LTA or the AA you should take independent financial advice. You can find a financial adviser in your area by visiting unbiased.co.uk ACTION POINT £1.25m LTA CURRENTLY £1m LTA REDUCING TO Budget update Changes to allowances The lifetime allowance The lifetime allowance (LTA) is the amount of pension benefits (excluding State Pension) that you can build up throughout your working life on a tax advantaged basis. Currently the LTA is £1.25 million but the Government has announced that this will reduce to £1 million from 6 April 2016. The annual allowance The annual allowance (AA) is the maximum amount your pension benefits (excluding the State Pension) can increase by in any one tax year, on a tax advantaged basis. Currently the AA is £40,000. The Government has announced plans to reduce the AA for high earners from 6 April 2016. You will be affected by the reduced annual allowance if your taxable earnings (including bonuses, shift pay, incentive plan payments, car allowances etc.) including the increase in value of your pension benefits, is more than £150,000 a year. This figure is referred to as your ‘adjusted income’. If your earnings, excluding the value of your pension, are less than £110,000 you don’t need to worry about this. The AA will be tapered for adjusted income above £150,000, with a reduction of £1 for every £2 that your adjusted income exceeds £150,000. The minimum AA will be £10,000 for those with an adjusted income of £210,000 or more. What could this mean for you? If you are an active member, the percentage of the LTA you have used up to date from the Scheme is shown on page 14 of your Scheme benefit statement. In your last benefit statement, this percentage was based on the LTA in place at the time – £1.25m. If this percentage is 83% or more, you are likely to be affected by the reduction in the LTA. If this is the case, you can apply for ‘transitional protection’ from HMRC to protect you against tax charges on the excess LTA between £1m and £1.25m. Could you be affected? • If you are an active member, pages 14 and 15 of your annual benefit statement show how much of the AA you have used up in this and previous tax years from the Scheme. • Remember that the AA applies to your total pension savings – so you need to add your contributions to any other schemes you may have (such as AVCs). • If you have some unused AA, i.e. you have not contributed the maximum amount, you can ‘carry forward’ this amount for up to three tax years, to offset an equivalent amount you may be over the AA in future years. Changes to State Pension forecasts Due to these changes in the State Pension system, the State will no longer provide State Pension forecasts after the end of the 2015/16 tax year. Because of this, your annual benefit statements from 31 March 2016 onwards will not include an estimate of your State benefits. The Department for Work and Pensions is working on a new digital service which should enable you to access information about your State benefits online. We will keep you updated in future editions of this newsletter. As part of the Government’s Summer 2015 Budget, the Chancellor announced a consultation on the taxation of pensions. Following the radical changes introduced with effect from April 2015 (affecting the way defined contribution pension scheme members can access their benefits), the Government wants to take a fresh look at the way tax relief is applied to pension saving. At present, contributions to pension schemes are tax free, while benefits paid to pensioners are taxed. The consultation aimed to look at whether this is the best approach, or whether a different system would be better. The consultation period ended on 30 September 2015, but the results and decision around the consultation have not yet been announced. We will keep you updated on the outcome of the consultation, and what this means for you, in future editions of this newsletter. Taxation of pensions Because the LTA applies to your total pension savings, you will need to add any other benefits you may have to get your total LTA figure. This might include AVCs or a previous employer’s pension scheme. i BOC Pension Scheme. Summary Report and Accounts 2015. Chairman’s Welcome Welcome to the 2015 Summary Report and Accounts for members of the BOC Pension Scheme. As well as the fund value, account and membership information as at 31 March 2015, this issue of the newsletter provides your Summary Funding Statement. Also, as it’s currently a busy time in the world of pensions, we’ve provided details on Government changes to pensions and how you could be affected. We hope you find this newsletter useful and informative. If you have any questions, or suggestions for inclusion in future newsletters, please let us know using the contact details shown on the back page. John Hylands Chairman of the Trustee Board Contact details BOC Pension Services The Priestley Centre 10 Priestley Road The Surrey Research Park Guildford Surrey GU2 7XY Helpline: 0800 096 3214 (BOC TEL 750 4745) Fax: 01483 244 739 Email: [email protected] Website: www.bocpensions.co.uk Smartphone users with a QR code app can scan this code to visit our website Legal note Please note that this newsletter is intended to summarise the events of the past Scheme year and nothing in it grants any legal right to benefits. Your entitlement to benefits is defined in the Trust Deed and Rules (as amended from time to time) at the date you leave service. You can download a copy of the current Trust Deed and Rules from the website at bocpensions.co.uk or request one from BOC Pension Services. If you are a pensioner or a deferred member you should ask for a copy of the edition which applied when you retired or left service. Designed and produced by Anthony Hodges Consulting Limited 2015_102396 Expression of wish reminder Remember to keep your Expression of wish form up to date as your circumstances change. The form lets the Trustee know who you would like to receive any lump sum payment in the event of your death. Although the Trustee cannot be legally bound by your Expression of wish form, it will take your requests into account. If you don’t keep your form up to date, there may be a delay in any lump sum being paid, as it would take the Trustee longer to investigate the circumstances of the case and decide who any benefits due should go to. You can download a form from bocpensions.co.uk i For active members only The Company has decided to review the Scheme as a result of the changes outlined above. Changes to pension schemes such as the BOC Pension Scheme are subject to consultation which will begin from early January 2016.
