Redundancy Q&A

The Q&A below is for members’ leaving on Redundancy.  Please contact your HR Adviser if you have any queries.

 

If I am made redundant before the age of 55 can I be re-employed by National Grid or a connected employer at a later date?

Re-employment and retirement before age 55

Resuming employment with the same or a connected employer after drawing your pension benefits before age 55 can have very serious tax consequences.

On 6 April 2010, the earliest age at which a member of a registered pension scheme could ordinarily expect to take benefits was increased from 50 to 55. To protect those existing members whose scheme rules already gave them an right to take benefits at an age earlier than 55, the concept of a protected pension age was introduced. Under the National Grid UK Pension Scheme rules, only those who leave under redundancy have a protected pension age. If you are taking your pension benefits before age 55, you must comply with the following conditions, or risk being subject to a personal tax charge from HMRC.

If you take your pension benefits before age 55 you cannot become re-employed with the same or a connected employer unless one of two conditions is met:

  1. There has been at least a six-month break in employment. 
  2. There has been at least a one-month break in employment and the new employment is “materially different” from the previous employment. 

If neither condition is met, you could retrospectively lose your right to take your pension before age 55. Any pension benefits paid from the date of retirement until the age of 55 will be treated as unauthorised payments. This means that you could then be personally liable for a tax charge payable to HMRC of usually at least 40% of the value of the pension payments and any lump sum paid.

 

 

I've received an estimate of my pension benefits. Why is my pensionable salary higher than my basic salary?

Your estimated benefits should include a date at which your benefits have been calculated.

 For example, if your employer has chosen 31 January 2013 as the date for this estimate, your pensionable salary will have been calculated as shown below. The actual dates used will depend upon your own specific exit date.

* The pensionable salary quoted is normally your basic pensionable salary over the twelve months to 31 January 2013 (inclusive of permanent shift payments and weighting payments).
PLUS

* 1/3 of variable pensionable payments earned in the 3 years 1 February 2010 to 31 January 2013 (e.g. previous pensionable bonuses). However, occasionally an earlier calculation period (ending 31 January) may have been chosen if this provides a higher figure (because of a higher salary or higher variable pensionable payments). Should your exit date be different, then the calculation period would be different.

Your final pensionable salary figure may be higher or lower depending on when you actually leave the Scheme.

If you are covered by the Distribution Operations Field Force Agreement, your pensionable salary is based on your GO21 protected pensionable salary and not your current earnings – see Q7: 'How do I calculate my approximate pension entitlement?'.

Why is my pensionable service on the estimate greater than my Industry service?

This is likely to be a result of the 1% Scheme merger credit awarded to members on the 1 April 2000 when the former BG Corporation Pension Scheme was merged with the BG Staff Pension Scheme to form one Scheme.

The 1% merger credit applied to all 'Gas' pension service, (i.e. excluding transfer in service credits from external schemes), up to 31 March 2000.

Additionally you may have transferred benefits from a previous employer's scheme and received additional years of pensionable service and/or be paying AVCs to buy added years of pensionable service.

In both cases these extra years of pensionable service will be included in your estimate.

Why is my pensionable service on the estimate less than my Industry service?

This may be due to a number of reasons:

1. If you joined the company before 1 October 1987 under age 20 you will not have been eligible to join a company pension scheme until your 20th birthday. In these circumstances your pensionable service will be less than your industry service (although you may be paying Additional Voluntary Contributions (AVCs) to offset this difference).

2. It is also possible you joined as an industrial employee and were originally a member of the former Manual Workers Pension Scheme. This is likely if your industry start date or your 20th birthday were before 1 April 1980. In these circumstances on later transfer to the British Gas Corporation or Staff Scheme you will have received a reduced service credit for your Manual Worker Pension Scheme service to reflect the improved higher benefits available from your new scheme.

3. If you are, or have been part time, pensionable service from periods of part time service are scaled back by your part time hours divided by full time hours.

I am paying Additional Voluntary Contributions (AVCs), how is this shown on the pension estimate?

If you are purchasing added years AVCs (for a defined number of years) these are included in both your total pensionable service and pension figures, however they have been reduced where appropriate for early payment.  If you are only contributing to added years AVCs, a zero will be entered against current fund value as this only applies to money purchase AVCs (MPAVCs).

If you are entitled to an immediate pension on leaving (aged 50 or over), your MPAVCs are not shown separately and are included in the estimated pension figures provided. Your MPAVCs have been used in the first instance to provide any tax-free cash lump sum. If you are entitled to a deferred pension on leaving (aged under 50), your MPAVCs are shown separately. Please remember, your final MPAVC figures will change and may go up or down.

Can the company increase my pension?

It may be possible for you to give up some or all of your redundancy pay in exchange for additional pension but only severance monies in excess of £30,000 can be used to augment your pension.

In certain circumstances you may receive payment in lieu of notice (PILON) or other compensation; any PILON is treated separately from the redundancy payment and cannot be exchanged for an increase in pension, and does not count towards the £30,000 limit. Your request to have your pension increased in this way must be made before you leave and before entitlement to severance pay has been established. The amount by which the pension is increased will depend upon the amount of redundancy compensation given up.

As you may know, HMRC imposes a limit on the value of your pension from all registered pension schemes. Pension values above this limit may be subject to an additional tax charge. If the level of redundancy cash sum you wish to have paid into the Scheme will increase your pension above this tax efficient you may wish to have a lower amount paid into the scheme instead.

The maximum tax efficient pension saving that can be made to the Scheme each year is £40,000. This is called the 'Annual Allowance'. The Annual Allowance is the maximum amount of pension saving you can have each year that benefits from tax relief.

You are a member of the National Grid UK Pension Scheme (NGUK), which is a defined benefit scheme. Under this arrangement your pension at retirement is linked to pay and length of service. Your annual pension saving is the increase in the value of your pension over a year (called the 'Pension Input Period'). The capital value of any pension you received from any redundancy compensation you give up to pay into the Scheme counts towards the Annual Allowance.

Can I get advice from HR on whether to give up any redundancy compensation in exchange for an increased pension?

HR cannot advise you on whether you should request this option. Under the Financial Services and Markets Act 2000, it is an offence for an unqualified person to give advice on financial matters.

You may wish to contact an Independent Financial Adviser (IFA) who can provide information and advice on your pension and other pension arrangements.
You can find a local IFA here.

How do I calculate my approximate pension entitlement?

Your pension from the Scheme is based on a formula which takes account of your pensionable service and pensionable salary. The formula is 1/60th of pensionable salary for each year of pensionable service (if you work or have worked part-time, pensionable service should be pro-rated for the part time service).

Pensionable salary is a calculated amount. It is usually the basic salary that you have paid contributions on (i.e., basic salary, weighting and permanent shift allowances, etc) during the last twelve months plus the annual average of variable salary that you have paid pension contributions on (e.g. bonus) during the last three years.
As an approximate guide your Benefit Statement will have included your pensionable salary as at 30 June 2012. The following example will help you to calculate an estimated pensionable salary:

Example 1 - Date of Leaving: 31 May 2012
* Pensionable Basic Salary for last 12 months: -
* 01/06/2011 - 30/06/2011 - £30,640 x 1month = £2,553
* 01/07/2011 - 31/05/2012 - £29,115 x 11months = £26,688

* Pensionable Base Salary = £29,241

NB: If you are a UK Distribution Operations Field Force industrial staff member subject to the collective agreement GO21 you have a '2007, Protected Pensionable Salary' calculated as specified in the agreement.

If you have always been full time, your pensionable service is the total service on which you have paid pension contributions; service credited in respect of a transfer-in from another company pension scheme or from a personal pension; and service for which you have paid voluntary contributions (Added Years' AVCs).

If you are paying monthly AVCs to purchase additional service, this service will need to be reduced if you will not complete the contract and for early payment of the pension. If you have paid a lump sum AVC to purchase added years the service will be reduced for early payment of the pension.

The next example will help you to calculate an estimated pension:

Example 2 - Age 47, 20 years pensionable service and £29,241 per annum pensionable salary at the date of leaving.

Pension entitlement - 1/60 x 20 x £29,241 = £9,747 per annum pension

* If you are part time, you should use full time equivalent salary for pensionable salary calculation purposes. During any part time service your pensionable service will be pro-rated for the hours worked.

Example 3 - Age 46, 10 years full time and 2 years part time (20 hours per week) pensionable service and £16,500 per annum pensionable salary at the date of leaving.

* Total full time service - 10 years 0 days
* Total part time service - 1 year 30 days [2 years x 20/37.00 hours]
* Pensionable service - 11 years 30 days
* Pension entitlement = 1/60 x 11 years 30 days x £16,500 = £3,047 per annum pension

How is my Dependant's pension calculated?

Your Dependant's pension is based on a formula that takes account of pensionable service and pensionable salary. The formula is 1/90th of pensionable salary for each year of pensionable service. The pensionable salary is a calculated amount. In most cases, the Dependant's pension will be two-thirds of the full pension due to you. The pension is payable from the day after your death and is paid throughout the life of your Dependant.

Please note: if you are female and you were a member of the BG Staff and/or Corporation Pension Schemes not all your pensionable service may count towards providing a Dependant's pension.

Your Dependant's pension is unaffected by you giving up part of your pension in exchange for a lump sum or if you choose the levelling option. It will however, not include any added years or augmentation taken out on a single life basis.

How is my pension lump sum calculated?

The initial calculation of the pension lump sum is carried out in accordance with the rules of the Scheme, which on retirement, allow you to give up a portion of your pension in exchange for a lump sum which, under current tax legislation, is tax-free.

The lump sum is calculated by multiplying the amount of pension to be given up by an age related factor. This determines the amount of lump sum which may be taken for each £1 of pension given up. However, the lump sum permitted under the Scheme rules is subject to an overall maximum to comply with HMRC restrictions.

If you are entitled to receive your deferred pension from age 50 and wish to have a rough estimate (based upon current terms and conditions) of your possible lump sum at retirement at age 50, you may use the following calculations. The actual lump sum will be dependent on individual circumstances. The following example takes no account of any MPAVCs you may have.

Lump sum payable

Pension payable at 50 £……… ….(a) Multiplied by 5.39 = £………… ….(b)

Lump sum payable £……… ….(b) divided by 28.20 * = £………… ….(c)

*commutation factor @ age 50

Pension payable £…….…… ….(a) per year

Less surrender for lump sum £…………. ….(c)

Reduced pension payable at 50 £…….…… ….(a-c)

Lump sum payable at 50 £……….… …..(b)

The following worked example illustrates the above calculation:

Pension payable at 50 £10,000 (a) Multiplied by 5.39= £53,900 (b)

Lump sum payable £53,900 (b) divided by 28.20 * = £1,911.35 (c) * commutation factor @ age 50

Pension payable £10,000. (a) per year

Surrender for lump sum £ 1,911.35 (c)

Reduced pension payable from 50 £ 8,088.65 (a-c) per year

Lump sum payable at 50 £53,900 (b)

* 28.20 is the amount of lump sum that can be received for every £1.00 of annual pension given up at age 50. This factor changes according to a member’s age at retirement. For example, at age 65 the factor is 18.76. The multiplier used in the first line of the calculation (the figure of 5.21) also varies with age. Please note therefore, that the above illustration is only relevant at exactly age 50.

This example is based upon current factors, which may change before you reach age 50. Please also remember that between your date of exit and age 50, your pension will increase in line with any percentage change in the Retail Prices Index (RPI).

Please note also that the reduced pension payable from 50 must take into account any GMP liability due, so in some circumstances a lower lump sum (and a correspondingly higher pension) than that produced by the above calculation may be payable.

Can I choose to take less than the lump sum shown on my quotation?

Yes. The lump sum shown on the quotation is the maximum allowable. You can take a lump sum up to but not exceeding the amount quoted.

I have other pensions elsewhere. Can these affect my National Grid UK Pension Scheme entitlement?

Legislation imposes restrictions on the overall level of benefits which can be paid. The maximum benefits that may be paid must take account of benefits which you have earned with other pension providers. Before your Scheme benefits commence you will be asked to complete a form to declare any other pensions you may have. You must declare them before payment of your pension commences.

What is the option to increase my pension up to State Pension Age (SPA)?

In the rules this is called the ‘levelling option.’ It enables you to “Bridge the Gap” by receiving a larger pension from the Scheme up to SPA, and a smaller one afterwards. The option allows you to structure your pension – to receive extra income for a limited period - so helping you to meet your income requirements before you receive your State Pension. It can therefore help you to smooth your income – when taking account of your Scheme and State Pensions - before and after your SPA.

Both the extra pension payable before SPA and the reduction to apply from your SPA are subject to any increases in the Scheme pensions between the date of retirement and SPA.

The reduction at SPA may not be the same as the pension you will receive from the State. The amount of State Pension you will receive depends on your National Insurance contribution record so you should consider finding out how much State Pension you will be entitled to at your SPA. Click on www.gov.uk/state-pension-statement to apply for a quotation.

Please note that the reduction in Scheme pension at SPA is permanent. Furthermore the value of the temporary increase in your pension under this option counts towards the Annual Allowance in your year of leaving.  It also counts towards your Lifetime Allowance.

What is a Guaranteed Minimum Pension (GMP) and why can it affect the amount of lump sum and extra pension I may take through this option?

The Scheme was 'contracted out' of the earnings-related part of the state pension provisions (known as the second tier of the state pension arrangements) until 5 April 2016.

As a result of contracting out, and if you were a member of the Scheme at any time between 6 April 1978 and 5 April 1997, part of your Scheme pension is a Guaranteed Minimum Pension (GMP), which is an amount broadly equivalent to the pension which could have been earned under the second tier of the state pension arrangements up to 5 April 1997.

The pension payable to you from the Scheme cannot be lower than the GMP. The calculation for the lump sum and the temporary extra income therefore take into consideration the amount of pension that will be left after exercising these options. Depending on your circumstances, the amount of your lump sum and your temporary extra income may have to be restricted to ensure your pension is at least equivalent to your GMP at 60 if you are a woman or at 65 if you are a man.

I have been paying regular monthly additional voluntary contributions (AVC) to buy added years of pensionable service. Are these included in the quotation?

Yes they are included and the pension these added years will provide has been reduced to take account of early payment.  Where the added years purchased are to provide a pension for you in retirement and for your Dependant after you die, the pension for your Dependant will not be reduced as a result of the early payment of your pension but it will be reduced to take account of early termination of your contract.

I have been paying Money Purchase Additional Voluntary Contributions (MPAVC). Are these included in the quotation?

If you are entitled to an immediate pension on leaving (aged 50 or over), your MPAVCs are included in the estimated pension figures provided. Your MPAVCs have been in used in the first instance to provide any tax-free cash lump sum. If you are entitled to a deferred pension on leaving (aged under 50), your MPAVCs are shown separately.

The value of your money purchase fund at a given date has been provided. To obtain an approximate pension amount, you should divide the value of your fund by the cost of £100 pension per annum.

The following is an example of how to convert a MPAVC fund to additional pension:

Example Current MPAVC fund - £2,500

Example Cost of £100 per annum pension (single life) - £1,800

Example Calculation: £2500 / £1800 X 100 = £138 per annum pension

When and how is my pension lump sum paid?

The pension lump sum cannot be paid before retirement takes place. It is paid as soon as possible (normally within five working days after the date of retirement), directly in to your bank account.

UK Pensions Operations will write to you in the period leading up to your retirement and, as part of the pack of information, enclose a decision form for you to notify your intentions in relation to your pension options. No benefits can be paid without you first completing your Lifetime Allowance Form.

When and how is my pension paid?

Pensions are paid monthly, on the 15th day of the month. Payment will be made by electronic transfer to an appropriate bank or building society account. There is provision on the decision form mentioned above to inform UK Pensions Operations of the required details.

For a new pensioner, the first pension payment will be made on the 15th of the month following your retirement providing that the pension details form is fully completed and received by UK Pensions Operations no later than the 1st of that month.

UK Pensions Operations will write to you in the period leading up to your retirement, and as part of the pack of information, enclose a decision form for you to notify your intentions in relation to your pension options. No benefits can be paid without you first completing your Lifetime Allowance form.

How are pensions from the Scheme increased?

Your Scheme pension is increased in April each year, based on the percentage change in the Retail Prices Index (RPI) for the 12 months to the previous September.

If you reached State Pension Age before 6 April 2016, click here to see how your increase is calculated.

If you reach State Pension Age on or after 6 April 2016, click here to see how your increase is calculated.

For more information about the annual increase amounts, please click here

When you reach State Pension Age you may receive a bigger increase to your pension than in previous years. Click here to find out more.

Can my pension be paid to a third party?

Under the Rules of the Scheme, your pension cannot be assigned to another person.

However, if you become ill and are unable to manage your own finances, you may apply to the Trustees to have your pension paid to a third party, e.g. a nursing home or spouse. Further details may be obtained from UK Pensions Operations.

If I am entitled to a deferred pension and I am made redundant between the ages of 40 and 49 will I be eligible to receive a deferred pension from age 50?

The normal minimum pension age increased to age 55 from 6th April 2010.  However, the government has allowed transitional provisions to protect members in existing schemes at 5th April 2006 who have a right to retire earlier than age 55. One of these provisions means in general terms that members who joined the Scheme before 6th April 2006 and subsequently leave due to redundancy aged 40 to 49 may still receive their pension from age 50.

Ages 45 to 49:

If you are between the ages of 45 and 49 when you are made redundant you can choose to receive your deferred pension, including annual increases, from age 50. Please note that if you do not elect to take your pension from your 50th birthday but from a later date, no arrears of pension will be paid.

This pension (other than any added years AVCs) will not be reduced for early payment. As explained above, added years AVCs will be reduced to take account of early payment.

Ages 40 to 44:

If you are made redundant between the ages of 40 and 44, you can choose to receive a deferred pension from age 50, however, it will be reduced for early payment. The reduction factor will depend on your age at the date of redundancy.

For example, if you are aged 42 when you are made redundant and your deferred pension amounts to £4,000 per year at age 50, you will be eligible to receive the following pension from that age:

• Deferred pension including annual increases up to age 50: £4,000 per annum
• Period between ages 42 and 45: 3 years
• Current reduction factor based on 3 years: 18%
• Reduction: £4,000 x 18% = £720
• Reduced pension payable from age 50: £4,000 - £720 = £3,280 per annum

You could choose to take your deferred pension at a later age, between 50 and 54. Your pension will be calculated using the same reduction factor even if you postpone taking your pension.

If you have not elected to receive your deferred pension before age 55, you will only be able to receive it from this age if it has been based on at least 5 years service. In this case the amount paid will be calculated using different reduction factors. If your deferred pension has not been based on at least 5 years' service, you will have to wait until age 60 before you can receive it.

Please note that the factors used to reduce your pension are reviewed from time to time and may be changed.

What if I die before my pension starts?

If you die before payment of your pension starts, a lump sum is payable. This would be equivalent to five times the deferred pension (including any annual increases) or a refund of your contributions plus interest, whichever is the larger sum.

In addition, there may be Family benefits payable.

What pension will my Dependant receive?

In most cases, the dependants pension will be two-thirds of the pension payable to you, although there are exceptions to this rule.

Here is an example based on the two-thirds rule:

* Your pension at date of leaving £10,000 per year
* Your Dependant's pension at retirement £10,000 x 2/3 = £6,666 per year.

Your Dependant's pension is payable from the day after your death and is paid throughout your Dependant's life.

This figure will reflect any increase in the cost of living referred to earlier.

If I cannot take a pension at 50 what options do I have other than a deferred pension with the Scheme?

The only alternative to a deferred pension is a transfer of pension rights to another HMRC Registered Scheme

Do deferred pensions increase after I have left the Company?

All Scheme deferred pensions are normally increased annually, in line with increases in the Retail Price Index both during deferment and whilst in payment.

What options are available when my deferred pension becomes payable?

Providing there are no changes to contracting out/HMRC requirements and the Scheme Trust Deed and Rules in the intervening period which change the situation, you will have the same options as a member retiring on immediate pension;- namely 1) the option to surrender part of the pension for a lump sum, and 2) the option to Bridge the Gap by receiving a larger pension from the Scheme up to your state pension age and a smaller one afterwards, unless you have already reached state pension age or are receiving payment of your pension on ill-health grounds.