About Your Benefits

Arrangements for paying your pension

About three months before your pension is due for payment, the Scheme’s administration office will write to you about the value of the benefits due to be paid, any options that are open to you and the arrangements for the payment of benefits. The benefits payable will be those notified to you when you left service plus the value of increases up to the date your pension starts and the value of any Bonus Augmentations awarded after you left service. Pensions are paid in calendar month instalments in arrears by credit transfer into your bank or building society account. Lump sums are also paid by credit transfer.

If you left service with an incomplete year’s contributing service in your final year, the final fraction was rounded up to a full year in accordance with the provisions of Rule 35 of the Scheme. A deduction will be made from your pension equal to the contributions that you would have made during the remainder of that final year. This is referred to as a Rule 35 deduction.

Tax free lump sums

If you left service before 19 June 1987 your pension entitlement is based on 1/80th of pensionable salary for each year of contributing service plus a lump sum of 3 x your annual pension.

If you left service on or after 19 June 1987 and before 21 June 1990, your pension entitlement is as described above but you will be given the option to exchange half of your lump sum for pension. This is known as the ‘half cash’ option. Every £9.00 of converted lump sum will provide £1.00 extra pension a year.

EXAMPLE : HALF CASH OPTION
If your pension when you reach pensionable age is £6,000 a year with a lump sum of £18,000 you would be able to exchange £9,000 of lump sum for pension. Your benefits would then be: Extra pension = £9,000 ÷ 9 = £1,000 a year Pension payable = £6,000 + £1,000 = £7,000 a year Lump sum   = £9,000

If you left service on or after 21 June 1990 your pension entitlement is a pension based on 1/60th of pensionable salary for each year of contributing service. There is no automatic entitlement to a lump sum payment in addition to your pension but you will be given the option to exchange up to 25% of your pension for a lump sum. The exchange rate is a lump sum of £9.00 for every £1.00 of annual pension.

From 1 April 2006 new taxation rules mean that you can take up to 25% of the total value of your Scheme benefits as a tax free lump sum, subject to a maximum of 25% of the Lifetime Allowance.

EXAMPLE : CASH SUM OPTION

The Scheme’s Actuary has determined that the maximum tax free cash can be calculated as 3.829787 x the initial pension at retirement. So for a member who left on or after 21 June 1990 the calculation would be as follows: If your pension when you reach pensionable age is £8,000 a year the maximum cash sum would be - £8,000 x 3.829787 = £30,638. The exchange rate for pension to lump sum remains unchanged at 9:1 so the reduction in annual pension to account for the lump sum would be calculated as follows: £30,638 / 9 = £3,404 So the maximum cash would be £30,638 with an annual pension of £8,000 - £3,404 = £4,596. You can choose any amount of lump sum up to the maximum allowed. Using the figures from the above example, if you wanted to take a cash sum of £9,000 rather than the maximum amount, this would reduce your pension by £1,000 from £8,000 a year to £7,000 a year.

Taking a cash sum instead of a pension may not be in your best long term financial interests, or those of your dependants. You should think very carefully about your long term financial needs, and those of your family – especially as you may be drawing a pension for decades to come. You may wish to consider taking financial advice before deciding whether to take cash from the Scheme instead of pension income.

Bonus Augmentations

To date Bonus Augmentations have been made as follows:

1996 Bonus Augmentation The Bonus Augmentation awarded with effect from 1 April 1996 was 6.7% of deferred guaranteed pension as at 31 March 1996.

1998 Bonus Augmentation The Bonus Augmentation awarded with effect from 1 April 1998 was 10.8% of deferred guaranteed pension as at 31 March 1998.

2001 Bonus Augmentation The Bonus Augmentation awarded with effect from 1 April 2001 was 11% of deferred guaranteed pension as at 31 March 2001.

These bonuses were consolidated and converted into a reducing bonus after the 2003 valuation.

Replacement bonuses were awarded every January from 2005 to 2010 equal to the amount by which the reducing bonus was reduced. Following the 2009 valuation these bonuses were also converted to reducing bonuses. This means that there is no real change to the amount of bonuses being paid to date (March 2010). Whether the total amount of bonus can continue to be protected in future years depends on the outcome of future valuations.

2007 Bonus Augmentation

The Bonus Augmentation awarded with effect from 1 April 2007 was 10.5% of deferred guaranteed pension as at 1 April 2007. This bonus has also been converted to a reducing bonus.

The Levelling Option

The levelling option is only open to members with a state pension age of 65 or below. You will be notified if you have this option.

A factsheet is available in the Publications Page

Taking your benefits early

If your benefits are payable from the Scheme’s Normal Retirement Age of 60 you will have the option of taking your benefits early at any time after you have reached age 50.

If you take this option your benefits will be reduced because payments will have to be made for a longer period of time than if your pension started at 60. The rate of reduction is currently 3% a year for each year that benefits are taken early.

EXAMPLE: TAKING BENEFITS EARLY

If you left service on or after 21 June 1990 and at age 50 your deferred pension is £6,000 a year, the pension payable at age 50 would be: £6,000 x 70% = £4,200 a year Up to 25% of the value of your pension could be exchanged for a tax free lump sum at the 1:9 exchange rate If you left service before 21 June 1990 and at age 50 your deferred benefits are a pension of £4,500 and a tax free lump sum of £13,500 your benefits at age 50 would be: An annual pension of £4,500 x 70% = £3,150 a year and a tax free lump sum of £13,500 x 70% = £9,450. If you are entitled to the half cash option then you could exchange half of the lump sum for pension at the 9:1 exchange rate.

Postponing the date your pension is due to start

If your pension is due to start from age 50, you can postpone the start date to any time up to your 60th birthday. Your benefits will increase for each month that you defer the start date. The rate of increase is currently 0.5% a month. This will be reviewed periodically by the Government Actuary's Department. This will be in addition to your normal RPI linked increases. Benefits payable to your dependants will be similarly increased. The Scheme’s administration office will write to you about one month before your 50th birthday to tell you about the option. You do not have to decide in advance the age at which you want your pension to start.

Your Bonus Augmentations will be similarly increased if you postpone the start date for your pension. The arrangements in respect of any future Bonus Augmentations may be different.

The administration office will be able to tell you if there is a risk that the deferred additions will increase your pension above the standard Lifetime Allowance.

Early retirement due to ill health

Full benefits, with no reduction for early payment, can be paid before your normal pension age if you have to retire early because of ill health. The Scheme’s Medical Adviser will need to be satisfied that you are unfit to carry out any form of work and that you are likely to remain unfit until your normal pension age. There are special arrangements for members who were BCSSS contributors after October 1994 and who are contributors to the Industry Wide Coal Staff Superannuation Scheme. These are explained in the section headed 'Arrangements for Members Transferred to New Employment on Privatisation'. The benefits to be paid will be your deferred pension benefits calculated at the date the Medical Adviser certifies that you are unfit. Payment of your benefits will start from that date. The relevant lump sum option will apply but the Levelling Option will not be available.

Benefits for members who paid AVCs

If you paid Additional Voluntary Contributions (AVCs) as well as your normal BCSSS contributions you will have built up an AVC fund with the Prudential. This will provide you with additional pension at the time your BCSSS benefits become due for payment. Your AVC fund is used to buy you an annuity, which provides a pension for life for you and, if you wish, for your dependants.

Your AVC statement will be issued on an annual basis and is separate from the main Scheme benefits statement. Government regulations require that estimates must now be based on a number of assumptions including growth of investment, future inflation and how much pension income may cost when you retire. The figures quoted will be adjusted for inflation to reflect today’s prices. A leaflet detailing this can be obtained by clicking here.

Your AVC has an ‘Open Market Option’, which means that you can take your additional pension with any provider you choose at retirement. It may be in your interests to get quotations from several providers to see if there is a better annuity option for your particular circumstances. The Financial Services Authority (FSA) has a website, www.fsa.gov.uk/tables, that makes it easy to compare annuity rates available. Simply supply the information for the type of annuity you want and your AVC fund size. As a comparison, a quotation request form will be sent to you at the same time as your BCSSS retirement options on which you can request up to four quotations from the Prudential.

You may also want to consider taking all, or part, of your AVC fund as tax free cash. This can be done provided that the total cash taken (from both your AVC and BCSSS pension) does not exceed 25% of the total value of your combined benefits, subject to a maximum of 25% of the Lifetime Allowance.

In the unlikely event that the pension from your AVCs at retirement together with your BCSSS benefits exceeds the Lifetime Allowance, you will be taxed on the excess.

Information about the AVC policy can be obtained from the Prudential’s website www.pru.co.uk/retire/annuities.