Scheme information
The Scheme at a glance
- The Scheme is a defined benefit pension scheme. A DB pension arrangement is one where your pension is based on your salary, your length of service, and a fraction known as an 'accrual rate'. You and the Company pay into your pension while you are an ‘active’ member. When you retire, you get a pension for life and you can also take a cash lump sum.
- You and BOC pay into your pension. When you retire, you get a pension for life and can take a cash lump sum.
- There are three Levels – in each Level, the amount you pay and how your final pension is worked out is a little bit different.
- As well as your pension, as a member of the Scheme you also are entitled to other benefits, such as ill-health and death-in-service benefits.
Calculating your pension
Overview
Your Scheme pension is calculated for every year you are a member, using a formula based on:
- A fraction known as an 'accrual rate' e.g. 1/100
- Your Pensionable Earnings
- Your Pensionable Service in the Scheme
In detail
Your pension at Normal Retirement Age (NRA), which is age 65, is calculated in three parts:
- Pension built up to 31 March 2011
- Pension built up between 1 April 2011 and 31 March 2016
- Pension built up after 1 April 2016
These three parts are added together to give you your total pension figure.
What Level you are in affects how much your final pension will be worth. This is because you contribute a different amount every month, and the formula used to calculate your pension is slightly different. You should note that up to 31 March 2016, the Levels were slightly different – Levels 1 and 2 existed instead of A, B and C.
1. Up to 31 March 2011
The annual pension you built up in this period is calculated as follows:
This amount will then be increased from 1 April 2011 until you retire, which is known as Revaluation. This Revaluation helps to protect your pension from the effects of inflation. The rate of Revaluation applied to your pension built up to 31 March 2011 in excess of the Guaranteed Minimum Pension (GMP) is, broadly, the rate of increase to the Retail Prices Index (RPI), up to a maximum of 5% a year. The RPI is used to show inflation based on the increase in the cost of goods and services over time. You can contact BOC Pension Services for more information about the Revaluation of GMPs.
2. Between 1 April 2011 and 31 March 2016
The annual pension you built up in this period is calculated as follows:
3. From 1 April 2016
The annual pension you built up in this period is calculated as follows:
Your total pension
At retirement, these three parts (where relevant to you) are added together to give you your total pension figure.
Your annual benefit statements show you your total pension built up, and also what your benefits could be worth at retirement.
Your cash lump sum
When you retire you can use up to 25% of your total Scheme benefits for a tax-free cash lump sum. The amount of pension you have to exchange in order to receive the tax-free cash sum depends on a number of factors.
Your Personal Benefit Illustration at retirement will have details of the maximum cash sum available to you.
If you’re planning to take a cash lump sum but aren’t sure about your options, or you’d like more information, please contact BOC Pension Services. You can also use the pension modeller to estimate the maximum cash sum you can take from the Scheme.
Understanding your pension calculations
Why are there three different elements?
Over time, the Scheme has changed the build-up rates for your pension. This means that your pension built up to 31 March 2011 and between 1 April 2011 and 31 March 2016 is held within the Scheme; and calculated separately from the pension you are building up after this date.
Are there any exceptions?
Your annual pension will be limited if your pension is more than two-thirds of the value of your Final Pensionable Earnings. If you reach this limit, you will also stop making normal member contributions.
Final Pensionable Earnings
If you left the Scheme before 1 April 2011 this is, broadly, the highest of:
- The average of your annual Pensionable Earnings in your final three years' pensionable service;
- The average of your highest three consecutive tax years' annual Pensionable Earnings in your final thirteen years' pensionable service; and
- An average of your Pensionable Earnings over your entire pensionable service, revalued in line with the increase in the Retail Prices Index.
If you were an Active Member of the Scheme at 1 April 2011, this is, broadly, the highest of:
- The average of your Pensionable Earnings in your final three years' Post-1 April 2011 Pensionable Service;
- The average of your highest three consecutive tax years' annual Pensionable Earnings in your final thirteen years' Post-1 April 2011 Pensionable Service; and
- An average of your Pensionable Earnings over your entire Post-1 April 2011 Pensionable Service, revalued in line with the increase in the Retail Prices Index, capped at 2.5% a year.
There is also what is known as the ‘Scheme Notional Cap’. This can restrict the benefits of high earners who joined the Scheme after 31 May 1989. You can only build up benefits based on your earnings up to the Scheme Notional Cap. Contact BOC Pension Services if you think you might be affected by this.
If, after calculating your benefits, your projected pension is less than you hoped for, you might want to consider making Additional Voluntary Contributions (AVCs) to the Scheme. Use the modeller to see how much it would cost you to make AVCs.
Guaranteed Minimum Pension
If you built up pension before 6 April 1997, you will have ‘Guaranteed Minimum Pension’ (GMP). This means that you were contacted out of the State Earnings-Related Pension Scheme (otherwise known as SERPS, or the ‘Second State Pension’). The Scheme makes sure you have the same amount of pension as you would have had under SERPS, which means that you may not be allowed to reduce your pension by taking a cash lump sum.
Supporting your family
You can apply to the Trustee (The Trustee is responsible for looking after the assets of the Scheme on behalf of members) to exchange part of your own pension to provide extra pension for your ‘Recognised Dependant’. (A Recognised Dependant is someone who relies on you financially, after your death). This option is only available at the time your pension starts. Contact BOC Pension Services for more information.
See Life events to find out what your loved ones may be entitled to if you die.