Magnox Group of the Electricity Supply Pension Scheme

FACILITY TO PAY ADDITIONAL VOLUNTARY CONTRIBUTIONS (AVCs)

Members of the Magnox Group of the Electricity Supply Pension Scheme (the Magnox Scheme) are required to pay 6% of pensionable salary as a contribution towards the cost of their benefits. Most members of the Site Licence Company Section of the Magnox Scheme have been included in a salary sacrifice arrangement under which the 6% contribution is paid by the employer, with a corresponding reduction made to salary. Full details of this arrangement have been provided separately to affected members and it is important to note that it does not apply to members of the Atkins or National Nuclear Laboratories Sections. Members of the Cavendish Nuclear Section have been included in a salary sacrifice arrangement but this does not extend to AVCs.Whilst the Magnox Scheme provides generous benefits, for many members, there is potential to pay additional voluntary contributions to enhance the level of benefits payable on retirement.

In theory it could be possible to pay all of your pensionable salary as a pension contribution. It is essential, however that you have sufficient income remaining each month to cover the national insurance contributions and any income tax due. If you choose to pay AVCs to the Magnox Scheme you will therefore not be able to pay more than 85% of the gross earnings on each payslip.

HMRC does however, have rules surrounding the maximum contributions payable to and benefits available from pension schemes. Some of the details of these are given below:

TAX LIMITS

Annual Allowance

Since 2006, there has been an Annual Allowance which applies to the total voluntary pension contributions which you pay, together with the increase in the value of your pension rights during any year. In broad terms, the Annual Allowance is measured by calculating the increase in the cash value of your pension and lump sum during the year added to the amount of any AVCs paid during the year. For this test the cash value of annual pension is calculatedby multiplying by 16.Historically, the Annual Allowance was a high figure (£255,000 for the 2010/11 tax year) and affected very few people. The Government announced a reduction to the Annual Allowance from 6th April 2011 to £50,000;itreduced further to £40,000from 6th April 2014 and remains at that level for most people. Please see HMRC website for full details. If you exceed the reduced Annual Allowance it may be possible to carry forward unused relief from up to three previous years, if your Pension Input Amount during those periods was less thanthe annual allowance. Whilst this will still not adversely affect the majority of scheme members, there are a number of employees who are paying or intend to pay significant AVCs, particularly in the final years of employment. You may wish to consider your plans carefully and we recommend that you seek professional financial advice if you are concerned about your personal circumstances. If you exceed the Annual Allowance you will be subject to income tax on the excess.

The amount of your Annual Allowance used is calculated in arrears, and will be quoted on benefit statements each year as the Pension Input Amount. For example, the Pension Input Amount for 2016/17was shown on the benefit statement at 31st March 2017. You will only be able to use this amount for guidance when deciding on the level of AVCs you wish to pay for the following year.

Pension Input Amounts in excess of the Annual Allowance, which you would need to declare via self assessment, will be subject to a tax charge at your highest rate of income tax (20%, 40% or 45% as applicable).

Lifetime Allowance

HMRC also imposes a Lifetime Allowance, which for the 2018/19 tax year isset at £1.03 million. This limit applies to the total value of your pension savings, including those from any previous or future employer’s schemes. It does not however apply to State Retirement Benefits. If, when you take your benefits, your total pension savings exceed this limit you will be taxed on the excess by means of a Lifetime Allowance Charge. This charge is currently set at 25% if your additional savings are taken as a pension (this is in addition to income tax which is payable under the PAYE system) and 55% if taken as a lump sum. Again, although most people will currently be unaffected by this limit you should be aware of it. Those with a number of years fromretirement should keep the matter under review.

Tax Free Cash at Retirement

In broad terms, the Magnox Scheme provides a tax free lump sum on retirement of 3/80 of pensionable salary for each year of service as a member of the scheme. HMRC rules provide that 25% of the value of your pension savings may be taken as a tax free lump sum. If you choose to pay AVCs it may be possible to draw some but not necessarily all of the additional benefit as a tax free lump sum.

COMPANY SEVERANCE ARRANGEMENTS

If you become entitled to a redundancy payment as a result of severance, the first £30,000 of such payment would usually be paid free of tax. If your severance payment exceeds £30,000 it may be possible to opt for a lower redundancy payment in exchange for higher benefits from the pension scheme. In this situation the Company will make an equivalent contribution to the pension scheme to enhance your benefits. Any such contribution and benefit must also be included in the limits referred to above.

TAX RELIEF

If you decide to pay AVCs to the Magnox Scheme the contributions will be deducted from your pay and tax relief will usually be given automatically at source.

This means if you are a basic rate tax payer, currently paying income tax at the rate of 20%, for every £100 which you pay as AVCs, your take home pay will reduce by £80. For higher rate tax payers the effect of tax relief will of course be even greater.

HOW THE AVC CONTRACT WORKS

The AVC contract works in a different way to the Magnox Scheme. Under the Magnox Scheme, benefits are determined by length of service in the scheme and the level of salary. As a member, you must contribute 6% of pensionable salary towards the cost and the employer pays for the balance. With AVCs the benefit available cannot be determined in advance. It will depend on the amount of contributions paid and the investment return achieved on those contributions, which together give a fund to provide additional relevant retirement benefits. Whilst it may be possible to take some of the AVC fund as tax free cash (see above) any excess must be used to buy pension benefits. The rates for converting any excess AVC fund into pension vary with market conditions. It will not therefore be possible to accurately calculate the amount of pension available from AVCs until the time of retirement. It is now possible to transfer the whole of your AVC fund to an external pension policy at the point you draw your Magnox pension.

Investment Choice

The trustee of the Magnox Scheme has chosen to offer an AVC contract with Prudential.

Not all of the funds listed by Prudential are available to members of the Magnox Scheme. Those which are available are shown below.

• Prudential With Profit Fund (only available to existing contributors)
• Prudential Unit Linked Lifestyle Funds 1, 2 or 3
• Global Equity
• Discretionary Managed
• UK Equity
• International Equity
• Retirement Protection
• Index Linked Gilt
• Cash

Contributions

You can choose to pay regular monthly contributions or single contributions. Any new contributions, including increases for existing contributors may be expressed as a monetary amount and/or a percentage of pensionable salary. If you choose to pay regular monthly contributions you can increase your contributions at any time, within the limits previously stated or decrease or stop the contributions if necessary. It will not however be possible to obtain a refund of AVC contributions which you pay unless you leave the Magnox Scheme before you have been a member for two years. The two years count from the date which you joined the Magnox Scheme and not the date on which you started paying AVCs.

HOW TO PAY AVCs

You should use the form below to give details of the amount you would like to pay and the fund or funds in which you would like to invest. You can invest in as many of the funds as you would like, unless you choose the Prudential Unit Linked Lifestyle, in which case you cannot contribute to additional funds, but please make sure that you have read the descriptions fully before making your choice. This form should only be used in April for monthly contributions which you will pay for the next twelve months. For any other contributions please use the form labelled AVC Application NON SMART ESPS.

INCLUSION OF AVCS IN SALARY SACRIFICE (SMART PENSION) ARRANGEMENTS

It is possible (for members of the SLC section of the Magnox Scheme only) to include regular monthly AVC contributions in the salary sacrifice arrangements. Up to 50% of salary, subject to the Annual Allowance limit, as detailed above, may be sacrificed in lieu of contributions to the AVC scheme. You will be given the opportunity to amend the level of AVCs paid through SMART once a year (currently April) and will only be permitted to reduce such contributions in the event of a relevant lifestyle change *, which must be approved by Employee Services. If you intend to pay or increase your contributions for less than a complete year for reasons other than leaving the company you should pay them as standard AVCs (Non-smart) rather than salary sacrifice (Smart). Lump sum payments can be paid at any time but as standard AVCs (Non-smart). Please bear in mind the risk that you may wish to reduce contributions mid year to avoid exceeding the annual allowance (e.g. as a result of promotion)

You can increase your AVC contribution at any time during the year but as a standard AVC (Non-smart) rather than salary sacrifice (Smart). It is possible to pay a combination of Smart and Non-smart AVCs and you are free to amend the investment strategy in respect of any contributions, Smart or Non-smart at any time during the year.

Please note that all AVC contributions, Smart and Non-Smart , will be set to zero at each renewal date (April) and you will be asked to reapply to continue contributions.

* The following are examples of circumstances that may be treated as lifestyle events.

• Lengthy Career breaks
• Significant periods of unpaid leave
• Maternity
• Significant reduction to earnings eg because of reduced sick pay and divorce
• Other unforeseen circumstances to be considered on a case by case basis

As you can see the options available here are limited, so please ensure that you consider your position carefully.

OTHER OPTIONS

Paying AVCs to the Magnox Scheme is not the only way in which you can improve your retirement benefits. Your AVC funds can only be accessed when you draw your Magnox pension and may not all be available as a cash lump sum. Any pension which you buy with your AVC fund will be subject to income tax under the PAYE system.

You are able to take out individual pension savings contracts with a range of other companies or you may prefer to use a more flexible means of saving.

IMPORTANT

You should be comfortable that paying AVCs through the Magnox Scheme is appropriate for your personal circumstances before commencing payment. We recommend that you obtain independent financial advice from an authorised person to assist you with this decision. Please be aware that none of the employees within HR, Magnox Group Pensions or RPMI EPAL are authorised to give financial advice.

SMART ADDITIONAL VOLUNTARY CONTRIBUTIONS
Name
Payroll number

I would like my employer to make additional voluntary contributions under SMART at the monthly rate of % or £ with effect from April 2018and agree to be bound in all respects by the rules of the scheme relating to additional voluntary contributions, as amended from time to time.

PRUDENTIAL
FUNDS / AMOUNT
% or £ / LIFESTYLE OPTIONS*
see note 1 / AMOUNT
% or £
Cash / Cash
Discretionary / Index Gilts
Global Equity / Retirement Protection Fund
Index Linked / Total
International Equity
Retirement Protection
UK Equity / I wish to Lifestyle to a retirement age of
UK Equity (passive) / INSERT AGE
With Profit **
Total
Total must add up to 100% or the lump sum amount

* Only one Lifestyle Option can be chosen, and no other funds

** Only available to existing contributors

(1) Under the Lifestyle option, contributions will be invested initially in UK Equity (passive) and 50% in International equity funds. Then, five years prior to the Lifestyle retirement age inserted above, the AVC fund will gradually be switched to the Lifestyle fund option selected.

(2) The maximum percentage contribution that can be paid, or fixed amount expressed as a percentage is 50% of gross monthly pay.

I understand that my salary will be reduced by an amount equivalent to additional voluntary contributions I have indicated above and this represents a change to my terms and conditions of employment.

I have read and understood the information on AVCs as set out above and on the website.

Signed : ______Date : ______

Completed forms should be sent to: RPMI EPAL, Unit 2, Rye Hill Office Park, Birmingham Road, Coventry, CV5 9AB or emailed to

Data Protection Act

Information which you supply in connection with your membership of the Electricity Supply Pension Scheme will be held on computer or other records. The data will be held for administration purposes and will only be disclosed to relevant third parties if this is essential for the administration of the scheme, if it is required by law or with your consent. It will not be used for any other purpose.