9. Option Letters
- Q9-1. I think my numbers are wrong – can you help?
- If you think any of the numbers in your Option Letter or Personal Statement are incorrect, please contact the Plan Administrator by emailing email@example.com or calling 01707 607601.
- Q9-2. Why are some or any of the options not available to me?
- The options available to you depend on your Share of the Funds (please see the Glossary Factsheet for an explanation of this), when your pension was earned, your age and whether or not you have started to take your pension. For some members this may mean you have no options.
- Q9-3. Why is the Plan not paying for financial advice to help me decide?
- As explained in your letter, the Plan has limited assets. We are not able to pay for financial advice to members, as the cost of this would need to be met by the Plan and this would reduce the benefits we can offer to all members. However, we have negotiated preferential fixed fees for support from our selected financial adviser – please refer to your Option letter to see if this applies to you
- Q9-4. When/Who will the Trustee select their chosen insurance provider?
- The Trustee expects to select their chosen Insurance Provider later this year following a robust selection process including stringent ‘due diligence’.
- Q9-5. Why do I have to complete a form / why is there no form?
- The Trustee is writing to approximately 30,000 members and most have more than one option so you will need to complete an Option Form if you do not wish to take your ‘default’ option. You may also need to contact us to start the process for some options or complete a Payment Form – please check your letter to see if this applies to you.
Some members may not have options and therefore a form is not included in their letters.
- Q9-6. How were my benefits calculated?
- While the assets in the Plan (following receipt of the recoveries from the insolvency proceedings) are greater than the amount required to secure benefits equal in value to PPF Compensation (PPF Pension Value), there are insufficient assets to secure Full Plan Benefits for all members. As a result, the Scheme Actuary has calculated each members’ individual share of the assets which are available to provide benefits for that member.
Your individual share of the assets (or Share of the Funds) is at least equal to the value of your PPF Compensation. If the value of your Full Plan Benefits (your ‘Plan Pension Value’) is greater than the value of your PPF Compensation, your Share of the Funds will reflect a fixed proportion of the difference between your Plan Pension Value and PPF Pension Value. The fixed proportion will be the same for all members and will be dependent on the total remaining assets in the Plan after the cost of securing benefits equivalent to PPF Compensation for all members is taken into account.
Your benefits have been calculated by the Scheme Actuary and reflect the benefits we expect to be able to afford to secure with our chosen Insurance Provider, based on your Share of the Funds.
- Q9-7. I am in poor health – if I get my doctor to confirm this then will you be able to increase my pension?
- If you are already receiving a pension, the pension secured with our chosen Insurance Provider cannot be adjusted to reflect your health status.
However, if you are not yet receiving your pension and will be under Normal Retirement Age when the Plan exits PPF Assessment, you have more flexibility around how you take your benefits. Please see the Transfer Value factsheet for more information on this.
- Q9-8. What are the chosen insurance provider’s terms?
- These are the terms that apply to the policies issued by our chosen Insurance Provider who will provide details to policy holders once benefits have been secured.
- Q9-9. Is there anything in this process which would lead us to a similar situation as British Steel?
- The Trustee is aware of the British Steel situation and understands why this may cause members concern. Although we believe this exercise to be different to that of British Steel and present less risks to our members we have taken steps to reduce any similar risks and advised the following bodies of our approach.
- The Pensions Regulator www.thepensionsregulator.gov.uk
- The Pensions Advisory Service www.pensionsadvisoryservice.org.uk
- The Financial Conduct Authority www.fca.org.uk
In particular, when reviewing the British Steel process, the key concerns raised by the Government, were:
- members had a short time frame to make an important decision around whether or not to transfer their benefits to an authorised provider or remain in the PPF, and
- the financial advisers who contacted members may have been incentivised to promote transfers.
To address these issues, we have undertaken a stringent selection process to select a financial adviser which is not incentivised in any way related to any decision you make and ensure you have at least 3 months to make any decision, plus cooling off and reconfirmation periods where applicable.
Please also refer to the Pension Scams leaflet included with your Option letter.
- Q9-10. I am a pensioner with an estimated back payment. How has this been calculated?
- If you have an estimated back payment, it means that the pension you have received from the Plan during the PPF assessment period (i.e. since January 2009) has been restricted to comply with the PPF compensation rules. At the end of the assessment period the Trustee will calculate how much your Plan pension has been restricted over the whole period, and a proportion of this amount will be paid to you as a back payment. The proportion will be the same for all members and will be dependent on the total remaining funds in the Plan after the cost of securing benefits equivalent to PPF Compensation for all members is taken into account. This is the same proportion used to calculate your Share of the Funds – see Q8-4
The restriction is equal to the difference between the pension you have been paid during the assessment period and the pension that you would have been paid under the Plan rules. The complex and detailed calculation will depend on a number of factors, including when your pension started to be paid, the amount your pension was restricted at that point (or at January 2009 if later) and the subsequent restrictions on each annual pension increase. If you started to receive a dependant’s pension during the assessment period, it will also include any earlier assessment period restrictions that were applied to the deceased member’s pension, or any lump sum death benefits (including bereavement grants) payable under Plan rules.
- Q9-11. Can I transfer to my SIPP if I take advice through LEBC?
- LEBC have arrangements in place with selected pension providers that are able to accept transfers from Plan members. If you have a SIPP in place, or another pension arrangement, and you wish to consider transferring your Share of the Funds to this personal arrangement, LEBC will need to send a letter of authority to you to complete so that they can obtain the necessary information. Please note that obtaining information about personal arrangements can take time and the Trustee is not able to extend the option deadline due to the overall insurance timeframe. However, if you select the Transfer Value option you will have a right to change your mind when we write to you with an updated Transfer Value as we approach the expected date of transfer. Up until then, if you elect to transfer, LEBC can consider your own personal arrangement (if this cannot be completed before the option deadline) to see if this is a better alternative for you than the arrangement that LEBC has in place. This would form part of the transfer processing stage and charge.
In addition, please note that personal pension schemes typically do not require advice to switch from one personal pension to another. LEBC, through their advice process, can discuss this further with you.
- Q9-12. Why is my dependant’s pension less than 50% of my own pension?
- If you are a pensioner member who retired before 13 January 2009 and had either AVCs or redundancy sacrifice monies applied to buy extra pension at retirement, then your letter will show a DC pension that includes the current level of this AVC/sacrifice pension separately to your main Plan pension. You will also have a DC Dependant pension shown, which is usually 50% of this AVC/sacrifice pension.Members who retired before 2009 and took a tax-free lump sum at retirement, along with redundancy sacrifice monies being paid into the Plan, saw adjustments made to their pension in 2016 as a result of changes to the way the PPF recognised these payments. These adjustments were caused by part of the member’s pension now being regarded separately as DC pension, which meant that PPF cutbacks no longer applied to that pension.
The 2016 adjustment did not, however, change dependants’ pensions under the Plan. As a result DC pensions for members were increased, but as DC dependant pensions were not, the DC dependant’s pension is relatively lower. The allocation of dependant’s pension in the main Plan remained the same. Therefore, members with the 2016 adjustment are likely to see in their letter a DC dependant’s pension which is less than 50% of their DC member’s pension.
Note that DC pensions already in payment will be payable in their current form with our chosen insurance provider. They are unaffected by any decisions regarding options set out in members’ letters.
- Q9-13. I understand that market conditions are constantly changing and that my Share of the Funds may purchase more or less pension but I don’t understand how my Transfer Value (equal to my Share of the Funds) can reduce but my pension increases. Can you please explain?
- First, please note that this question and the answer below is only relevant for our deferred members i.e. those who are not yet in receipt of their pension. A Transfer Value is not available to members who are already in receipt of their pension.
The Transfer Value and pension estimates in your original Option Letter were based on the value of Plan assets (including expected recoveries from the insolvency process) and indicative insurer pricing as at 31 December 2017. Updated estimates provided to members who previously indicated an interest in a Transfer Value are based on the value of Plan assets and insurer pricing as at 31 May 2018.
Plan assets have decreased over this period so it will come as no surprise that your Transfer Value has also decreased. In addition, insurer pricing has also changed since 2017 and as a result the funding position across the Plan as whole has improved – improved funding means that we need less assets to purchase the same amount of pension, another reason why some transfer values have decreased. Your Transfer Value is equal to your Share of the Funds so do follow this link if you would like to remind yourself of the full definition.
The Trustee has in place an investment strategy which largely protects the amount of pension that can be purchased as a result of a change (decrease or increase) in Plan assets. This protection and improved insurer pricing mentioned above more than compensates for the decrease in your Plan assets so although the Transfer Value has fallen, your Share of the Funds will purchase a higher pension.
Remember though, your Transfer Value will always represent the cost to the Plan of securing your alternative pension benefit with our chosen insurer, so all the numbers may change again between 31 May and when the Plan is expected to leave PPF assessment in October.
- Q9-14. I have just received an updated transfer value for my pension entitlement and realise the amount is not guaranteed and the final figure will not be known until October. How can I be expected to make a final decision now on whether to take a transfer or pension when I don’t have firm figures to work with?
First, please note that this question and the answer below is only relevant for our deferred members i.e. those who are not yet in receipt of their pension. A Transfer Value is not available to members who are already in receipt of their pension or over normal pension age.
The key here is that in the case of transfers from a Defined Benefit (DB) scheme whose sponsoring employer is solvent, a 3 month guarantee period is required by law and is usually underwritten by the employer. However, in our case the sponsoring employer (NNUK) is not solvent and has been in administration since 2009. As there are no other sources of funds we cannot currently underwrite transfer values for some members without putting the benefits of other members at risk.
You will recall that the Trustee’s prime objective since 2009 has been to secure sufficient recoveries from Nortel’s global insolvency process to be able to secure benefits of higher value than PPF compensation from an external insurer for the membership as a whole. If we had failed to meet this objective, then the Plan would have entered the PPF and no members would have had the option of a transfer.
The fact that we now expect to achieve this objective means that the Plan should leave PPF assessment in October 2018 and is then required by legislation to wind-up the Plan and secure benefits for all Plan members with an insurer. In the case of members who are under normal pension age, they would have the right to take a future transfer on terms set by the insurer.
However, the Trustee recognised that many Plan members under normal pension age may want to take a transfer immediately upon leaving PPF assessment instead of securing an annuity from an insurer. The Trustee has therefore run an option process in advance of this, so that members wishing to transfer can receive a full Share of the Funds rather than a transfer on the insurer’s terms. The Trustee will still secure annuities for all other members immediately on leaving PPF assessment. The Pensions Regulator (TPR – which regulates the way the Plan is operated) and the Financial Conduct Authority (FCA – which regulates the member advice process) are aware of this option process and members taking transfer advice received a letter jointly signed by TPR, FCA and the Pensions Advisory Service (TPAS).
When the Plan leaves PPF assessment, benefits will immediately be secured that reflect each member’s Share of the Funds at that time. This process will happen simultaneously for all members, so it is not possible to provide members with options at that stage. It is also not possible to know the final amount of any member’s Share of the Funds in advance as it will depend on asset values, insurer pricing and insolvency recoveries at the time the Plan leaves PPF assessment. Therefore, we cannot offer guaranteed transfer values and is the reason why all figures quoted to date were also expressed as being ‘estimated’.
For the same reasons as above, the amounts illustrated to certain members by way of Winding-up Lump Sums or Trivial Commutations are also not guaranteed.