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 paid by credit transfer or by cheque.

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.

	EXAMPLE : CASH SUM OPTION
	If your pension, when you reach pensionable age, is £8,000 a year you would be able to exchange up to £2,000 for a lump sum. If you took the maximum lump sum permitted your benefits would then be:
	A reduced pension of £8,000 - £2,000 = £6,000 a year A lump sum of £2,000 x 9 = £18,000       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.

Bonus Augmentations

Your deferred pension may also increase if there are future valuation surpluses which enable the Trustees to improve benefits by awarding Bonus Augmentations. Deferred Bonus Augmentations will be kept separate from the rest of your deferred pension entitlement. To date Bonus Augmentations have been made as follows:

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

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

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

The Levelling Option

State pensions are not payable until age 65 for men. For women the State Pension Age will be changed from 60 to 65 on a phased basis from 2010. Therefore all male members of the Scheme and many female members will have to wait some years after their Scheme pension starts before receiving their State pensions. However, it is possible to maintain a more uniform level of income throughout retirement by taking a higher Scheme pension until State Pension Age and a reduced Scheme pension from State Pension Age. This is known as the Levelling Option. It does not affect the calculation of future pension increases which will be based on the pension prior to any Levelling Option increase or reduction.

How the Levelling Option Works

The option provides a fixed addition to your Scheme pension up to State Pension Age, followed by a fixed lifetime deduction from your Scheme pension after that age. The amounts of the addition and the subsequent deduction are expressed as a proportion of the basic State retirement pension for a single person at the date your pension starts. The proportions are on an age related scale – the option provides a higher addition the nearer you are to State pension age at the date your pension starts.

	EXAMPLE : LEVELLING OPTION
	The example assumes a BCSSS pension of £5,000 a year and a State basic pension of £3,920 a year.         Pension starts at Age 50 Pension starts at Age 60   Before State pension age Scheme pension £5,000 £5,000 Levelling Option     Addition £941 £2,430 Total pension paid by BCSSS £5,941 £7,430         After State Pension age     Scheme Pension £5,000 £5,000 Levelling Option     Deduction £2,979 £1,490 Total pension paid by BCSSS £2,021 £3,510       Add State pension £3,920 £3,920       Total income £5,941 £7,430

The Levelling Option terms for women are different since they have a longer average life expectancy than men, and since State Pension Age for many women is less than 65. The Levelling Option addition and deduction are fixed amounts but, in practice, the Scheme pension and the State pension will increase in line with annual RPI increases. It will be necessary for the administration office to check that the amount of the deduction does not reduce your Scheme pension to less than the amount of the Guaranteed Minimum Pension that the Scheme will have to pay when you reach State Pension Age. In some circumstances this may restrict the amount of lump sum you can take. Benefits payable to your dependants are not affected if you take this option. Levelling Option adjustments are ignored for the purpose of Inland Revenue Limits.

The Levelling Option is only open to certain members. You will be notified if you have this option.

For members who take the Levelling Option after 1 April 2003 improved addition and deduction factors will be adopted, subject to Revenue approval, the deduction will cease from age 80.

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 4.5% a year for each year that benefits are taken early. From 1 April 2003 the rate of reduction will be 3% a year of the value of your benefits at the date pension starts for each year that benefits are taken early. If you take the option prior to 1 April 2003 your pension will be increased in line with the new rates from 1 April 2003.

	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: Before 1 April 2003 - £6,000 x 55% = £3,300 a year Up to 25% of £3,300 could be exchanged for a tax free lump sum at the 1:9 exchange rate On or After 1 April 2003 - £6,000 x 70% = £4,200 a year Up to 25% of £4,300 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: Before 1 April 2003 – a pension of £4,500 x 55% = £2,475 a year and a tax free lump sum of £13,500 x 55% = £7,425 On or after 1 April 2003 – a 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 payable in full 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 'deferred addition' is currently 0.5% a month. This will be reviewed periodically by the Scheme’s Actuary. 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 three months 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, and existing bonuses may not be paid in full in the event of a Scheme Deficit.

The administration office will be able to tell you if there is a risk that the deferred additions will increase your pension to the maximum allowed by the Inland Revenue.

Early retirement due to ill health

Full benefits, with no reduction for early payment, can be paid at any time 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 later. The benefits to be paid will be your deferred pension benefits calculated at the date the Scheme's 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.