Issuu

PENSION CHANGE 2021 INFORMATION BOOKLET

JULY 2021

INTRODUCTION We want to provide you with information to help you understand the MAG pension benefits and what the proposed changes would mean for you.

CONTENTS There are 4 sections to this booklet which are:

A comparison of typical defined benefit pension schemes, like the Greater Manchester Pension Fund (“the DB Scheme”) and defined contribution pension schemes, like the MAG Pension Savings Plan (“The DC Plan”).

A comparison of benefits between the DB Scheme and DC Plan.

Benefits available under the Company’s offer.

Benefits available if the Company’s offer is not accepted.

1. COMPARISON OF TYPICAL DEFINED BENEFIT AND DEFINED CONTRIBUTION PENSION SCHEMES A DB scheme provides a pension calculated using a specified formula. Members have limited options to influence how and when their pension is paid. The costs are met by members and employer. Costs may increase in the future if there is not enough money in the scheme to pay the promised benefits.

Defined benefit schemes

•

A DB scheme pays you a pension when you retire. The amount of pension promised is specified when you join the pension scheme. Contributions are typically fixed and your employer’s contributions increase if there is not enough money in the scheme to provide the specified pension. The GMPF Scheme is a DB scheme.

How much members pay

•

Contributions are typically a fixed percentage of pay.

How much the employer pays

• •

Employer contributions are not fixed and are re-calculated every three years. Contributions increase/decrease if there is not enough /too much money in the scheme as a result of the return on investments.

•

The pension is a pre-defined amount, usually a percentage of pay. The pension is known in advance and does not move with investment returns. Therefore there is a certainty around the level of pension income you will receive.

When is pension paid

• • •

The pension scheme rules specify when the pension starts to be paid. The pension typically starts to be paid from age 65. Members can usually choose to draw pension early but it will be reduced because it will be paid for longer (HMRC specifies the age must be above 55).

Options when you draw your pension

There is typically only one option, as follows: • Take a lower pension in exchange for a tax-free lump sum.

How your pension increases when it is paid

•

DB pensions typically increase each year, usually with some element of inflation protection.

What happens when you die

•

The pension will be paid in full until you die and then typically at a lower amount to your spouse until they die. If you do not have a spouse, no further pension payments will be made after you die.

Overview

• • •

How pension is calculated

The pension from a DC scheme is not specified in advance and therefore there is uncertainty around the level of your future benefits. You have lots of choice about the amount of pension income you draw and when you draw it. Employer costs are fixed and the level of pension you will receive depends on the amount you save, how much your savings have grown and the choices you make when you draw your benefits.

Defined contribution schemes

•

DC schemes are the most common type of pension scheme in the UK. A DC scheme is an individual savings pot into which the employer and member pays in. The main difference between DC schemes and DB schemes is that pension from a DC scheme is not specified in advance and depends on investment returns achieved on the pot. Therefore, the pension amount can be higher or lower than from DB schemes. DC schemes are more flexible in nature, allowing members much more choice,(e.g. on the level and timing of benefit payments). The new MAG Pension Savings Plan is a DC scheme.

How much members pay

• •

Contributions are typically a fixed percentage of your pay. Members typically have a choice over how much to pay each year.

How much the employer pays

• •

Employer contributions are typically a fixed percentage of your pay. Contributions do not increase/decrease if there is not enough/too much money in the scheme as a result of the return on investments. The member’s pot continues to receive the same contributions regardless of how much investment return is achieved.

Overview

• • •

•

When members choose to retire their pot of money is used to provide an income. The pension is therefore not known in advance and can be higher or lower than an equivalent pension from a DB scheme depending on investment returns and how you choose to draw an income.

When is pension paid

•

Members choose when a pension starts to be paid (HMRC specifies the age must be above 55).

Options when you draw your pension

There are several options and flexibilities as follows: • take a lower pension in exchange for a tax-free lump sum. • drawing all of the pot as a lump sum (25% will be tax-free). • using the pot to buy a pension paid for life from an insurance company (referred to as an “annuity”). There are a lot of choices over the type of annuity members can choose, including: – whether a pension is paid to a spouse when the member dies – whether the pension increases every year – how much the pension increases every year (e.g. inflation or a fixed percentage) • drawing different amounts from your pot in different phases to match your needs for income gradually over time (sometimes referred to as “flexiaccess drawdown”).

How your pension increases when it is paid

•

What happens when you die

If you die before you start to draw a pension then all of your pot is paid to your estate. If you die after you started to draw a pension then: • if you chose flexi-access drawdown then your remaining pot will be paid to your estate; • if you chose to buy an annuity which also provides a pension to a spouse when you die then this pension will be paid.

How pension is calculated

You choose whether income increases when it is paid or whether you receive a higher income (which does not increase).

2. A COMPARISON OF BENEFITS BETWEEN THE DB SCHEME AND DC PLAN The table below illustrates what your pension benefits will be in MAG’s pension schemes from 1 August 2021 subject to a successful union ballot. The column on the left is the benefits available in the DB Scheme and the column on the right are the benefits available in the DC Plan. DB SCHEME BENEFITS BUILT UP TO 31 JULY 2021 (THESE ARE PROTECTED BENEFITS) Type of scheme

What membership class am I known as? Pensionable pay

DC PLAN BENEFITS BUILT UP FROM 1 AUGUST 2021

Defined benefit scheme, before 1 April 2014 it was a final salary scheme, after it became a career average scheme.

Defined contribution pension plan which participates in Legal & General’s Master Trust.

You will be a deferred member (sometimes called “paid up” or “frozen”). Your benefits will be based on Pensionable Service up to 31 July 2021.

You are an active member. You (and MAG) will contribute to the pension scheme and will build up a pension pot.

Pensionable pay is basic pay, shift allowance and other payments, including any benefits specified as being a pensionable emolument.

Basic pay plus shift pay.

Your deferred benefit will be calculated as at 31 July 2021. There will be no increases to pensionable pay after this date.

What you and the Company contribute

Your contributions to the DB Scheme will stop.

SMART Pension contributions

n/a

Please see Sections 3 and 4 of this booklet for details of what you and MAG would contribute.

The Company will continue to fund the DB Scheme in respect of the benefits that have already accrued. Your pension contributions would be made through MAG’s salary sacrifice arrangement called SMARTPensions. Under SMARTPensions you agree to reduce your pay in return for a benefit of the same value. This means your pay is reduced by the amount you would otherwise have paid into the DC Plan. MAG then pays this amount into the DC Plan for you, together with their contribution. Because SMARTPensions reduces your pay, any National Insurance contributions you pay are also reduced, which will save you and MAG money.

Member charges

There are no member charges. Costs relating to the funding and administering of your deferred pension in the DB Scheme would be met by MAG for the remainder of your lifetime, and for the lifetime of beneficiaries who survive you.

There is an Annual Management Charge and a Fund Management Charge. Annual Management Charge is currently 0.15% of your pension pot. This is calculated daily and deducted once a month by selling units from your pension pot. Fund Management Charge for the default fund is currently 0.13%. This charge is included in the unit price. Total charge for default savers is 0.28% of their pension pot each year. For example, if your pension pot is £10,000 your annual charge would be £28.00.

Ill health benefits

If you have to leave work due to illness, you may be eligible to receive immediate payment of your benefits. Please refer to the GMPF website www.gmpf.org.uk for more information under the section ‘When and how can I retire’ then click on ‘How do I retire from work under ill health’.

If you can’t work due to illness or injury you may be able to take the usual retirement options (as set out below) before age 55.

Normal Retirement Age

If you have DB Scheme benefits that built up before and after 1 April 2014, you will have two normal pension ages (NPA). Generally, in the LGPS, you must take all of your pension benefits at the same time.

Target retirement age in the new DC Plan is set at age 65. This is a target retirement age, you don’t have to retire then, you can choose anytime from age 55.

NPA for pension built up after 1 April 2014 in the career average revalued earnings scheme is linked to your State Pension Age. NPA for pension built up before 31 March 2014 in the final salary scheme is age 65. The earliest age you can draw your pension is age 55, early retirement pensions are reduced for early payment.

Benefits payable at retirement

The pension you have built up to 31st July 2021 (your deferred pension) would increase between that date and your actual retirement date in line with inflation in accordance with LGPS rules and legislation.

Your and MAG’s pension contributions will be paid into your pension pot and be invested in the funds you choose. Your pensions savings will initially be invested in the default fund, currently Legal & General (PMC) Multi-Asset Fund 3. Once you have become a DC Plan member, you can change where your pension pot is invested. At retirement your pension pot is available for you to select the option that works best for you.

Options at retirement

Generally, in the LGPS, you must take all your pension benefits at the same time. Your pension benefits will be affected differently depending on the age you take your pension and how you access your benefits.

Your retirement options are: Option 1: Draw all of your pension pot in one lump sum, 25% is tax free and the remainder will be taxed.

There is an option to take or increase your lump sum to a maximum amount. More information including calculators are available on the GMPF website www.gmpf.org.uk

Option 2: Take your pension pot as a number of lump sums. You can take up to 25% of your pension pot tax-free and any further lump sums will be taxed. Option 3: Get a flexible retirement income: You can leave your money in your pension pot and take a regular income from it. You can take up to 25% of your pension pot tax-free, and then any other income withdrawals will be taxed. Option 4: Get a guaranteed income: You can take 25% of your pension pot as a tax-free lump sum and use the remainder to buy a lifelong regular income (an annuity), which will be taxed. You can mix and match these options as you wish.

Life assurance lump sum while employed by MAG

See section below.

Four times (Basic Pay plus Shift Allowance) OR: Two times (Basic Pay plus Shift Allowance) + a dependant’s pension of 20% of (Basic Pay plus Shift Allowance) PLUS Value of your pension pot paid from the DC Plan (if you die before age 75, your pension pot will normally be paid to your beneficiaries as a tax-free lump sum).

Death benefit pension prior to retirement

An ongoing pension is provided to someone dependent on you at the time of your death. For example, a spouse, registered civil partner, or, subject to certain qualifying conditions, an eligible cohabiting partner. We may also pay children who are below a certain age or who meet other criteria.

None (but your pension pot will be paid to your estate). If you die before age 75, your pension pot will normally be paid to your beneficiaries as a tax-free lump sum.

The amount your dependants receive is worked out using the value of your pension and when you were a contributing member of the LGPS. You can find out how these are calculated in the LGA full guide on the GMPF website www.gmpf.org.uk A lump sum death grant of five times your annual pension that is on hold is payable.

Death benefit pension after retirement

At retirement, you decide whether to buy a pension which continues to be paid to a spouse or, if you’ve opted for drawdown, then the remaining pension pot will be paid to your estate.

If you die after age 75, your pension pot will normally be paid to your beneficiaries as a lump sum which will be taxed.

If you die before age 75, your pension pot will normally be paid to your beneficiaries as a tax-free lump sum.

Important note The information set out in this document is not designed to provide advice. Nor does it create any legal rights for you. Defined benefit scheme members’ benefits are governed by the relevant pension scheme trust deed and rules and legislation. In the event of any discrepancy between this document and the scheme trust deed and rules or legislation, the trust deed and rules or legislation will prevail. All information in this document was prepared in March 2021 and updated in July 2021.

3. BENEFITS AVAILABLE UNDER THE COMPANY’S OFFER If the company offer is accepted your membership of the DB Scheme will cease on 31 July 2021 and contributions to the DB Scheme will stop at that date. The Company will continue to fund the DB Scheme in respect of the benefits that have already accrued. MAG will also offset the impact of the 10% pay reduction for FY20/21 up to 31st July 2021 on your DB Scheme benefit.

Yours and MAG’s contribution rates to the DC Plan

You will join the DC Plan from 1 August 2021 and the contribution scales available to you from 1 August 2021 until 31 July 2024 in the DC Plan are:

From 1 August 2024 the contribution rates available to you are as follows:

Colleague chooses to pay % of pensionable pay (basic + shift)

MAG will pay % of pensionable pay (basic + shift)

Total DC Contributions

12%

14%

10%

16%

11%

18%

12%

20%

Colleagues pay % of pensionable pay (basic + shift)

2.5%

MAG will pay % of pensionable pay (basic + shift)

5.5%

Total DC Contributions

8.0%

One off Pension Lump Sum In addition to the above contributions, MAG will provide for a lump sum to be paid either into your DC Plan or taken as a cash lump sum calculated using the following pre-defined formula: • Base salary as at 1 August 2021 multiplied by 5% multiplied by the complete years of service between 1st November 2020 and your 65th birthday. • The lump sum will be subject to a cap of 3 years of service and can be either paid directly into the DC Plan to promote pension savings or taken as a cash lump sum which will be subject to normal tax and NI deductions. 08

4. BENEFITS AVAILABLE IF THE COMPANY’S OFFER IS NOT ACCEPTED If the company’s offer is not accepted during the union ballot process only contribution rates in the table below will be available to you.

Yours and MAG’s contribution rates to the DC Plan

You will be eligible to join the DC Plan. The contribution rates are as follows:

Colleagues pay % of pensionable pay (basic + shift)

2.5%

MAG will pay % of pensionable pay (basic + shift)

5.5%

Total DC Contributions

8.0%