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Prepared for Mr J Smith Relating to ABC Pension SchemePrepared by Transfer Bureau of O&M Systems on 26 February 2014. Case Ref. 1035350

Pension Transfer AnalysisPrepared for

Mr J Smith

Relating toABC Pension Scheme

Prepared on26 February 2014

Introduction

This Pension Transfer Analysis Report is designed to assist in deciding whether a transfer of benefits from theExisting Scheme to an alternative pension contract would be appropriate.

This report provides:

A calculation of the annual rate of growth (Critical Yield) required to provide equivalent retirementbenefits to those in the Existing Scheme, assuming the transfer value is invested into a PersonalPension.

A comparison of the projected benefits at Normal Retirement Age (65) for the Existing Scheme and thepotential benefits arising from a Personal Pension.

A comparison of the projected benefits at Early Retirement Age (60) for the Existing Scheme and thepotential benefits arising from a Personal Pension.

A comparison of the projected benefits available upon death, before and after retirement.

Existing Scheme Benefits

The Existing Scheme offers a pension made up of a Guaranteed Minimum Pension (GMP) of £1,250 per annumand £7,500 per annum in excess of GMP as at 1 August 2008. These benefits are subject to revaluation in theperiod to retirement.

Transfer Value

You have been offered a transfer value of £125,000, in lieu of benefits under the Existing Scheme, that can beinvested into a Personal Pension contract.


Critical Yields

The benefits in an individual pension plan grow according to the investment return of the funds in which theplan is invested. The Critical Yield shows how much growth is required each year in order to match the valueof the benefits that would have been available in the Existing Scheme. For the purposes of valuing the ExistingScheme benefits, an Annuity Interest Rate of 2.9% has been used. This rate is set by the FSA and is reviewedeach month.

The rates below show the Critical Yield at Normal Retirement Age (NRA) 65 and Early Retirement Age (ERA)60. In addition the Hurdle Rate is shown at each age, which is the growth required each year to match thestarting pension in the Existing Scheme assuming it does not increase in payment or have any attachingspouse’s pensions.

The critical yields shown have been based on a transfer to the following plan:

Personal Pension No Charges

Main Critical Yield

The following critical yields are based on a transfer value of £125,000.

RetirementAge

Full Pension Tax Free Cash &Reduced Pension

Hurdle Rate forFull Pension

Hurdle Rate for Cash &Reduced Pension

Personal Pension 65 6% 5.5% 4.1% 3.9%

Personal Pension 60 6.4% 5.8% 3.9% 3.7%

Assuming Scheme applies to Pension Protection Fund TodayRetirement

AgeFull Pension Tax Free Cash &

Reduced Pension

Personal Pension 65 4.8% 4.7%


Normal Retirement Benefits at the Mid Rate of Return

Annual Pension Benefits

The graph below compares the projected pension benefits for the Existing Scheme with those that couldbecome available at age 65 from the alternative arrangements. The initial pensions are; Existing Scheme£17,283 and Personal Pension £21,472.

Tax Free Cash and Reduced Annual Pension

The estimated maximum amounts of tax free cash and annual pension payable at age 65 are as follows.


Early Retirement Benefits at the Mid Rate of Return




The estimated maximum amounts of tax-free cash and annual pension payable at age 60 are as follows.


Benefits in the Event of Death

Death Before Retirement

The benefits payable on death before retirement can be a combination of cash lump sums and an incomepayable for the life of a spouse or dependant.

Assuming Death Benefit Payable Existing Scheme Personal Pension

Immediately Lump Sum £25,000 £125,000 Annual Pension £4,939 £0

At age 60 Lump Sum £25,000 £449,524 Annual Pension £7,670 £0

At age 65 Lump Sum £25,000 £630,481 Annual Pension £8,642 £0

Capitalised Value of Death Benefits Before Retirement

To simplify the comparison of benefits payable on death before retirement, the graph below shows the totalcost of providing all projected death benefits for the Existing Scheme and the projected fund values that couldbe achieved by a Personal Pension contract. Values are shown for each age through to age 65.

Death After Retirement

The Existing Scheme member’s pension will continue to be paid for a minimum of 5 years from the date ofretirement.

A Spouse’s pension equal to 50% of the member’s pension will be paid in the event of death of the memberafter retirement.


Assumptions

This report uses assumptions for future rates of investment return as prescribed by the Industry’s Regulatorsand are subject to regular review.

The calculations for the projection of benefits shown earlier in this report are performed using the Industry’sStandard Mid Rate assumptions as follows:

Projections Critical YieldsFund Growth Rate 7% n/aRetail Price Index 2.5% 2.5%Consumer Price Index 2% 2%Statutory Orders 2% 2%National Average Earnings Index 4% 4%Annuity Interest Rate 2.9% 2.9%Rate of Return for RPI Linked Annuities -0.6% -0.6%Rate of Return for CPI Linked Annuities -0.1% -0.1%

The Annuity Interest Rate is the annual rate of investment return used in calculating the Annuity Rates for theevaluation of scheme benefits and for converting the projected fund in the individual plan into a pension. Theindividual plan's pension amount assumes payments are made monthly in advance.

The mortality rates used to determine the annuity are based on the CMI tables PCMA00 and PCFA00 andinclude mortality improvements derived from each of the male and female annual mortality projections modelsin equal parts.

Personal Information

Date of Birth 25 January 1973Gender MaleNational Insurance No. AB123456CMember Reference No. 100-23456Marital status MarriedPartner date of birth 18 June 1972Same partner as at date of leaving NoCurrent Employment Status EmployedJoined Scheme 1 June 1990Left Scheme 1 August 2008Final Pensionable Earnings £25,000


Retirement Benefits

Introduction

So far the Existing Scheme benefits have been compared with those available from a Personal Pension at themid rate of return. The pages that follow provide a more detailed analysis of the key issues involved at Lowerand Higher rates of return.

Revaluation and Escalation of Existing Scheme Benefits

Over the years HM Revenue & Customs (formerly Inland Revenue) legislation has resulted in changes topension scheme rules. As a result, it is normal to have a number of slices of pension benefit reflecting differentperiods of service with an employer. A summary of the relevant slices of benefit together with the revaluationrates before retirement and escalation rates after retirement is provided.

Pension or Tax Free Cash with Reduced Pension

At retirement all Existing Scheme benefits can be taken in the form of an annual pension or the member can optto commute part of the pension for a tax free cash sum. Comparisons of tax free cash sums and reduced annualpensions are made at age 65 and 60.

Early Retirement at age 60

Early retirement figures are illustrated for the Existing Scheme and Personal Pension. If retirement is takenearly, benefits will normally be lower than at Normal Retirement Age. Existing Scheme benefits are adjusted toreflect the fact that they will be in payment for longer. Personal Pension benefits will be lower because thetransfer value will have had less time to grow and the cost of buying pensions is higher for younger people. Thegraphs that follow compare the benefits available from the Existing Scheme and Personal Pension. TheExisting Scheme benefits have been revalued to Early Retirement (age 60) before the application of thefollowing factors.

GMP Bridge 0.8 Pre 97 Excess 0.8 Post 97 Pension 0.8

Tax Free Cash Sums

Comparisons of the tax free cash entitlement to Normal Retirement Age 65 and Early Retirement at 60.

Assumptions

A summary of the assumptions that apply to the Lower, Mid and Higher rates of growth.


Revaluation and Escalation of Existing Scheme Benefits

The guaranteed revaluation and escalation rates for each slice of benefit are detailed below together withconfirmation of whether benefits will be subject to Discretionary Increases. The actual rates used incalculations at the Low, Mid and High rates of return, in respect of future revaluation, are also shown.

Revaluation before Retirement

Benefit Guaranteed Rate Discretionary Low Mid High IncreasesGMP Benefit Fixed Rate N / A 4% 4% 4%Pre 97 Excess Stat Orders (Capped at 5%) No 0% 2% 4%Post 97 Pension Stat Orders (Capped at 5%) No 0% 2% 4%GMP Bridge Fixed Rate No 4% 4% 4%

Actual revaluation rates are applied for historic revaluation, whereas the amounts indicated at the Low, Midand High rates are applied for future revaluation.

A separate check is made to ensure that the revaluation over the whole period from date of leaving to retirementis at least equal to any minimum capping rate, such as statutory revaluation and not greater than any maximumcapping rate, such as limited rate GMP revaluation.

Escalation from Retirement to GMP Age (65)

Benefit Guaranteed Rate Discretionary Low Mid High IncreasesPre 97 Excess 0% No 0% 0% 0%Post 97 Pension RPI Max 5% No 0.5% 2.5% 4.5%GMP Bridge 0% No 0% 0% 0%

Escalation from GMP Age (65)

Benefit Guaranteed Rate Discretionary Low Mid High IncreasesPost 88 GMP Statutory Minimum No 0.5% 2.5% 3%Pre 97 Excess 0% No 0% 0% 0%Post 97 Pension RPI Max 5% No 0.5% 2.5% 4.5%

It is understood that pension increases are applied to the total pension amount after commutation for tax freecash.

Summary Funding Statement

The most recent funding valuation of the Plan showed that on 31 March 2013 the funding position was asfollows:

The value of the scheme liabilities were - £671.5 millionThe Schemes assets were valued at - £620.2 millionDeficit - £51.3 millionFunding level - 92%

The participating Employers have agreed to pay additional contributions to the Scheme to restore the Schemeto full funding. Additional contributions will be paid for between 7 and 10 years from January 2014.


Revaluation and Escalation of Alternative Benefits

The treatment of Personal Pension benefits following a transfer is as follows.

Revaluation before Retirement

Increases in the Personal Pension funds are achieved as a result of their exposure to investment risk rather thanrevaluation of benefits.

Escalation of Benefits from Retirement

For comparison purposes, the Personal Pension benefits are assumed to increase on a basis that matches theExisting Scheme as far as possible. At retirement the member would be able to choose the rate of pensionincrease and amount of spouse's pension required.


Normal Retirement Benefits at the Lower Rate of Return


The graph below compares the projected pension benefits for the Scheme with those that could becomeavailable at age 65 from the alternative arrangements. The initial values are; Existing Scheme £12,163 andPersonal Pension £10,673.




Normal Retirement Benefits at the Higher Rate of Return


The graph below compares the projected pension benefits for the Scheme with those that could becomeavailable at age 65 from the alternative arrangements. The initial values are; Existing Scheme £25,318 andPersonal Pension £40,728.




Early Retirement Benefits at the Lower Rate of Return


The graph below compares the projected pension benefits for the Existing Scheme with those that couldbecome available at age 60 from the alternative arrangements. The initial pensions are; Existing Scheme £9,295and Personal Pension £6,942.




Early Retirement Benefits at the Higher Rate of Return






Tax Free Cash Sums

Existing Scheme

Tax free cash under the Existing Scheme is provided by commuting part of the pension. The rates used tocalculate the reduced pension at Normal and Early Retirement are shown below.

Normal Retirement at age 65 Low Mid High

Full Pension £12,163 £17,283 £25,318Commutation Rate 16.0 16.0 16.0Maximum Tax Free Cash £57,238 £81,333 £119,145Reduced Pension £8,586 £12,200 £17,872

Early Retirement at age 60 Low Mid High

Full Pension £9,295 £12,371 £16,747Commutation Rate 18.0 18.0 18.0Maximum Tax Free Cash £45,221 £60,182 £81,470Reduced Pension £6,783 £9,027 £12,221

The tax free cash amounts have been calculated as the maximum amount allowed under HM Revenue &Customs legislation. The scheme has confirmed its rules allow for this.

Personal Pension

The tax free cash sum is calculated as 25% of the entire pension fund.


Report Assumptions

This report uses assumptions for future rates of investment return as prescribed by the Industry’s Regulatorsand are subject to regular review. The calculations for the projection of benefits in this report are performedusing the Industry’s Standard assumptions as follows:

LowProjections

MidProjections

HighProjections

CriticalYields

Annuity Interest Rate 0.9% 2.9% 4.9% 2.9%Rate of Return for RPI Linked Annuities -1.6% -0.6% 0.4% -0.6%Rate of Return for CPI Linked Annuities -1.1% -0.1% 0.9% -0.1%Retail Price Index 0.5% 2.5% 4.5% 2.5%Consumer Price Index 0% 2% 4% 2%Statutory Orders 0% 2% 4% 2%National Average Earnings Index 2% 4% 6% 4%Standard Lifetime Allowance (from 2016) 0% 0% 0% 0%Fund Growth Rate 5% 7% 9% n/a

The Annuity Interest Rate is the annual rate of investment return used in calculating the Annuity Rates for theevaluation of scheme benefits and for converting the projected fund in the individual plan into a pension. Theindividual plan's pension amount assumes payments are made monthly in advance.

The mortality rates used to determine the annuity are based on the CMI tables PCMA00 and PCFA00 andinclude mortality improvements derived from each of the male and female annual mortality projections modelsin equal parts.


Death Benefits for Mr J Smith

Existing Scheme Death Benefits Before Retirement

A payment of £25,000 representing members contributions.

A Spouse’s pension equal to 50% of the member’s pension will be paid in the event of death of the memberbefore retirement.

Existing Scheme Death Benefits After Retirement

The Existing Scheme member’s pension will continue to be paid for a minimum of 5 years from the date ofretirement.

A Spouse’s pension equal to 50% of the member’s pension will be paid in the event of death of the memberafter retirement.

The Spouse’s pensions detailed above are based upon the member’s full pension before commutation.

Comparison of Benefits payable on Death before Retirement

The following three pages compare the death benefits at the Lower, Mid and Higher rates of return for theExisting Scheme and Personal Pension.

The first graph compares the lump sums payable.

The second graph compares residual pensions payable after payment of any lump sums.

To simplify the comparison of benefits payable on death before retirement, the third graph shows thecapital cost of providing all projected death benefits from the Scheme and the projected fund values thatcould be achieved by a Personal Pension contract.


Death Benefit Comparisons at Lower Rate Assumptions

Lump Sum on Death Before Retirement

Residual Pension on Death Before Retirement



Death Benefit Comparisons at Mid Rate Assumptions





Death Benefit Comparisons at Higher Rate Assumptions





Understanding Death Benefits

Existing Scheme

Benefits in the event of death are determined by the scheme rules and are detailed elsewhere within this report.

Personal Pension

Where a Personal Pension Plan has been established as a result of a transfer from a Final Salary Scheme, theentire fund will be paid as a lump sum although there may be an option to provide a pension with some or all ofthe lump sum.

Benefits in Trust

If a transfer of benefits is made to a Personal Pension it may be appropriate to arrange for the policy to bewritten in trust for the benefit of dependants, as the proceeds of the policy will not normally form part of anestate. This normally speeds up the payment of benefits and could achieve savings in inheritance tax.


Pension Protection Fund

The government has set up a Pension Protection Fund (PPF) that aims to offer an “insurance scheme” to helpprovide a minimum level of pension should a pension scheme get into serious financial difficulty after April2005.

Broadly speaking, those people below the normal retirement age of the scheme when the PPF is appointed willreceive 90% of their accrued benefits immediately before the assessment date (subject to a review of the rulesof the scheme by the PPF). In the PPF, the Total Pension is revalued from the PPF assessment date toretirement in line with statutory orders revaluation. GMP benefits do not receive separate revaluation. Benefitsrelating to Post April 1997 service will increase in payment (in line with Retail Price Index capped at 2.5%),whereas no increase in payment will be made in respect of any pension accrued before 1997. Thiscompensation is subject to an overall cap (originally £25,000 for those retiring at age 65 before 1st April 2006).The Compensation Cap will be increased each year, and adjusted to the age at which compensation comes intopayment (future increases to the cap are assumed in line with AEI increases at 4% per annum).

The PPF is funded by a series of levies applied to all final salary pension schemes. It should be noted that themanagement body of the PPF have the right to reduce the level of compensation being paid from the schemeshould the PPF itself suffer financial hardship. The government does NOT underwrite the scheme.

Assuming Scheme applies to Pension Protection Fund Today

Existing Pension Scheme Protection FundValue as at TodayScheme Annual Pension £9,936 £8,942 (90%)

Value at RetirementTotal Annual Pension @ age 65 £17,283 £15,555 (90%)56% relates to post April 1997 service and will receive escalation.

Capitalised Value of Scheme Benefits £507,494 £385,680 (76%)

Critical Yield to match benefit value Personal Pension 6% 4.8%

Alternatively

Tax Free Cash Sum @ age 65 £81,333 £82,513Plus total annual pension £12,200 £11,666 commutation rate used 16.0 21.219

Capitalised Value of Scheme Benefits £453,877 £371,773 (82%)

Critical Yield to match benefit value Personal Pension 5.5% 4.7%


Technical IssuesTransfer Value Expiry DateThe transfer value quoted by the Existing Scheme is due to expire on 1 May 2014. If a transfer of benefitsproceeds after this date a revised value will need to be quoted by the scheme trustees.

Additional In Scheme AVCsIn addition to the Existing Scheme transfer value of £125,000, a further amount of £123,456 exists. Thisrepresents in scheme Additional Voluntary Contributions that can be transferred separately or left within thescheme. As these AVC’s are Money Purchase amounts, they have been excluded from the transfer analysis andcritical yield calculations.

Ill Health Retirement BenefitsThe majority of final salary occupational pension schemes have the scope to pay enhanced benefits to memberswho wish to retire early due to ill-health. The level of enhancement, and indeed, whether any suchenhancement will be paid is usually at the discretion of the scheme trustees on a case by case basis. Thispotential benefit will however be lost upon transfer to a Personal Pension.

Equalisation IssuesMale and Female retirement ages for the Existing Scheme were equalised at age 65 on 1 April 1991.

Scheme StatusThe existing Scheme is closed to new members, whilst active members continue to accrue benefits in theScheme.

Funding PositionThe Existing Scheme is known to be in deficit. The extent to which members benefits are being restrictedshould be discussed with the trustees of the Existing Scheme.

Transfer ClubIt is understood that the Existing Scheme is not a member of a transfer club, therefore, this is not an issue thatneeds further consideration.


Data Report for Mr J Smith (1035350)ABC Pension Scheme

Personal Information

Date of Birth 25 January 1973Gender MaleNational Insurance No. AB123456CMember Reference No. 100-23456Marital status MarriedPartner date of birth 18 June 1972Same partner as at date of leaving NoCurrent Employment Status EmployedJoined Scheme 1 June 1990Left Scheme 1 August 2008Final Pensionable Earnings £25,000

Pension Benefits

GMP Benefits as at 1 August 2008

Post 88 GMP Benefit £1,250GMP Revaluation Rate Fixed RateGMP Escalation Rate Statutory MinimumGMP Escalation Subject to Discretionary Increases? NoGMP Bridging Basis GMP revalued to Retirement based on number of 6th April's in PeriodGMP Bridge Revaluation Rate Fixed RateGMP Bridge Revaluation Subject to Discretionary Increases? NoGMP Bridge Escalation Rate 0%GMP Bridge Escalation Subject to Discretionary Increases? No

Excess Pension as at 1 August 2008

Pre 97 ExcessPension £2,500Type Pre 97Revaluation Rate Stat Orders (Capped at 5%)Revaluation Subject to Discretionary Increases? NoEscalation Rate 0%Escalation Subject to Discretionary Increases? No

Post 97 PensionPension £5,000Type Post 97Revaluation Rate Stat Orders (Capped at 5%)Revaluation Subject to Discretionary Increases? NoEscalation Rate RPI Max 5%Escalation Subject to Discretionary Increases? No

Transfer In


There are no Transferred In Benefits

Early Retirement

Preferred Early Retirement Age of Client 60Earliest Retirement Age Allowed by Scheme 55Reduction Applied to Benefits Revalued To ERAReduction factor for GMP Bridge 0.8Reduction factor for Pre 97 Excess 0.8Reduction factor for Post 97 Pension 0.8

Tax Free Cash by Commutation

Does Scheme pay HMRC Post A Day maximum? YesCommutation Rate at Normal Retirement 16.0Commutation Rate at Early Retirement 18.0Cash Limited to 25% of Pension? NoEscalation applied to Pension before Commutation? No

Death Benefits

Is the Spouses Pension only payable to the spouse towhom the member was married at date of leaving? No(Assumed)

Death Before Retirement

Return of Members Contributions £25,000Return of Members Contributions interest 0%Spouses Pension - Percentage of Total Pension 50%

Death After Retirement

Guarantee Period 5 yearsSpouses Pension – Percentage of Total Pension 50%Spouses Pension based on Pension Before Commutation? Yes

Transfer ValueTotal Transfer Value £125,000 Post 97 Contracted Out TV (included in Total TV) £80,000

Date of Transfer Value 1 February 2014Transfer Value Guaranteed Until 1 May 2014Transfer Value Basis Standard TV OnlyMembers Contributions £25,000Additional Money Purchase AVC’s £123,456

Pension Providers

Personal Pension Product No Charges

Basic Scheme Information

Scheme Type 5Scheme Category NRA 65Contracted Out Pre 4/97 YesContracted Out Post 4/97 Yes


Basis of Post 97 Contracting Out Reference Scheme S9(2b) RightsNormal Retirement Age 65Retirement Age Equalised YesDate Retirement Ages Equalised 1 April 1991Accrual Rate 60thsScheme Status Closed To New Members OnlyFunding Position In Deficit

Advanced Scheme Information

Pensionable Service Basis Years & Months Rounded DownTransfer Club Member NoDoes a period of service have a different NRA NoScheme Benefits have money purchase underpin NoCan money purchase AVCs be left in the scheme? Yes

Discretionary Increases Before Retirement

Benefits before retirement are not subject to discretionary increases.

Discretionary Increases After Retirement

Benefits after retirement are not subject to discretionary increases.

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