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Auto enrolment begins!
Auto enrolment took effect for BAT on 1 August this
year. Now, anyone who is eligible to be a member
of the Fund, and isn’t already, will be automatically
enrolled. As you are already a member of the Fund you
will not be affected by the changes and will continue
your membership in the Defined Benefit section of
the Fund. Anyone that is new to the Fund will join the
Defined Contribution section.
The Rules of the Fund
The Trust Deed and Rules is the main legal document
for the Fund, which contains all the detail about
how the pension scheme operates. In the past there
were separate sets of Rules for the various Defined
Contribution and Defined Benefit Sections, but these
have now been consolidated. This was done in order
to make sure the rules were applied consistently across
the whole Fund. If you would like a copy of the Rules,
please contact the BAT Pensions Administration Team.
A warning to members –
pension liberation schemes
In recent years there has been a rise in ‘pensions
liberation fraud’, where companies claim that they can
help you cash in your pension early.
In rare cases – such as terminal illness – it is possible
to access funds before age 55 from pension schemes.
But for the majority, promises of early cash will
be bogus and are likely to result in serious tax
consequences.
Converting a pension into cash might sound very
attractive to people who urgently need money.
However, if something sounds too good to be true, it
usually is.
- You may be poorer in retirement.
You can only use your pension fund once. If you
liberate your pension, there will be much less (or no)
income from it when you retire.
- You may be hit by unexpectedly high fees.
As part of the transaction, you are likely to have to
pay the organisers a ‘commission’ or ‘arrangement
fee’, which can typically range from 10 – 30% of the
value of your pension.
- You could face a huge tax bill and other
penalties.
If you liberate your pension, you need to tell HMRC
and will have to pay tax, which could add up to
more than half your pension savings. If you don’t
inform HMRC and HMRC contacts you first, you
could be charged penalties and interest in addition
to the tax.
Be alert to offers like this and if in any doubt,
take advice from a registered adviser.
Highlights on some other key pension issues, which you may
have read or heard about in the news, are featured below.
What will the State do for me?
Hot topics in the news
Did you know?
The net increase in the DB Section of the
Fund over the year to 31 March 2013
was
£415
million.
A pension from the State when we retire is perhaps something that we take for granted.
But how do State Pensions work? And, following all the recent and proposed changes,
what does the future look like?
Now...
Over our working lifetime, as well as paying income tax
we pay National Insurance Contributions. Among other
things, these contributions go towards State benefits such
as jobseekers’ allowance, maternity allowance and your
State Pension.
You build up ‘qualifying years’ of National Insurance
Contributions and to receive the full amount of
State Pension you need to have a certain number of
qualifying years (currently 30).
You might also be entitled to a State Additional Pension (SAP), which
your National Insurance Contributions will pay for if you are ‘contracted
in’ to the SAP. If you are ‘contracted out’ of the SAP, you will pay less
National Insurance and the company pension scheme will pay you an
equivalent level of pension at retirement.
When you reach your State Pension Age, you will begin to receive a
pension from the Government. The maximum amount of Basic State
Pension is currently £110.15 a week.
In the future...
State Pension Age
State Pension Age (SPA) is increasing. For women, it is already increasing from 60 to 65 in a number of stages.
Once it reaches 65 (in November 2018), it will then increase further, to 66 for both men and women by
October 2020; to 67 by 2026 and to 68 by 2046. It has been proposed that the SPA could continue to increase
in future, linked to the increase in life expectancy.
Flat rate State Pension
The Government plans to replace the Basic State Pension and the State Additional Pension with a single
flat-rate pension by 2016. The pension would be £144 a week in today’s prices, increased in line with inflation.
Under the proposals you would need 35 qualifying years of National Insurance Contributions to receive the full
amount. Anyone already receiving a pension when the changes come into effect would not be affected.
The increases in the State Pension Age will not affect when you receive your Fund pension or how
much you receive – if you are contracted out of the State Additional Pension (SAP) you will build
up a broadly equivalent level of benefits to the SAP in the Fund instead. If you are contracted in to
the SAP (BAT Section members), when you retire the Fund will pay the SAP until you reach State
Pension Age, when the Government will start paying it. If you would like more information on how
the Fund and the State pensions interact, read the article ‘Adding it all up’ in your 2012 edition of
FYI magazine.
The introduction of the flat rate pension might affect members of the Fund (including members
that are contracted out and members that receive a SAP deduction). We will give you more detail
around how this will affect the Fund once the Government has provided information on how the
flat rate pension and your Fund pension will interact.
