7. Deferred Pensioners

7. Deferred Pensioners

Q7-1. I have not yet taken my pension and I am under NPA – what are the PPF rules about taking lump sums and the resulting pension reduction and do they differ from the Plan Rules?
Note: The information provided in response to this question is relevant and correct whilst the Plan remains in the PPF assessment period. If we are successful in securing benefits outside the PPF then some of the detail set out below may change. Any new arrangements will be covered in personalised letters and other materials which will be sent to each member.
Under the PPF’s rules, members can commute part of their pension (i.e. reduce it) in return for a lump sum. Commutation is only undertaken at the time of retirement, and is restricted to a maximum of 25% of a member’s pension entitlement. For most members these provisions are the same as under the Plan Rules. However under the PPF rules there are different factors that need to be applied to work out how much your pension will be reduced to provide you with a lump sum.
Q7-2. If a deferred member dies before reaching NPA then how much pension will his/her partner or spouse be entitled to?
Note: The information provided in response to this question is relevant and correct whilst the Plan remains in the PPF assessment period. If we are successful in securing benefits outside the PPF then some of the detail set out below may change. Any new arrangements will be covered in personalised letters and other materials which will be sent to each member.
If a member had not taken early retirement prior to the start of assessment and died before reaching his/her NPA for the Plan then the age of the member immediately prior to death will be deemed to be his/her NPA. This means there will be no early retirement reduction and compensation will be payable from this date. Compensation will be payable at 50% of what the member would have been entitled to at NPA but subject to the application of 90% and the Cap. It is irrelevant whether or not the member still works for NNUK since all active members became deferred members on January 14, 2009, the date the company entered administration.Please see Q4-2 and Q5-1 for further details.
Q7-3. What happens to death in deferment benefit under PPF rules – I believe the Plan refunded member’s contributions?
Member’s contributions are not refunded – see Q7-2 for details of survivor’s benefits
Q7-4. I have had two periods of service with Nortel – I was already a deferred pensioner for my earlier service and ceased to be an active member for my ongoing current employment at the beginning of assessment. How are these two periods of service treated under PPF rules when I eventually take my pension?
Note: The information provided in response to this question is relevant and correct whilst the Plan remains in the PPF assessment period. If we are successful in securing benefits outside the PPF then some of the detail set out below may change. Any new arrangements will be covered in personalised letters and other materials which will be sent to each member.
Your accrued benefit for each period of service will be calculated separately. Assuming you were under NPA on January 14, 2009 then if your total benefit is greater than the Compensation Cap (see Q4-2 for more about the “Cap”) at the time you retire then your benefit will be reduced accordingly. Finally, the 90% factor will be applied to arrive at your initial pension amount.
Q7-5. I have a ‘defined benefit’ pension from Nortel and from a previous employer. For the purpose of determining whether or not I am over the Compensation Cap will the PPF take into account my other pension when I retire?
No. The PPF will only take into account your NNUK pension. Even if your previous employer became insolvent and their pension scheme became the responsibility of the PPF each of your pensions would be treated completely separately.
Q7-6. I am over 50 – can I still take early retirement?
Note: The information provided in response to this question is relevant and correct whilst the Plan remains in the PPF assessment period. If we are successful in securing benefits outside the PPF then some of the detail set out below may change. Any new arrangements will be covered in personalised letters and other materials which will be sent to each member.
During assessment members can apply for early retirement because the Plan Rules allow it. Benefits are payable at PPF levels using PPF early retirement factors and the PPF rates for exchanging pension for a cash lump sum. In a very few cases PPF benefits could be greater than Plan benefits and in such cases Plan benefits would apply – see Q4-5 for more details. Note the relevant notice periods set out in Q7-9.
Q7-7. I understand that the minimum age at which a pension can be first put into payment rose from 50 to 55 in 2010 – does this mean that under Plan/PPF rules no member under 55 will be able to draw a pension or will members who currently have a right to retire at 50 under the Plan Rules continue to have this right?
Note: The information provided in response to this question is relevant and correct whilst the Plan remains in the PPF assessment period. If we are successful in securing benefits outside the PPF then some of the detail set out below may change. Any new arrangements will be covered in personalised letters and other materials which will be sent to each member.
PPF Miscellaneous Amendment Regulations have clarified that those members’ with a right to retire at age 50 will be preserved irrespective of whether or not the Plan eventually becomes the responsibility of the PPF. This right also applies during the assessment phase. Note the relevant notice periods set out in Q7-9.
Q7-8. I will be 60 next year and I left Nortel in 1999 after about 16 years service – do I have to take my pension when I reach 60 and, if not, what are my options and what is best for me?
Note: The information provided in response to this question is relevant and correct whilst the Plan remains in the PPF assessment period. If we are successful in securing benefits outside the PPF then some of the detail set out below may change. Any new arrangements will be covered in personalised letters and other materials which will be sent to each member.
For the purposes of this answer we will assume that you will have no AVC entitlement, that your Normal Retirement Date as defined in the Plan Rules (NRD) is 65 and that 60 is your NPA – please see Q4-1 for other NPA definitions that may apply to you.
Whilst the Plan is in assessment you can take your pension at age 60 without any actuarial reduction but you are not obliged to take your pension until you reach the age of 65.
If you do decide to take your pension at age 60 then please refer to Q7-10 for details of how your initial pension will be calculated. Once you have taken your pension then future increases will be in accordance with Q2-7. In your case, only about two years of your service is after April 1997 so, in accordance with PPF rules, only 2/16 (or about 12%) will be eligible for future increases, which are capped at 2.5% per annum.
If you decide to defer your pension beyond age 60 then you may do so for any period up to your 65th birthday but note that the Trustee has no powers to defer beyond this age. Again, Q7-10 will determine your initial pension at your chosen start date, which will then increase in accordance with Q2-7.
If the plan formally becomes the responsibility of the PPF, under PPF rules you may be able to take compensation beyond age 60 and receive an adjustment to reflect the period for which the compensation has been postponed. The adjustment will be calculated according to factors published by the PPF. Compensation can be taken either periodically or as a lump sum, both of which will be paid less income tax. Depending on your own personal tax circumstances this could result in you paying income tax at a higher band. However, HMRC does recognise that ‘long standing underpayment of pension’ can result in too much tax being paid and, following a request from the taxpayer, payments can be ‘spread back’ over the relevant tax years.
Due to the way that inflation is taken into account in Q7-10 and Q2-7 it is also possible that a pension you deferred beyond age 60, but is actually in payment at the time the Plan becomes the responsibility of the PPF, could be reduced if inflation has been at a high level.
If the Plan does not become the responsibility of the PPF at the end of assessment then there will be no changes to your pension if you deferred it beyond age 60 and it will continue to be paid by external insurer(s) or other arrangements when the Plan is wound up – see Q2-2.
Whenever you put your pension into payment you will usually have the option to take a lump sum and a reduced pension.
Any decision on the best way forward for you will be driven by your own individual circumstances so please see the paragraph on independent financial advice in the Introduction section of this Q&A.
Q7-9. How much notice do I need to give to put my Nortel pension into payment during the assessment period?
Currently you need to give Willis Towers Watson two months notice of your intention to take your retirement benefits and have returned all completed paperwork to them within that timeframe. However if the Plan enters the PPF at the end of assessment then the notice period will increase to six months.
Q7-10. I understand that deferred pensions are no longer being revalued annually – how will my future pension take into account ongoing inflation?
Note: The information provided in response to this question is relevant and correct whilst the Plan remains in the PPF assessment period. If we are successful in securing benefits outside the PPF then some of the detail set out below may change. Any new arrangements will be covered in personalised letters and other materials which will be sent to each member.
Revaluation of your deferred pension from the date you left the Plan up to the start of assessment on January 14, 2009 will be carried out in accordance with Plan Rules as before. Although you will not receive annual statements, your pension benefits will rise.
Revaluation from the start of assessment until your chosen retirement date will be carried out using PPF procedures and the calculation is done immediately prior to putting your pension into payment. This calculation starts with the RPI index for November 2008 (two months prior to the start date of assessment) and ends with the index two months before the date your pension is put into payment. RPI is used for this calculation until January 2011 but changes in legislation mean that the Consumer Prices Index (CPI) is used thereafter. To make the calculation, the following index values are used: RPI in November 2008 was 216.0, RPI in January 2011 was 229.0 and CPI in January 2011 was 116.9.
In addition, the overall increase from the start of assessment until your date of retirement is limited to a cumulative 5% per annum.
By way of example, if your revalued pension benefit at the start of assessment was £5000 per annum, you put your pension into payment in January 2017 and the CPI in November 2016 was 129.8 then your final pension benefit would be:
£5000 x 229.0/216.0 = £5300.9259 (RPI from November ‘08 to January ‘11)
£5300.9259 x 129.8/116.9 = £5885.8869 (CPI from January ‘11 to November ‘16)
Final Pension Benefit = £5885.89
If you decide to take a lump sum and/or early retirement then there will of course be further adjustments but when the final figure has been calculated, payment will be restricted to the 90% level and could be less if you are subject to the compensation cap – see Q4-2 for full details.
Deferred members were previously able to use the online ePA system to perform “what if” scenarios on future pension benefits. Since deferred pensions are no longer revalued annually as per Plan Rules, the calculation of future pension benefits could be misleading and we have therefore decided not to re-establish this facility. However ePA can still be used for administrative functions such as change of address, etc.
Q7-11. I have now reached NPA and am considering when to put my pension into payment. Is there an advantage to taking my pension before the outcome of the PPF assessment phase is determined? Or is it better to wait until afterwards?
Deciding when to start taking a pension is a complex decision which will largely depend on a member’s personal financial circumstances. As stated in the Introduction, members are strongly advised to seek professional guidance in this respect. The Trustee is unable to provide financial advice.
If the Plan makes recoveries from the various global insolvency processes which enable us to improve our funding so that we can secure members’ benefits outside the PPF then the starting point will be the PPF benefit levels that each member was entitled to on January 13, 2009.