Option for Hybrid members to opt out of DB Salary Linkage Employee - - PowerPoint PPT Presentation

Option for Hybrid members to opt out of DB Salary Linkage Employee Guide

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Option for Hybrid members to opt out of DB Salary Linkage

As an active hybrid member you’ve kept the salary linkage on your DB pensionable service accrued to 30 June 2015. This means that when your benefits are tested against the annual allowance (AA), it’s calculated taking the total defined contributions paid into the scheme (yours and the employer) and the increase in your DB pension during the Pension Input Period (PIP). The AA for the 2016/17 PIP is £40,000. However, for high earners where your adjusted income (defined as total UK earnings) is £150,000 or more, the AA now reduces by 50p for each £1 of adjusted income above the £150,000, this is known as the tapered AA. The AA will reduce to £10,000 for individuals whose adjusted income is over £210,000. Due to this change in AA the employer has introduced a partial cash allowance for those members where their fixed pay is £110,000 or above. Further information on the partial cash allowance can be found on Know You: https://knowyou.hsbc.ehr.com/uk/en/pfmr/changes/Pages/default.aspx In addition, as a result of the tapering of the AA a further option has been introduced – you’re able to opt-out of the DB salary linkage. You’d still keep your active member status but no further salary increases would be applied to your DB pension. By introducing this option, it means you retain your pension options in the event of redundancy, which for the majority of members is the option to take an immediate DB pension if you are aged 50 or above, together with your DC pension pot. In addition you retain your spouse’s/civil partner pension. The following slides sets out the process and a couple of examples on the impact on your pension.

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What is this all about?

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Option for Hybrid members to opt out of DB Salary Linkage

At the point of opting-out of DB salary linkage your final DB pensionable salary will remain as is i.e. it will not attract any future increases. This means that when the time comes to calculate your DB pension you will receive the greater of:

• your DB pensionable service built up to 30 June 2015 and your final DB pensionable salary at the date of opting
• ut of DB salary linkage
• r
• your DB pensionable service and final DB pensionable salary at 30 June 2015, revalued in line with the Scheme

Rules as if you had left service (this is to help protect your pension against the impact of inflation) from 1 July 2015 up to the date you retire (or die, if earlier). Further information is in the member hybrid guide at: http://www.futurefocus.staff.hsbc.co.uk/~/media/future- focus/pdf/dbs/guides/hsbc_hybrid_scheme_booklet_v54interactive.pdf Please see the examples set out later in the guide.

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How is my pension affected?

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Option for Hybrid members to opt out of DB Salary Linkage

At the current time before you agree to change your benefits pensions law required that you must provide the Trustee with your informed consent to the modification. As part of the consent requirements, you are entitled to make representations to the Trustee about the proposed modification to your benefits – i.e. the removal of your salary linkage. Where you make representations to the Trustee, the Trustee will endeavour to respond as soon as it is able. If you decide that you would like to modify your benefits by opting out of salary linkage, you must complete and return the opt out form to the pension administrators, Willis Towers Watson (WTW) – please see next slide for contact details. If WTW receive your form prior to the 25th of the month the opt out will take effect from the 1st of the following

• month. Should it be received after the 25th it will take effect from the 1st of the moth thereafter. So for example:

1. WTW receive your form on 24 July 2016 and therefore your opt out of DB salary linkage will take effect from 1 August 2016. 2. WTW receive your form on 27 August 2016 and therefore your opt out of DB salary linkage will take effect from 1 October 2016. WTW will then confirm acceptance of the receipt of your form and the opt-out date.

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The Process

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Option for Hybrid members to opt out of DB Salary Linkage

The opt out form is available in the library section of futurefocus website, hybrid member. Once completed it should be returned to the pension administrators, Willis Towers Watson (WTW). Their contact details are: The HSBC Administration Team Willis Towers Watson PO Box 652 Redhill Surrey RH1 9AL Phone: 01737 227575 Email: HSBCpension@willistowerswatson.com

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The Process

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Option for Hybrid members to opt out of DB Salary Linkage

What is my Annual Allowance from 6 April 2016?

It will now depend on the level of your income…. Your Annual Allowance for the current tax year will depend on the level of your adjusted income over that same tax year. This doesn’t just include your HSBC earnings but any taxable income such as rental income or dividend income, plus pension contributions /pension input amounts. However, where your threshold income is £110,000 or less, your Annual Allowance will be £40,000 regardless of the level of your adjusted income. PUBLIC

Annual Allowance from 6 April 2016

What are the steps?

Remember! You can also use your three-year carry forward to maximise your tax relief on your pension savings

Step 1 Determine your threshold income £110,000 or less Annual allowance of £40,000 More than £110,000 Need to calculate your adjusted income Step 2 Determine your adjusted income Up to £150,000 £40,000 £150,001 to £210,000 £40,000 less £1 for every £2

• f adjusted income in excess
• f £150,000

£210,000 or more £10,000

Download the App!

You can download the Towers Watson AA IncomeCalc app from Apple Store or Google play to help you determine your adjusted income and your Annual Allowance. You will need to know your earnings, your pension savings, your DB pension input amount (if any) and your three-year carry forward to use the App

Threshold Income:

Defined as your total UK taxable income e.g. earnings, rental income, dividend payments, interest, etc plus any pension contributions paid via a new salary sacrifice arrangement set up after 8 July 2015

Adjusted Income:

Defined as your total UK taxable income e.g. earnings, rental income, dividend payments, interest, etc (as per threshold income) plus any employer pension contributions (including any pension contributions paid by salary sacrifice) plus any pension input amounts for a defined benefit scheme such as the HSBC Scheme

Adjusted income Annual Allowance

• £150,000 or less

£40,000

• £150,001 to £210,000

Reduced by £1 for every £2

• f adjusted income
• £210,000 or more

£10,000

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Option for Hybrid members to opt out of DB Salary Linkage

Example 1 For the 2016/17 tax-year Sam calculates that his annual allowance to be £10,000. He therefore decides to opt for the partial cash allowance and not wanting to increase his pension input amount (PIA) any further for the same period he also opts out of the DB salary linkage from 1 August 2016. He does not have any carry-forward to use from the previous 3 tax-years. Sam’s PIA is made up of 2 elements, DC and DB. DC – over the period the total contributions would be £10,000 in line with the partial cash allowance option DB Pension at start of tax-year £65,000 Pension at time of opt out of salary linkage £68,000 Difference £3,000 (adjust by 1% to allow for Sept 16 CPI) Revised Difference £2,350 x 16 = £37,600 PIA for the 2016/17 tax-year £47,600 (£10,000 + £37,600) PIA in excess of AA on which is taxable £37,600 Sam decides to opt for the partial cash allowance for the 2017/18 tax-year and his PIA for the same period is £10,000. This is the same as his AA and by opting out of DB salary linkage he has not exceeded his AA.

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Examples

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Option for Hybrid members to opt out of DB Salary Linkage

Example 1 continued Sam retires at age 60 and the DB pension he will receive is the greater of:

• DB pension as at 1 August 2016 (date opted out of final salary link) = £68,000 pa
• r
• DB Pension as at 30 June 2015 = £62,000 pa revalued to age 60 = £72,000 pa

The pension payable to Sam at age 60 is therefore £72,000 pa

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Examples

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Option for Hybrid members to opt out of DB Salary Linkage

Example 2 For the 2016/17 tax-year Paul calculates that his annual allowance to be £40,000. He decides not opt for the partial cash allowance but not wanting to increase his pension input amount (PIA) any further for the same period he opts

• ut of the DB salary linkage from 1 August 2016. He does have carry-forward of £31,000 to use from the previous 3

tax-years. Paul’s PIA is made up of 2 elements, DC and DB. DC – over the period the contribution paid into DC amounts to £15,000 DB Pension at start of tax-year £55,000 Pension at time of opt out of salary linkage £59,000 Difference £4,000 (adjust by 1% to allow for Sept 16 CPI) Revised Difference £3,450 x 16 = £55,200 PIA for the 2016/17 tax-year £70,200 (£15,000 + £55,200) PIA in excess of AA on which is taxable NIL (c/f of £31,000 less £30,200) Paul decides not to opt for the partial cash allowance for the 2017/18 tax-year and his PIA for the same period is £40,000. This is only tested against his DC savings during the same period and not his DB.

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Examples

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Option for Hybrid members to opt out of DB Salary Linkage

Example 2 continued Paul retires at age 60 and the DB pension he will receive is the greater of:

• DB pension as at 1 August 2016 (date opted out of final salary link) = £59,000 pa
• r:
• DB Pension as at 30 June 2015 2015 = £53,000 pa revalued to age 60 = £61,000 pa

The pension payable to Paul at age 60 is therefore £61,000 pa

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Examples

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