BT Retirement Saving Scheme: Standard Life Freedom and Choice OptionsFollowing the “freedom and choice” changes introduced recently Standard Life is making changes to the investment options in the BT Retirement Savings Scheme (BTRSS) for those who are ten years or less away from their planned retirement date. For some members a decision is needed by 3rd July 2015.
Background
Pension scheme members now have more options about how they can take money from their pension when they retire.
Traditionally, on retirement, most people bought an annuity and took a tax-free lump sum. Now members have the option to take your money in a number of different ways, for example:
• Take a tax-free lump sum and buy a lifetime income (an annuity) with the rest.
• Take a lump sum, including your tax-free lump sum.
• Take a tax-free lump sum and use the rest to take a flexible income (known as drawdown).
• Take a combination of these.
These options are currently available from age 55 onwards.
More information on the background can be found in LTB 202/2015 and LTB 218/2015.
The Changes
Standard Life is making some changes to the low-involvement investment option, which is the default investment option of the BTRSS.
Members will not see any changes until they enter the investment glide path to retirement which starts ten years from their planned retirement date.
Once the glide path starts pension investments move into Pre Retirement and At Retirement Funds. These are designed to prepare an individual’s pension for buying an annuity when they retire.
With the new flexibilities, it is expected that many members will no longer buy an annuity at retirement. So Standard Life is making some changes to the Pre Retirement and At Retirement Funds because members are more likely to take lump sums or a flexible income from their pension.
Standard Life is changing the following:
a) The underlying investment mix of the Pre Retirement and At Retirement Funds. These changes mean that by the time most members retire they will be in a mix of investments that gives them the flexibility to take their money the way they want.
b) The charges for the Pre Retirement and At Retirement Funds are increasing slightly because they now include a wider range of investments, which gives members greater flexibility about how they take their money. Previously these funds invested mainly in bonds. They now include equities from around the world, as well as bonds, property, absolute return funds and cash-type investments.
c) The name and code of the strategy used for the default low-involvement investment option to the Passive Plus III Universal Strategic Lifestyle Profile (code: U3PP), and some changes to the names, codes and fund descriptions of the Pre Retirement and At Retirement Funds.
The period over which individuals move into the Pre Retirement and At Retirement Funds will continue to be 10 years.
The Charges
The effective total annual fund charge for each fund is the fund management charge, plus any additional expenses which apply, minus the scheme rebate.
The effective total annual fund charges for the BTRSS low-involvement investment option will continue to be 0.35% when 10 or more years from retirement. This will reduce to 0.27% in the final three months before retirement. Previously the charges dropped to 0.26% in the final three months.
Charges and rebates are not guaranteed and may be changed in the future. However, Standard Life has confirmed to BT that the rebates which BTRSS members get will not be reduced until at least January 2020.
Other New Investment Choices
Standard Life is also introducing a range of additional strategic lifestyle profiles (SLPs) designed to meet the different options members now have when they retire:
• Universal SLPs – if you want the flexibility to take your money the way you want when you retire, or if you plan to take a flexible income (drawdown).
• Annuity SLPs – if you plan to take your full tax-free lump sum and buy a fixed annuity with the rest.
• Lump Sum SLPs – if you plan to take all of your pension as one or more lump sums
What it means for individuals
For most members in the BTRSS there is no automatic change as they are more than 10 years from their planned retirement date, or are not part of the default investment. So for the vast bulk of members Standard Life is providing information to members and encouraging them to think about the choices they have made, or will need to make, in the future.
However, for those in the BTRSS default fund with less than 10 years to go until their nominated retirement date, then there is a practical issue to consider.
For those individuals there will be changes to their investments as detailed above. If members are happy with the changes, they do not need to do anything. Standard Life automatically makes the change.
There will be a small one-off cost as a result of making the change to the underlying investments. This will be reflected in the price used to calculate the value of the funds on the day the changes take place. This charge will apply in full to those who have joined the BTRSS on or after 1st November 2014.
However, for members who were moved by Standard Life into the current default in January 2015 (from the ex-BTRP Lifestyle Profile) and who are within 10 years of their planned retirement date will receive a payment into their BTRSS account. For this group there were also one-off costs at the time of the move into the low-involvement investment default option in January. Therefore, to avoid a second charge, Standard Life has agreed with BT to add an amount to individual plans equivalent to the January one-off costs of moving into the Pre Retirement and At Retirement Funds, after all the changes have taken place.
If members would prefer to remain in an investment strategy that is designed for buying an annuity as at present, they can move to the Passive Plus III Annuity SLP or any of the other Annuity SLPs, at no cost. If members wish to do this then they must inform Standard Life by 3rd July 2015.
If members want to move to any other investment option, they should also contact Standard Life.
Next Steps
BTRSS members are currently being sent letters about these changes to their home addresses.
Attached for information are the letters that will be sent to those in the BTRSS default fund who are more than and less than 10 years from their nominated retirement date.
All BTRSS members should consider the issues carefully and read the information they receive from Standard Life. Any decision about which investment option to adopt is down to individual members of the BTRSS. The CWU is legally prohibited from offering financial advice.
If any member wants financial advice then they should speak to an independent financial adviser, and these can be found via http://www.unbiased.co.uk or 0800 085 3250.
Further information can also be found at the BTRSS web site http://www.btretirementsavingscheme.com
If members have queries about these changes then they should contact Standard Life on 0800 066 5432 in the first instance.
Yours sincerely,
Nigel Cotgrove
Assistant Secretary
CWU Eastern No5 Branch 