Plan your next move
The conventional Defined Benefit (DB)
pension with tax-free lump sum option
Introduction
As a member of one of Babcock International Group’s Defined Benefit (DB) Pension Schemes, the Scheme provides you and your
dependants with the following benefits:
For you:
For your dependants:
•
a pension at retirement based on your final pensionable salary
and pensionable service,
•
increases to your pension in accordance with the Rules
of the Scheme,
•
the choice of taking some of the pension as a tax-free lump sum,
•
the chance to take early or late retirement, and
•
the opportunity to boost your pension by making extra
contributions if you’re an active member.
•
a pension on your death in retirement, and
•
a cash sum if you die before retirement.
How does it work?
As a member of one of the DB Schemes, your pension is dependent on your length of service and your final pensionable salary.
For each year you contribute to the Scheme, you build up pension which is then paid from your retirement date.
Depending on the section of the Scheme you are in your benefits may be different but an example is below:
Mary contributed to the Scheme for 30 years. When she retired, her final pensionable salary was £20,000 a year.
For each year she contributed to the Scheme she is entitled to an annual pension of 1/60th of her final pensionable salary.
This is calculated as follows:
30 Years
60
X £20,000 = £10,000 a year
This will be paid to Mary from the Scheme for the rest of her life. The pension will be reviewed each year and, if appropriate, increased.
If Mary dies and leaves an eligible dependant, that person will be entitled to a portion of Mary’s pension and that will continue until
their death.
Each member’s pension entitlement will be different and these entitlements are set out in the Scheme Rules. A summary is available
in the Scheme Guide available on the website www.pensions.babcock.co.uk or from the Scheme Administrator.
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What does it look like?
This graph illustrates how your income in retirement might look with
a conventional Defined Benefit (DB) pension and a tax-free lump
sum. It suggests that:
State pension
Babcock defined benefit pension
Other pension
Savings
Lump Sum
•
you will use your tax-free lump sum in the early years of
retirement reducing the annual pension you would have
otherwise received.
•
this option will give you greater flexibility to fund initial
retirement activities using any savings, if appropriate,
alongside your pension.
•
your DB pension will be your main source of income in
later retirement and will increase annually to keep pace
with inflation.
•
your DB pension will be supplemented by your State pension.
Please note the graph above is for illustrative purposes only.
You can use the retirement profiler, plan your next move, to vary
the period over which you would use your lump sum and any
savings (if appropriate) on your results page. Depending on your
initial responses it may also illustrate additional benefits built up
outside of the Babcock Scheme.
The tax-free lump sum option
You can choose to give up some of your pension at retirement and
take a lump sum instead which, under current tax rules, is payable
free of tax.
The maximum lump sum you can take tax-free is 25% of the value
of your benefits at retirement.
If you do choose to take a tax-free lump sum, your pension will
be reduced. However, the pensions for your dependants are
not affected – they are calculated based on the full pension you
could have received.
For example – if Mary had chosen to receive a tax lump sum of
£50,000 at retirement then her starting pension may be reduced
to around £7,500 a year.
Is it for you? Points to consider
Feature
Details
Flexibility
•
The benefits for each member are set out in the Scheme Rules.
•
There is little flexibility in the benefits you receive, other than the fact that you
can choose whether or not to take a tax-free cash lump sum at retirement.
•
Alternatively, you could choose the Pension Increase Exchange option.
•
Pension Increases are as set out in the Scheme Rules.
•
By choosing the tax-free lump sum option, the initial pension you receive will be lower
and while it will increase each year, it will always be lower than if you hadn’t chosen
the tax-free lump sum option.
•
If you die and an eligible dependant survives you, they may be entitled to a pension
and/or a lump sum benefit.
•
Choosing the tax-free lump sum option does not alter the benefit they will be entitled to.
•
The pension from the Scheme, unless you retire on the grounds of ill health,
takes no account of your lifestyle e.g. where you live or life expectancy.
Annual Increases
Dependants’ benefits
Lifestyle
More information/Next steps
Before making a decision you should take impartial financial advice.
•
For guidance on choosing an adviser and finding one
local to you, go to:
www.moneyadviceservice.org.uk/en/categories/
financial-help-and-advice
•
If you have any questions about your pension,
you can speak to the administration team.
•
Visit the state pension website www.gov.uk
to find out more about state pensions.
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