Your Money Your Choices

Your Money Your Choices – a guide to your contribution and investment choices for members of the money purchase section of the RAC (2003) Pension Scheme (the Scheme)

Contents:

Your Choices

Your Money – contributions

4

– investments

12

– Salary Exchange 8

Staff Pensions, Money Purchase

www.avivastaffpension.co.uk

1 September 2014

Important changes to the RAC (2003) Staff Pension Scheme (the Scheme)

New choices The Government has introduced changes to pensions giving you more flexibility over how you take your money purchase savings from April 2015. The main change is that you now don’t have to buy a pension (annuity) when you take your benefits. Instead, you’ve got more freedom, and can take one or a combination of the following options: • Buy an annuity • Draw down an income • Take a single or series of lump sums Which option you choose may affect how you invest your money purchase pension account in the years before your target retirement date.

The Scheme guides don’t reflect these changes at the moment, but we’ll be updating them soon.

If you’d like more information now, take a look at Explore more: your new choices at retirement in the library section at www.avivastaffpension.co.uk or contact Aviva Staff Pensions (see inside for contact details).

April 2015

Staff Pensions

Your Money, Your Choices You have the flexibility to decide how much to contribute and where to invest your pension account. The choices you make will impact on how your Scheme benefits build up, and how much pension you can buy when you come to retire. So it’s important to make choices that are appropriate for you.

This guide explains in more detail the contributions and investment choices that you have in the Scheme.

Former final salary (now known as the defined benefits section) members On 1 April 2011, the defined benefits sections (including Flexiplan) of the Scheme were closed to future accrual. Former members of these sections may have protection for some of their benefits.

For more information please read the supplement for your section which is available in the protected DB benefits tab on www.avivastaffpension.co.uk

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Former money purchase members On 30 September 2011, when the RAC Business was sold to the Carlyle Group, most active employees were transferred to a Carlyle Group pension scheme. That means they became deferred members of the RAC Scheme. Only a few active members in the Scheme remain: these are employees who moved jobs internally from RAC to Aviva operations before the sale and so remained with Aviva. For more information about being a deferred member of the Scheme, visit the deferred members section on www.avivastaffpension.co.uk

Certain terms used in this guide have special meanings. These are explained in the guide ‘Your Scheme – an introduction’ and appear in bold text throughout this guide.

This guide is intended as a summary of the benefits payable by the Scheme.

Nothing in this guide or any other communication issued to you confers any entitlement to benefits in excess of those provided under the Rules of the Scheme. In the case of any discrepancy between the Rules and this guide, the Rules will prevail. All references to tax are based on the Trustee’s understanding of the position at the date of publishing this guide. Benefits and contributions are taxed at the rate and in the manner actually in force at the relevant time.

www.avivastaffpension.co.uk

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Your Money – contributions At a glance…

• The minimum member contribution is 2% of your pensionable salary.

• The minimum Employer contribution is 8% of your pensionable salary.

This means that a minimum of 10% of your pensionable salary is paid into your pension account each month.

• Y ou can contribute in 0.5% increments up to 8% to get a maximum Employer contribution of 14% of pensionable salary.

• Y ou can contribute more than 8% of your pensionable salary up to a maximum of 100% of your salary, up to the Annual Allowance.

• I f you are eligible your pension contributions are paid through Salary Exchange. This allows to benefit from savings in both tax and National Insurance (see page 8).

• Y ou’ll continue to be a member during paid absence from work and during maternity, paternity or adoption leave.

The Scheme offers an excellent way to save for retirement, offering tax relief and additional contributions from your Employer as well.

Total contributions (% of pensionable salary paid into your pension account)

Employer contributions (% of pensionable salary)

Member contributions (% of pensionable salary) 2%

+

8%

=

10%

4%

+

10%

=

14%

6%

+

12%

=

18%

8%

+

14%

=

22%

You can contribute more than 8% of your pensionable salary but the maximum Employer contribution is 14%.

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What are my contributions?

From 1 April 2010, the minimum member contribution of 2% was introduced. If you want higher retirement benefits, you should consider increasing these contributions.

Your contributions up to 8% of pensionable salary will benefit from additional Employer contributions. If you are eligible, your pension contributions may be paid through Salary Exchange. This allows you to benefit from savings in both income tax and National Insurance as explained on page 8.

You can also choose to pay more than this through Additional Voluntary Contributions (AVCs) as explained on page 6.

What are the Employer contributions?

Your Employer pays a minimum of 8% of your monthly pensionable salary into your pension account. If you choose to pay more into your pension account, your Employer will also pay more as shown above.

If you choose to contribute 8% of your pensionable salary, you will benefit from the maximum Employer contributions of 14% of pensionable salary.

REMEMBER On 1 April 2011, the defined benefits sections (including Flexiplan) of the Scheme were closed to future accrual.

If you were a defined benefits member, unless you made a choice, your member contribution will have automatically defaulted to the level that was closest to your defined benefits contribution.

www.avivastaffpension.co.uk

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Your Money – contributions (continued) What are AVCs? You can also choose to contribute more than 8% as AVCs; these will not benefit from any additional Employer contributions. However, these are also a tax-efficient way to boost your retirement income because contributions are deducted direct from your salary which means you will immediately receive tax relief through the PAYE system.

Your AVCs are also invested in your pension account within the Scheme and you can increase your AVCs in 0.5% increments.

The maximum contribution you are allowed to pay and benefit from tax relief on is the lower of 100% of your earnings or the Annual Allowance (£40,000 for the 2014/2015 tax year). The contribution limit includes your total Scheme contributions plus any contributions you pay outside the Scheme.

For more information about AVCs, please contact the Staff Pensions, Money Purchase Team (see page 15).

How do I choose my contributions?

You can choose your contributions through my Aviva flex, the online flexible benefits website. Visit www.myavivaflex.co.uk to find out more. If you are a new joiner you will be given the opportunity to do this when you join.

Your contributions will be deducted from your salary and you will receive tax relief through the PAYE system, starting from the next payroll date. In this way, you receive full tax relief on your contributions – so the amount of tax you pay will automatically reduce.

Your contributions will continue at your chosen level until you advise of any change. You are required to give at least one month’s notice of any change to your contribution percentage.

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What happens to my membership during a period of leave or absence?

If you are absent from work, your membership will usually continue on normal terms as long as you are paid a salary. In other circumstances, your period of absence will not count and you will be treated as leaving pensionable service at the beginning of your period of absence.

If you are on maternity, paternity or adoption leave and you have the right to return to work, you will remain a member during the whole of your leave and any period of absence will count as pensionable.

The contributions allocated to your pension account during your absence will be the same as before you went on leave. This is because total contributions will be based on the pensionable salary which you would have received if you had not been on leave.

During your absence, the amount you contribute will be based on your actual pay.

In addition, your Employer will pay further contributions (on top of its usual Employer contributions), topping up to the amount which you would have paid into your pension account if you had been working normally, receiving pay and contributing to the Scheme at the same rate as immediately before the start of the period of leave.

REMEMBER Scheme members may also be able to contribute to other pension arrangements in addition to paying contributions to the Scheme. The Company will not make contributions to other pension arrangements.

www.avivastaffpension.co.uk

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Your Money – Salary Exchange If you are eligible, you may participate in Salary Exchange as an alternative way to make pension contributions.

What is Salary Exchange?

Salary Exchange allows you to make pension contributions in a way which may save both you and your Employer money. It reduces the amount of employee and Employer National Insurance (NI) contributions paid.

Instead of your contributions being deducted from your salary every month, your salary is reduced by an amount equal to your pension contributions. Your Employer then pays an amount (equal to your contributions) directly into your pension account, in addition to the Employer contributions they make.

Salary Exchange does not affect any other salary-related payments or benefits that you may receive from your Employer, such as salary increases, bonuses and overtime. These will be based on your annual salary before Salary Exchange, which will also be the amount used in any personal official letters, for example, mortgage letters, loan applications or job references. Salary Exchange does not affect your income tax position either.

Salary Exchange is a benefit offered by the Company to members. It is offered separately to the Scheme and is not a responsibility of the Trustee.

Will I benefit?

The effect on your take-home pay depends on how much you earn and how much you contribute to the Scheme.

Most members will be better off financially by making their pension contributions through Salary Exchange because they will pay lower NI contributions and therefore increase their take-home pay. To ensure no members are worse off, there is a pay protection limit (PPL), which is £10,000 for the 2014/2015 tax year. If your earnings fall below the PPL, you will automatically be opted out of Salary Exchange and your contributions to the Scheme will be deducted from your monthly salary. If your salary subsequently increases, then you will be automatically opted back in from the next 1 July, provided your salary is above the PPL at that time.

Your Employer doesn’t pay any employee below the National Minimum Wage (NMW).

However, if Salary Exchange were to reduce your salary so that it takes your salary below the NMW, you’ll be automatically opted out of Salary Exchange.

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Will contributions always be made through Salary Exchange?

Salary Exchange is expected to operate indefinitely. However, if tax, NI or pensions law changes, or if it’s no longer viable for your Employer to operate this arrangement, your Employer reserves the right to alter any aspect of Salary Exchange or withdraw it altogether. Your salary would increase to the pre-Salary Exchange amount and your contributions to the Scheme would then be deducted from your monthly salary. You would not have to pay back any of the NI savings you have made.

What happens if I leave my Employer after joining Salary Exchange?

If you leave your Employer, Salary Exchange does not affect your options as these are subject to the Rules of the Scheme.

If you are eligible for a refund of contributions, any payment made to you after leaving the Scheme is subject to tax and NI. If the payment is made after you have received your P45, then your Employer is only able to deduct basic-rate tax and you are therefore responsible for the payment of any higher-rate tax liability that is due (and this will be based on your total earnings for the tax year).

What happens if I retire?

Participating in Salary Exchange will not affect your retirement benefits.

What happens if I die?

Participating in Salary Exchange will not affect your death benefits.

What happens if I have a significant change in my financial circumstances?

You will be able to review whether or not you should participate in Salary Exchange if you experience a significant change in your financial circumstances. For more information on the options available to you, contact the Staff Pensions, Money Purchase Team (details are on page 15).

REMEMBER Any change to your participation in Salary Exchange in these circumstances is subject to the agreement of your Employer.

www.avivastaffpension.co.uk

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Your Money – Salary Exchange (continued) What happens if I take maternity, paternity or adoption leave?

You will continue to participate in Salary Exchange while you are paid. When you only receive statutory pay, you will continue to build up your pension account based on your salary prior to going on leave.

This will have no negative impact on your pension and you will not be disadvantaged by participating in Salary Exchange.

If I have been posted abroad or I am on unpaid leave/secondment/ sabbatical/sick leave, am I eligible for Salary Exchange?

If you are subject to UK income tax and NI and are a member of the Scheme then you are eligible to participate in Salary Exchange.

If I decide to opt out of Salary Exchange, can I opt back in?

Yes, you will have the chance to opt back into Salary Exchange at each subsequent July (the annual enrolment period) or when you experience a significant change in your financial circumstances.

If I have been automatically opted out of Salary Exchange, can I opt back in?

Yes, if you are automatically opted out, your situation will be reviewed each July to check that it is still appropriate for you to remain opted out. If your salary has increased over the PPL (and is above the NMW), you will be opted back in to Salary Exchange as at 1 July.

10

Will Salary Exchange affect any benefits I get from the State?

Entitlement to some State benefits, such as Statutory Sick Pay, Incapacity Benefit and Job Seekers Allowance is based on the amount of NI you pay.

If the introduction of Salary Exchange means that your gross salary is £10,000 a year (the PPL for the 2014/2015 tax year) or less, on a regular basis, therefore affecting the amount of NI you pay, you may suffer a reduction in these benefits. You will therefore be automatically opted out of Salary Exchange by your Employer in these circumstances.

Will Salary Exchange affect any pension I am entitled to from the State?

Salary Exchange will not affect your basic State pension.

In addition to the basic State pension, there is also an additional State Second Pension (S2P). The amount of S2P you receive depends on your earnings and your NI contributions.

If you earn more than £40,040 a year (for the 2014/2015 tax year), after you have made your Salary Exchange choices, your S2P is not affected by Salary Exchange.

If you earn between around £15,000 and £40,040 a year, your S2P will reduce by participating in Salary Exchange, but the NI you save may be greater than the reduction in S2P.

REMEMBER Salary Exchange will not reduce any tax credits you get from the State, such as Working Tax Credits.

www.avivastaffpension.co.uk

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Your Choices – investments At a glance…

• You can choose how you would like the Trustee to invest your pension account from the available funds.

• You have the choice between two investment strategies, Lifestyle and Self-select, and three levels of involvement.

• You can switch your investment choices as and when necessary to suit your stage in life and attitude to risk.

• The Trustee selects and monitors the performance of different investment managers to manage the investment funds.

• You can choose when you want to take your benefits - your target retirement date. This is age 65, unless you choose otherwise.

Planning ahead How your money is invested can have a significant effect on the value of your pension account and, consequently, your retirement income. So it’s important that, whatever stage of life you’re at and whatever your attitude to risk, you choose an investment approach from those available that suits you best.

Once you’ve chosen an investment strategy, you should keep reviewing it and making changes as and when necessary, because what works for you now may not be right for you later.

Your toolkit To help you make your important decisions, we’ve created some useful tools and resources. Go to your toolkit on www.avivastaffpension.co.uk to find out more.

12

What are my choices?

When choosing how you would like the Trustee to invest your pension account, you need to decide how involved you would like to be with your investments. It’s important that you take an active role in selecting what is right for you. There are two investment strategies available; they are shown below.

For more information about the investment strategies and the available fund choices read: • the additional investment guide ‘Your guide to investing – making your money work’; • the investment fund factsheets; and/or • the investment choices leaflets.

These are available in your library section on www.avivastaffpension.co.uk

You can choose Lifestyle strategy

Self-select strategy

Lower involvement

Medium involvement: Core fund range High involvement: Extended fund range

Investments are managed on your behalf and your pension account will automatically switch into funds which are expected to be more stable as you get closer to retirement.

You can choose whether you would like this switching process to start 3, 5 or 10 years before your target retirement date.

REMEMBER Your target retirement date is the age you expect to take your benefits.

Unless you make a choice, we will assume this is age 65. If you want to choose a different target retirement date, you can do this by visiting Pension Tracker at www.aviva. co.uk/controlyourpension or by filling in an Investment Choices form available from your library at www.avivastaffpension.co.uk

OR

You decide where your pension account is invested, from the available funds, and if and when you wish to switch between funds.

Because you choose your own funds, your pension account will not automatically switch into funds which are expected to be more stable as you get closer to retirement (as it does in the Lifestyle strategy), so it’s particularly important that you monitor your investments regularly and make sure they are the right choices for you at different stages of your life.

www.avivastaffpension.co.uk

13

Your Choices – investments (continued) How does investment performance affect my benefits?

Your entitlement under the Scheme is based on the value of your own pension account, which is linked to the investment performance of the fund(s) in which your pension account is invested. If performance has been favourable, the value of your pension account will increase. However, the value of the funds can go down as well as up.

The Trustee reviews the performance of the selected investment manager(s) and funds on a regular basis. For the default and the Core fund range, it has the flexibility to change the investment managers as needed. For the Extended fund range, the Trustee monitors performance but will not usually change the investment managers without letting you know, although it reserves the right to do so.

You will receive a personal benefit statement each year showing the current value of your pension account, the contributions credited to your fund during the year and other important pension information relevant to you.

14

How do I make my investment choices?

You need to complete an Investment Choices form which you can download from your library section at www.avivastaffpension.co.uk or, alternatively, get it from the Staff Pensions, Money Purchase Team (using the details on the next page).

If you do not make an investment selection, you will be deemed to have chosen the Lifestyle strategy. Your pension account will automatically be invested into this strategy and, unless you select a different switching period, will start to switch to more stable funds 10 years before your target retirement date (age 65, unless you choose otherwise).

You can also make investment choices online once you are registered for Pension Tracker. If you would like more information about Pension Tracker visit www.aviva.co.uk/controlyourpension or contact the Staff Pensions, Money Purchase Team using the details below.

Are there any investment charges?

The investment management charges are deducted from your pension account on a monthly basis. Information about the charges can be found in the investment guide ’Your guide to investing – making your money work’. Charges can be varied at any time without notice.

Help and information Write to: Staff Pensions, Money Purchase Team, Aviva, PO Box 3433, Surrey Street, Norwich, NR1 3GT Tel:

0800 046 6174

Fax:

01603 689 687

Email: internal, staffmp external, avivastaffmp@aviva.co.uk Website: www.aviavstaffpension.co.uk If you would like financial advice, you should speak to a financial adviser.

You can find a list of financial advisers in your area by visiting www.moneyadviceservice.org.uk/en/categories/financial-help-and-advice

www.avivastaffpension.co.uk

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