Handbook for Members MINEWORKERS` PENSION SCHEME

MINEWORKERS’
PENSION SCHEME
Handbook for Members
Index
Foreword
3
Background to the Scheme as it is today
4
Benefits on Retirement
5
The pension calculation - Guaranteed Benefits
The pension calculation - Bonuses
Annual increases - pension in payment
Pensions and inflation (or deflation)
Increases and bonuses
Payment of pension
Changes in circumstances
Confirming continuing entitlement to benefits
Taxation considerations
Information for Deferred Members
10
Increases to deferred pensions
Bonuses
When pension is due for payment
Early retirement choices
Tax treatment of pensions
Lump sums
Trivial commutation
Statements
Transferrring out of the MPS
Death Benefits
14
Pension benefits payable
Members who left the Scheme before 6 April 1978
Members who left the Scheme after 6 April 1978
Civil Partners
Other dependants
Establishing entitlement to benefit on death - alternative beneficiaries
Children’s allowances
Lump sums on death
Other Useful Information
17
Additional Voluntary Contributions
Transfers into the Scheme
Payee arrangements
Discretionary benefits
Divorce
1
Index
Trustees and Scheme Management
19
The Committee of Management
Appointment of Trustees
Trustee Elections
What are the Trustees’ duties and responsibilities?
The Sub-committees
Other Trustee Groups
The Trustees’ Office
The Scheme’s Advisers
The Scheme’s Administrators
The Government guarantee
The Sub-funds
Valuations, Bonuses and other benefit improvements
Retirement Income
25
General notes about the Scheme and Retirement Income
The State Pension Scheme
Income Related State and Council benefits
Assignment of benefits/Court Orders
Scheme Publications
26
Data Protection
Useful Contacts
27
Pension Queries
Questions about tax
For more information about the Scheme
Coal Industry Social Welfare Organisation (CISWO)
Problems and complaints
The Pensions Advisory Service
The Pensions Ombudsman
The Registrar of Pension Schemes
The Pensions Tracing Service
The Pensions Regulator
Glossary
2
30
Foreword
The legal document which governs the operation of the Scheme is the Mineworkers’
Pension Scheme Rules. This is a document which started as a set of Government Regulations
laid under the Coal Industry Act 1994. Since 1994, all changes to the Rules of the Scheme
have been made by Government, after consultation with the Committee of Management.
Other relevant provisions are contained in the Government Guarantee, the constitution of
the Trustee Company and the general law covering pension schemes.
This Handbook is a guide to the main terms of the Scheme Rules, which apply to
pensioners and deferred pensioners, and it should be treated only as a guide. It is correct at
the time of printing, but may be revised in the future in the light of changes to the Scheme,
changes to the law and regulations governing pension schemes.
The Rules of the Mineworkers’ Pension Scheme, and other legal documentation, contain the
Scheme’s full provisions and override this Handbook in the event of any inconsistency.
A copy of the up to date version of the Rules is available from the administration office.
The original Regulations are available from HMSO under the reference S.I. 1994 No 2577.
References in this Handbook to employment with British Coal include employment with
any other employer which entitled coal industry employees to a pension under the Scheme.
This handbook reflects pensions and taxation law and practice as at the end of 2009.
However, please be aware that these may change in the future.
As well as this Handbook there are other publications and reports which give more
information about the Scheme. These can be obtained on request from the Administration
Office, or can be accessed via the Scheme’s website, which provides information and news
all in one place. It also provides links to other sites which may be of interest to coal
industry pension scheme members.
Full details of how to contact the MPS are given on pages 27 and 28.
3
Background to the Scheme as it is today
Since the MPS was introduced, it has changed significantly in structure. This section
summarises those changes, and sets out the calculation basis for MPS benefits. The benefits
payable to Scheme members vary because each member’s circumstances are different.
The MPS came into effect on 1 January 1952.
Membership was made compulsory from
3 April 1961.
Benefits earned before 6 April 1975 were
relatively small and until April 1990, these
benefits did not increase, either before or after
they went into payment.
The benefit structure of the Scheme was
significantly revised from 7 April 1975, when it
became an earnings related, final salary scheme.
After 6 April 1975, as contributions changed
from a flat rate to an earnings related basis,
the Scheme was able to provide better benefits
than before as a result of the higher
contribution level.
Refunds of contributions, paid as small
lump sums, have been payable in certain
circumstances - usually as a result of having
relatively short service. Any member who was
entitled to a refund of contributions was notified
at the time of leaving the MPS. Where a refund
was paid, no further benefits would be payable
for that particular period of membership.
The following table shows eligibility for membership
and contribution rates:
Date
Membership
MPS Contribution rate
1 January 1952 to
3 April 1961
Scheme membership was
voluntary in most cases
Maximum of 7.5p per week
4 April 1961 to
6 April 1975
Scheme membership was
compulsory
Maximum of 20p per week
7 April 1975 to
31 December 1978
Scheme membership was
compulsory
5% of pensionable earnings
1 January 1979 to
5 April 1988
Scheme membership was
compulsory
5.25% of pensionable earnings
6 April 1988
Scheme membership was
no longer compulsory
5.25% of pensionable earnings
Following privatisation in 1994, the MPS was closed and no further payments of ongoing
contributions were accepted. MPS contributors who continued to work in the coal
industry after privatisation were able to transfer to the Industry Wide Mineworkers’ Pension
Scheme (IWMPS) from January 1995.
4
Benefits on Retirement
The level of benefits the Scheme can pay depends on four factors
which will vary between individual members.
These are:
●
the length of MPS service;
●
the reason for termination of employment,
●
the date of leaving the Scheme, and
●
the contributions paid to the Scheme.
The following paragraphs give a general description of
how pensions at retirement are worked out. For more
specific information on the calculation of individual
benefits, please contact the Administration Office.
The pension calculation - Guaranteed Benefits
Scheme benefits are made up of a number of elements. Part of the pension is guaranteed,
and the remainder is paid in the form of bonuses.
The amount of pension is calculated by reference to the four factors above, but will always
be a fixed rate pension amount, paid four weekly, quarterly or annually.
Benefits earned for contributions paid to the Scheme before 7 April 1975
Contributions were made on a ‘flat rate’ basis. Members paid fixed amounts of pension
contributions, which were not related to their earnings. The maximum level of contribution
up to April 1975 was never more than 20p a week. The pension earned for membership
between 1952 and 7 April 1975 would never be more than £2.00 per week.
Benefits earned for contributions after 6 April 1975
For members who left service after 7 April 1975, pension payable at the Scheme’s
pensionable age is based on pensionable earnings, contributing service and the accrual rate,
all of which are explained further below.
Pensionable earnings are normally an average of the highest three consecutive full tax
years’ earnings (revalued in line with inflation) out of the last thirteen years of Scheme
service since 6 April 1975.
Contributing Service, which is a member’s total Scheme service after 6 April 1975, plus
any service transferred into the Scheme from another pension scheme, and any additional
service credit due following the 1992 and 1994 valuations of the Scheme. Any period of
strike absence when Scheme contributions were not repaid does not count as Contributing
Service and is not included in the pension calculation.
Accrual Rate, which is the rate at which the pension earned after 6 April 1975 built up.
The Accrual Rate used in the benefit calculation depends on the date a member left the
Scheme, as shown below:
Date of leaving the Scheme:
Accrual rate is:
7 April 1975 - 31 March 1990
1/90th
1 April 1990 - 29 February 1992
1/80th
From 1 March 1992
1/60th
5
Benefits on Retirement
For example, if a member:
left after 1 March 1992;
had 17 years of Scheme membership; and
based on the calculation explained on page 5, had pensionable earnings of
£20,000, then his pension entitlement would be calculated as follows:
£20,000 x 17 = a pension of £5,667 per year, or a weekly pension of £108.98
60
Depending on the date they left and the reason for leaving, some members receive:
●
a make-up to a minimum rate - generally, where a member took age or
incapacity retirement or redundancy retirement over a certain age;
●
a value for money addition, which ensures that the benefits due to members
who left before normal pensionable age represented fair return for their
contributions. At retirement, actual earned benefits, plus any increases
added to the pension before it becomes due for payment, are compared
with the level of the value for money pension. If the earned pension does not,
in the opinion of the Trustees, provide value for money for the contributions
paid, the higher of the two is payable;
●
an award of additional contributing service, for members made redundant
between 11 March 1981 and 29 March 1987, and who were aged between
50 and 59 at the date of redundancy.
Any additions that are due are automatically added to pensions and do not have to be
claimed separately.
The pension calculation - bonuses
The remaining part of the pension is paid in the form of bonuses, which arise from
surpluses from past valuations. Bonuses are additional pension amounts which are
paid with the Guaranteed benefits. Bonuses awarded from previous valuations cannot
be guaranteed and in some circumstances, explained more fully on page 8, they
might reduce.
The Guarantee arrangements protect members’
benefits, ensuring that there is no reduction in
total benefits in cash terms even during a
prolonged valuation deficit period, when
pensions stand still.
The Guarantee arrangements are explained in
more detail on page 21.
6
Benefits on Retirement
Annual increases - pensions in payment
Pensions are made up of three components:
●
Guaranteed benefits;
any Guaranteed Minimum Pension element; and
● Bonuses
●
Guaranteed benefits are the part of pension built up during service in the industry.
Guaranteed benefits receive full annual increases in line with any increase in the cost of
living as measured by the Retail Prices Index (RPI).
Any increase is normally applied by the Scheme in the autumn. In years where RPI is less
than zero, as it was in 2009, for example, the Rules ensure that any fall in RPI will not result
in a reduction in a member’s total pension.
The autumn RPI increase does not apply to bonuses, or to any Guaranteed Minimum Pension element.
Where a member contributed to the MPS after 5 April 1978, the MPS undertook that, from
State Pensionable Age, the Scheme would pay at least a minimum level of pension, called
the Guaranteed Minimum Pension (GMP), which replaces a comparable benefit otherwise
payable from the State. The Scheme pays all the increases on any MPS pension in payment
before the GMP becomes payable. Once GMP becomes payable, the Scheme increases any
GMP earned after 5 April 1988 by the increase in the cost of living up to 3% each year.
The pension increase on the pre April 1988 GMP and any pension in excess of 3% on the
post 1988 GMP will be added to the State pension by the Benefits Agency when the State
pension increases. These increases are effective from 6 April each year.
At the date this Handbook was published, State Pension Age is 65 for men and 60 for women. From
April 2010, State Pension Age for women will begin to gradually increase so that by 2020, State
Pension Age will have been equalised for men and women, at age 65.
The GMP is not an additional pension; it is a minimum level, calculated by the State. If a
member contributed to the MPS after 5 April 1978, the Scheme pension is compared
against the GMP to ensure that it is no less than the GMP. If it is less, it would be increased
to the same value as the GMP.
The GMP should not be confused with the Guaranteed benefit element which forms part of the
benefits payable by the MPS.
As previously explained, bonuses arise from surpluses from past valuations. They are not
generally increased in the autumn.
7
Benefits on Retirement
Pensions and inflation (or deflation)
As explained on page 7, the Rules provide for Guaranteed benefits to increase each year by
the increase in the Retail Prices Index (RPI) measured over the period June to June.
In 2009, for the first time since MPS became a closed Scheme in 1994, the change to the
RPI was negative (-1.6%). The Rules of the Scheme state that pensions cannot be allowed
to fall and Guaranteed benefits will stand still even when the RPI change is negative.
The Rules also state that any increases in RPI in subsequent years must be offset against
negative RPI in earlier years. This means that annual increases on Guaranteed benefits can
only begin again once future RPI increases are more than the previous falls, though the
Trustees’ aim is always to try and increase pensions in line with any increase in the RPI by
awarding bonuses (when funding permits) to top up the Guaranteed benefit entitlement.
Increases and bonuses
Bonuses added to pensions are not generally increased, though flat rate bonuses have been
(and in the future will be when affordable) added to Guaranteed benefits with the aim of
keeping members’ benefits increased in line with inflation.
Bonuses already awarded came from surpluses in the Scheme after 1994. Bonuses have
been added to pensions in 1997, 2000 and 2006 when reviews showed that there were
surpluses in the Scheme. Continuing payment of bonuses is not guaranteed; bonuses are
likely to decrease if a review shows that there is a large deficit in the Scheme, although
overall pension cannot be reduced in cash terms, as previously explained.
Payment of pension
MPS pensions are normally payable every
four weeks, that is two weeks in advance
and two weeks in arrears. For small
pensions, payment is made quarterly or
annually. Pensions are usually paid into
a member’s UK bank or building
society account by direct credit from
the Scheme’s bank account. Payment
by cheque or girocheque is no
longer available.
8
Where a member is living abroad,
payments can be made to an overseas
account but there may be additional bank
charges. The Scheme offers an option to
pay pensions to those living overseas
quarterly or annually so as to reduce
these costs and exchange rate losses.
Benefits on Retirement
Changes in circumstances
In most cases, pensions are payable for life, unless they were paid on the understanding that
payment would only continue while the recipient meets certain qualifying conditions - for
example, where a pension is being paid for the duration of a child’s education, or where a
Serious Ill Health pension was awarded. Since 1979, widow’s benefits have been payable
for life, even after re-marriage. However, the Scheme will need to be informed about the
re-marriage in order to make sure we are making payments, and addressing
correspondence, correctly.
Some changes in circumstances will affect payment of pension. All of the changes listed
below should be reported to the Scheme’s administrators, who will confirm whether they
affect the benefits payable.
What changes should be reported?
Deaths - including the death of a Scheme member, a dependant or a deferred member
Changes of address
Closure of a bank account, or a change of account number
A move to a retirement home, or to a nursing home
A return to work, where Serious Ill Health Benefits were awarded
Remarriage
If a child leaves school, or reaches age 21 if before (if a child’s pension is in payment)
A divorce
A change of name
Failure to notify the Administration Office of a change could result in an overpayment of Scheme
benefits. In all cases, the Trustees have a duty to recover overpayments of MPS benefit and will take
whatever action they consider necessary to recover overpaid money.
Confirming continuing entitlement to benefits
Our administrators make regular checks
with a specialist tracing agency to ensure
that the Scheme is advised where the
death of a pensioner might have gone
unreported. If we receive a report of a
death, and we are not contacted by the
next of kin within a reasonable period, we
will write to our pensioner’s address to
confirm the position.
It is important, and in the interest of all
members, that Scheme benefits are paid
only to those who are entitled to receive
them. The Trustees are responsible for
looking after the assets of the Scheme
for every member. The Trustees would be
accountable to members if they did not
take action to recover overpaid benefits.
If fraud is involved, the Trustees will
pursue the return of any money received
fraudulently and, if necessary, take legal
action to recover it.
Taxation considerations
Pensions in payment are taxed under PAYE, although lump sums paid from the Scheme are
generally free of tax. If a member has another pension arrangement which has yet to come
into payment, he may be asked how much of his Lifetime Allowance is taken up by MPS
benefits before that pension can be paid without incurring very high tax charges. More
information about the Lifetime Allowance is covered in the next section but if a member’s
pension is already in payment he can work out the value of his MPS benefits against the
Lifetime Allowance by multiplying his annual pension by 25 and, if he left the MPS before
1 March 1992, adding any separate lump sum. If a member retired after 5 April 2006, the
Lifetime Allowance figure will have been quoted on his retirement statement.
9
Information for Deferred Members
Increases to deferred pensions
Deferred pensions increase before and after retirement. Increases to pensions in payment
are described on page 7. This section explains how pension will increase before retirement.
Deferred pensions are made up of three components:
●
Guaranteed Minimum Pension (GMP) (for those members who
contributed after 6 April 1978);
●
An increasing component (the increasing pension); and
● A non-increasing component (the non-increasing pension).
Before retirement, the GMP will increase broadly in line with the rate of increase of
National Average Earnings.
The increasing pension, which includes benefits earned during Scheme membership (but
excluding any GMP element) and any additional benefits awarded from surplus before
privatisation, will increase in line with price inflation as measured by any annual increase in
the Retail Prices Index. All of these increases are provided by the Scheme.
The non-increasing pension is made up of bonuses awarded from surpluses after 1994.
No increase will be paid on this part of the pension, although (as with pensions in payment)
new bonuses may be paid in future to help keep total pension in line with retail
price changes.
Bonuses
Bonuses have been added to deferred pensions in 1997, 2000 and 2006 when reviews
showed that there were surpluses in the Scheme. These bonuses are not guaranteed and
do not increase annually.
Continuing payment of bonuses is not guaranteed; bonuses can actually decrease if a
review shows that there is a large deficit in the Scheme, although overall pension will not
be reduced.
When pension is due for payment
Full pension is payable from age 60, the Scheme’s
normal pensionable age. Three months before a
member’s 60th birthday, the Administration
Office will confirm the amount of benefits
payable and the arrangements which need to be
made in order to draw them. If a member has
not heard from the Administration Office two
months before his 60th birthday, he should
contact the Administration Office directly.
10
Information for Deferred Members
Early retirement choices
Benefits can be taken before age 60, at
a reduced rate. For the majority of MPS
members, the earliest age at which
reduced benefits can be taken is age 50.
However, during 2010, the earliest age
at which reduced benefits in most UK
pension schemes can be taken will
increase from age 50 to age 55.
In the MPS, where members had an
unconditional right to a reduced pension
at 50, they will retain that right.
MPS members who were reinstated into
the MPS after 6 April 2006 will not have
access to benefits before age 55. The
Administration Office will have already
notified members to whom this applied
that they cannot draw an early pension
until age 55, rather than age 50.
In all cases, payment at an earlier age
than 50 (or 55, as appropriate) is not
possible other than in the exceptional
circumstances described on page 18.
Benefits taken before age 60 will be
lower than those shown on benefit
statements as being payable from age 60
because they will payable earlier, and for
longer. This is to ensure that a member’s
early retirement is not subsidised by
other members.
The level of reduction is reviewed
regularly by the Trustees. Currently,
benefits payable from age 50 would be
60% of the amount payable at age 60.
If taking pension at age 55, 76.4% of the
amount payable at age 60 would be
payable. Different reduction rates apply
to members with a ‘value for money’
enhanced pension, and to current
contributors to the IWMPS who are
taking both IWMPS and MPS benefits at
the same time.
Tax treatment of pensions
Up to 6 April 2006, the MPS was an ‘exempt approved scheme’ for the purposes of the
Income and Corporation Taxes Act 1988. The Scheme’s exempt approved status meant
that pension contributions were not treated as taxable earnings, cash lump sums on
retirement and death were tax-free and both the investment income from the fund, and the
growth in value of investments, were mainly exempt from tax.
In exchange for these tax advantages, the benefits that the Scheme provided were subject
to certain limits, based on salary and service. MPS benefits generally fell well within these
limits and for most members could be paid with no restrictions.
Since 6 April 2006, the HMRC limits on contributions and benefits from approved pension
schemes have been replaced with allowances, up to which tax treatment remained
favourable. The MPS became a Registered Pension Scheme. All types of registered pension
schemes come under one set of regulations. For most people, the 2006 tax regime applies
to all sources of pension income, except State pensions.
The Lifetime Allowance, introduced in 2006, applies to all pensions savings, replacing the
previous rules for different types of pension arrangements. The allowance applies to the
total value of benefits from all registered schemes, not just MPS, at the time benefits are put
into payment. Initially, the Lifetime Allowance was set at £1.5 million; for the tax year
2009/2010, the allowance is £1.75 million.
A member who has not yet drawn his pension can work out the value of his MPS benefits against the
Lifetime Allowance by multiplying the annual deferred pension by 20 and, if he left the MPS before
1 March 1992, adding any separate lump sum.
Members who think their total pension entitlements may amount to over £70,000 a year, or over
£1.75 million in value - or are close to that figure - can download a factsheet from the Scheme’s
website, which explains the taxation of pensions in more depth. A copy of the factsheet is also
available on application to the Administration Office.
11
Information for Deferred Members
Lump sums
Members who left after 1 March 1992 are able to take a tax-free cash lump sum of up to
25% of the total value of MPS benefits, subject to a maximum of 25% of the Lifetime
Allowance. A 9:1 ‘exchange’ rate is used for calculating the lump sum payable.
The exchange rate is fixed in the Scheme Rules. It in no way represents a fair exchange of
annual income for cash when compared with annuity rates offered by insurance companies on
the open market.
Some members who left before 1 March 1992 may have a separate lump sum entitlement
which cannot be converted to a pension although an optional higher cash lump sum may be
payable. The Lifetime Allowance calculation for a member who left the MPS before 1 March
1992 must include any separate lump sum entitlement before making an estimate as
shown on page 11.
Although the Scheme offers a lump sum option, a decision to take the maximum lump sum from the
Scheme will probably not be in the financial interests of a member in normal health. Taking cash
permanently reduces the amount of weekly pension which may be paid for decades to come.
Members should bear this in mind before selecting a cash option and may wish to seek independent
financial advice.
Trivial commutation
In some instances, very small pensions
may be exchanged for a final trivial
commutation cash lump sum, provided
they pass tests set by HM Revenue and
Customs (HMRC). Before December
2009, the only condition was that the
pensions from all schemes being
converted to cash must be valued at less
than 1% of the overall limit on
tax-favoured pension funds under the
Lifetime Allowance test. Using HMRC’s
conversion tables, that means that
provided pensions from all schemes come
to roughly less than £16 per week in tax
year 2009/10, they can be cashed in from
age 60 (but before age 75) and converted
to a one off lump sum.
Statements
Benefit statements showing a member’s
entitlement under the Scheme are sent
out every three years. Where an MPS
member also has active membership of
one of the Industry Wide schemes,
statements are sent out annually.
12
From December 2009, a more flexible
additional version of trivial commutation
was made available by HMRC.
Members whose pension within a single
scheme is valued at less than £2,000 by
their formula (which is equivalent to an
MPS pension of £1.53 per week) may
commute it for a single cash payment
from age 60.
Under this new test, it does not matter
whether such members also have other
pension scheme income.
Information for Deferred Members
Transferring out of the MPS
If a member’s MPS benefits are not yet in payment, and subject to certain
limits, he can transfer the cash value of his Scheme benefits to:
●
●
another registered pension scheme in the UK, or
certain overseas schemes
- as long as the managers of such an arrangement are willing
and able to accept the transfer.
The amount available for transfer is called a cash equivalent transfer value
(CETV) and will vary depending on a member’s age, gender and current
market rates. The CETV payment will be used to provide additional benefits
in the receiving arrangement.
For more information, a member can contact
the Administration Office about a transfer.
They will provide a quotation of the CETV
together with details of the Scheme benefits the
member would be giving up by transferring.
A member can ask for a CETV quotation once a
year any time up to one year before his full MPS
pension is due to start. In most cases, CETV
quotations will be guaranteed for three months.
Once this period has expired, the CETV must be
re-calculated using up to date factors, and the
amount of CETV payable may change.
If a member is thinking about transferring to any other pension
arrangement he should consider his options carefully and think
about independent financial advice. If a member transfers out of
the MPS, he will give up all rights to benefit from the Scheme.
13
Death Benefits
It is important that the Administration Office is told of the death of an MPS member as soon
as possible. They can then let the family know what details are needed to allow them to
identify and pay any benefits due. The benefits payable on death will vary, because they
depend on the benefits the member was receiving from the MPS.
If a member is uncertain of the benefits payable in the event of his death, the Administration Office
can confirm whether any benefits would be payable to his family.
Pension benefits payable
Members who left the Scheme before 6 April 1978
Most small pensions awarded to those
who left the industry before 6 April 1978
carry no continuing entitlement to a
widow’s pension.
If no widow’s pension is payable, any
pension benefits due but unpaid at
the date of death would be paid to the
member’s widow, or next of kin.
There are exceptions - a widow’s pension
may be payable where a member left the
industry at age 65, or was retired on
incapacity grounds by British Coal’s
Medical Officer. If at the date of death,
the member has been married for less
than twelve months, widow’s benefits
would be payable at the discretion of
the Trustees.
A lump sum may be payable on the death
of a member who left after 6 April 1975.
There is more information on page 16.
Members who left the Scheme on or after 6 April 1978
Widow’s pension
A widow will receive benefits based on
two-thirds of the member’s total weekly
pension. If at the date of death, the
member has been married for less than
six months, widow’s benefits would be
payable at the discretion of the Trustees.
If pension is taken before the member
had reached age 60, it is payable at
a lower rate, with an early retirement
reduction. That early retirement
reduction would not apply to the
calculation of widow’s pensions.
Once in payment, a widow’s pension is
payable for her life and would not cease
should she re-marry.
The position in the event of the death of a
Scheme member who was divorced
depends on any legal arrangements which
might have been agreed between the
couple at the time of the divorce.
The section on page 18 gives more
information. Generally speaking, following
a divorce, there would be no spouse’s
benefits payable to the former spouse on
the death of a member.
14
Death Benefits
The widows and widowers of members who contributed to the MPS after 5 April 1978 may
also have a Guaranteed Minimum Pension (GMP) entitlement. For widows, this will be half
of the member’s GMP. For widowers, the entitlement will be half of the member’s GMP
arising from service on or after 6 April 1988. The GMP is a minimum level of pension, which
replaces a comparable benefit otherwise payable from the State. There is more information
about GMPs on page 7.
From 6 April 2006, changes introduced by HMRC allow increased flexibility in how lump
sum death benefits can be taken. Any GMP element can only be paid as a widow or
widower’s pension. This is because the GMP is a pension that is paid in place of a State
benefit, the State Earnings Related Pension Scheme (SERPS), or the State Second Pension
(S2P). If the benefits due from MPS exceed the level of the GMP, the excess can be
converted into a cash lump sum, provided the lump sum is below the limit of the unused
balance of the deceased member’s Lifetime Allowance. Any lump sum death benefit paid
above that level would be taxed at the rate of 55%.
A lump sum death benefit can only be paid if the member is under the age of 75 at the date
of death. After a member reaches that age, any benefits due on their later death can only
be paid as a pension. There is more information about HMRC’s April 2006 changes on
page 11.
Taking a cash lump sum instead of a pension may not be in the best financial interests of
dependants, who may have to live on the income for many years. The Trustees strongly recommend
that dependants take financial advice before deciding to take cash from the Scheme instead of
pension income.
Widower’s pension
Leavers before 6 April 1988
There is generally no entitlement to
widowers’ pension for the husbands of
female Scheme members who left
the Scheme before April 1988.
The Administration Office will be able
to confirm whether a pension is payable.
Leavers on or after 6 April 1988
Where a female Scheme member
contributed to the Scheme after April
1988, and died on or after 6 April 1989,
benefits are payable to her widower.
The benefits payable are calculated in the
same way as widow’s benefits.
Civil Partners
The Civil Partnership Act 2004 came into force on 5 December 2005. Since then, same-sex
couples in the UK have been able to enter into a legally recognised relationship which gives
a registered civil partner rights and responsibilities similar to those of spouses, including
rights to pension scheme benefits. Benefits payable to a qualifying surviving civil partner
would be payable on the same basis as the benefits payable to MPS widowers.
Other dependants
The Rules give the Trustees some discretion on deciding how to pay particular benefits in
certain circumstances. This includes the payment of dependant’s benefits on the death of a
Scheme member. These benefits may be payable, depending on the circumstances, where
an unmarried couple were living together as partners. The Trustees will take full account of
all relevant information provided about a member’s circumstances in making a decision on
the payment of discretionary Scheme benefits.
Benefits may also be paid at the Trustees’ discretion, for the duration of the child’s
education, to a claimant who had care of the member’s children at the time of his death,
or to anyone (except someone already entitled to a child’s pension from the Scheme) who
was wholly or mainly maintained by the member. The Trustees can review these
discretionary benefits if a dependant’s circumstances change.
15
Death Benefits
Establishing entitlement to benefit on death - alternative beneficiaries
Where a couple are legally married, it is relatively straightforward to establish entitlement
to benefit following the member’s death by asking to see the marriage certificate.
This is not possible, of course, where a couple who were unmarried were living together
as partners. In such cases, we ask to see supporting evidence of the relationship and of the
claimant’s financial dependency on the Scheme member. This could include confirmation of
a shared bank account, letters, and utility bills addressed to both parties at the same
address. We may also arrange for a visit from a representative of CISWO (the Coal Industry
Social Welfare Organisation), as often a claimant may prefer to speak personally to give
details of their circumstances.
In the interests of security, many people routinely destroy bank
statements and other paperwork. However, anyone living with a partner
who would wish to make a claim for dependant’s benefit on the death of
the Scheme member should consider whether there would be sufficient
information to support their claim.
Children’s allowances
Children under 16, including a child born following a
member’s death, a legally adopted child, or a child
for whose care and maintenance the member was
responsible, may be entitled to receive a pension.
Any disabled children, permanently incapable of supporting
themselves, may receive a pension for life. Otherwise, pensions to children cease when
they reach age 16 unless they are in full time education in which case payment will
continue as long as education continues, up to a maximum age of 21.
It is important that we are notified as soon as education ceases because any overpayment
will be repayable to the Scheme.
Children’s pension payments form part of their taxable income. Children’s pensions are
normally paid to an adult, usually the surviving parent, for the child’s benefit. They do not
form part of the taxable income of the parent as the law currently stands provided the
income is the entitlement of the child, and is used for that child’s benefit.
Lump sums on death
If there is no dependant’s pension entitlement following a member’s death, we check to
see whether the payments due, or payable, to the member represented the full value of his
contributions to the Scheme. If not, any balance, usually a small lump sum, will be paid to
the member’s widow, or his estate.
Deferred pensioners
Where a member left after 6 April 1975 and benefits were not in payment at the date of
death, the member’s widow or his next of kin would be entitled to a lump sum equal to the
higher of three years’ worth of pension or the value of the member’s contributions, plus
interest.
Pensioners in payment
Where a member left the MPS after 6 April 1975, payments are guaranteed for five years
from the date the pension is put into payment. If a member dies within five years of
starting to draw pension, any remaining instalments of pension due but unpaid are payable
as a lump sum.
Taxation considerations
Other than in circumstances where benefits are paid in excess of a member’s Lifetime
Allowance, under current tax law, none of these lump sums would be subject to tax on
payment by the Trustees. Payments made to the member’s estate may, however, be
assessed to Inheritance Tax as part of the estate.
16
Other Useful Information
Additional Voluntary Contributions
If a member paid Additional Voluntary Contributions (AVCs) in addition to normal MPS
contributions, and did not transfer his AVC fund to another arrangement, he will have built
up an AVC fund with the Prudential Assurance Company, the company chosen by the
Trustees to manage the Scheme’s voluntary contributions arrangement. A member’s AVC
fund will provide additional benefits at the time his main MPS benefits become due for
payment and can be used to buy an annuity, which provides a pension for life for the
member and, if he chooses, for his dependants, or a lump sum.
The AVC has an ‘Open Market Option’, which means that a member can take an
additional pension with any provider he chooses at retirement. The Financial Services
Authority (FSA) has a website (www.fsa.gov.uk/tables) that allows a comparison of annuity
rates available based on the type of annuity a member wishes to take and his AVC fund size.
In order that a member can make a comparison, a quotation request form will be sent at
the same time as his MPS retirement options. Up to four quotations can be requested from
the Prudential.
The quotation request form sent to members who have large AVC funds will include details
of an independent annuity broker, Hargreaves Lansdown, who can help to select an
annuity from all providers.
Following the tax changes introduced in April 2006, a deferred member can take some (or,
in many cases, all) of his AVC fund as a tax-free lump sum, as opposed to having to take it
all as pension. As explained elsewhere in this Handbook, there is also an option to take part
of the benefit from the main scheme as a lump sum rather than pension.
If a member wishes to take a cash lump sum, whatever the total amount that a member wishes to
receive as cash (from his AVC fund and from the MPS, taken together), it is likely to be in his
interests to take as much of that sum as possible from his AVC fund rather than from the MPS.
This is because the rate at which AVC pension is converted to lump sum is currently more favourable
than the corresponding rate that currently applies under the terms of the MPS.
Information about the AVC policy itself can be obtained from the Prudential’s website:
www.pru.co.uk/retire/pensions/avc/
Members who paid AVCs and who have not yet drawn their benefits receive details of
their AVC fund in a separate benefit statement. For any questions about an AVC fund, or
the benefits from an AVC fund, please contact the Administration Office at the address on
page 27.
Transfers into the Scheme
Following privatisation, transfers into the MPS were no longer accepted.
However, in the 1980s and early 1990s, many members of occupational schemes were
advised by personal pension salesmen to transfer their benefits out of the MPS. This advice
was later found to be inappropriate for some members. In such cases, the Trustees’ policy
was to allow reinstatement, providing the personal pension provider met the full cost.
This option was withdrawn from 1 October 2009. Any former MPS member, who believes
he may have been badly advised to leave the Scheme, should contact his personal pension
provider to determine whether compensation may be payable.
Payee arrangements
If a member who is receiving a Scheme pension becomes unable to manage his pension
because of physical or mental incapability, the Committee of Management can appoint a
relative or other person to act as payee to receive the pension on his behalf, providing the
payee uses the pension payments for the member’s benefit. Further details of these
arrangements are available from the Administration Office.
17
Other Useful Information
Discretionary benefits
The benefits provided for MPS membership are set out in the Rules and the Scheme’s
Trustees have a duty to pay benefits in accordance with the provisions of those Rules.
However, the Trustees may, in certain circumstances, pay discretionary benefits. Where
MPS benefits are not yet in payment, the Trustees currently have a discretionary power to
grant early payment of unreduced MPS benefits in extreme and exceptional circumstances,
whatever a member’s age. For example, discretionary benefits may be claimed where a
deferred member provides medical evidence to show that life expectancy is limited to
eighteen months or less as a result of terminal illness.
Please do not delay a claim in such circumstances. Members who need further information about
discretionary benefits should contact the Administration Office at the address shown on page 27.
Divorce
Any member who is involved in divorce
proceedings should always consult a
solicitor for guidance. The following
information provides a general outline of
the way in which Scheme benefits might
be affected after a divorce. It should be
noted that there are differences in the
way family law is administered in Scotland
to the way it is administered in England
and Wales.
When a couple divorce or separate, the
court must give full consideration to
the value of the pension rights of each
spouse or partner. To do this, a calculation
of the pension rights of one or both
parties will be needed.
On request, the Scheme will provide
the member with a valuation for divorce
purposes. A valuation can also be
provided to a solicitor acting for either
party, provided the member’s written
authorisation is received. In certain
circumstances, the Scheme is entitled to
make a charge for this information.
There are three ways in which pension
rights can be divided when a couple
divorce or separate. The first is called
‘offsetting’, in which the pension value is
included in the assessment of the value
of the couple’s assets - for example, a
family home.
The two remaining methods are:
●
Earmarking - part of the member’s pension is set aside for the benefit of the former spouse, to come
into payment when the member retires, (or is immediately effective if the member has already retired),
or dies. Depending on the terms of the court order, payment of benefits to both parties will cease on the
death of the member.
●
Pension sharing - an alternative option where divorce proceedings were filed after 1 December 2000.
The member gives up an agreed share of his pension value, which is used to create a pension in the
former spouse’s own name. If the former spouse is of pensionable age then pension income can start
straight away and will be paid for life. If she has not reached pensionable age at the date of divorce, then
the fund is set aside to provide a pension from her retirement date. The share belonging to the former
spouse may stay in the Scheme for payment on retirement, or can be transferred to another qualifying
pension arrangement. In contrast to Earmarking orders, benefits payable to the former spouse under a
Pension Sharing Order are unaffected by a subsequent change in the scheme member’s position - for
example, his marital status, or death.
The Scheme is entitled to make a charge for the provision of specific divorce information
and for the complex process of implementing a court order. We will not generally begin
work or accept a court order without payment of the appropriate charges.
A leaflet outlining the legal position on pensions and divorce, showing the current charges
payable, can be found on the Scheme’s website.
18
Trustees and Scheme Management
This section explains how the Scheme is run, the duties of the Trustees and the
arrangements for management of the Scheme.
The Committee of Management
Trustees of the Mineworkers’ Pension Scheme Limited (TMPSL) is a trustee company,
whose ten directors are responsible for managing the Scheme. They form the Scheme’s
Committee of Management. (For ease of reference in this Handbook, members of the
Committee of Management are usually referred to as “the Trustees”).
Appointment of Trustees
Of the ten members of the Committee, five are appointed, and may be removed, by the
Committee. A Nomination Group proposes recommendations to the Committee for these
five Trustees, from whom are drawn the Chairman and the Chairmen of the
Sub-committees. The appointment of the Scheme Chairman and the Chairman of the
Investment Sub-committee require the consent of the Guarantor.
Trustee Elections
The remaining five members of the Committee
are Pensioner Representatives elected by
Scheme members from five geographical
constituencies. All pensioners and deferred
pensioners on the Scheme’s electoral register
have the right to stand for election and to vote
in the constituency where they live. Outgoing
Pensioner Representative Trustees who were
Union Representatives at October 1994 may
also stand for re-election. The period of office
for Pensioner Representatives is five years.
Each constituency holds an election in turn.
The five constituencies are:
●
Yorkshire and North Lincolnshire;
●
Central & Southern England & South Wales;
●
North East England & Overseas;
●
Scotland, North West England & North Wales; and
●
Derbyshire, Nottinghamshire & Lincolnshire
All Trustees are entitled to receive payment for their work as members of the Committee.
The rate of remuneration is set by the Guarantor. Their remuneration is reported annually
in the Scheme’s Report and Accounts.
Each Trustee has a duty to consider the interests of every member and beneficiary of the
Scheme. They have a duty to represent the interests of pensioners and deferred members
equally, regardless of whether they were appointed or elected. Elected Trustees are unable
to treat members in their constituency in a more favourable way to those in any of the
other constituencies.
19
Trustees and Scheme Management
What are the Trustees’ duties and responsibilities?
The Trustees are responsible for the financial management of the Scheme, including
investing the Scheme’s funds, and for ensuring that benefits are paid in accordance with the
Rules. The Committee of Management is responsible for the overall management of the
Scheme; it has regular quarterly meetings and as necessary may meet on other occasions
throughout the year.
The Trustees’ duties and powers are defined in the Scheme and Rules and in the general law.
In summary, their main duties are:
●
to ensure that the MPS is run in accordance with the Scheme and Rules;
●
to invest the funds, and to secure payment of Scheme benefits;
●
to act in the best interests of all the beneficiaries of the Scheme; and
●
to act honestly, prudently and conscientiously.
The Sub-committees
To help perform its duties and to streamline decision making, the Committee has
delegated certain of its powers to a number of Sub-committees. Sub-committees are made
up of an equal number of elected and appointed Trustees.
The principal Sub-committees are as follows:
The Investment Sub-committee, which oversees the implementation of the Scheme’s
investment strategy by its investment managers, monitors the performance of each
investment manager and considers investment issues.
The Administration and Benefits Sub-committee, which deals with the administration
of the Scheme and benefit issues. Monitoring the performance of the MPS administrator is
a key aspect of its duties.
The Discretions and Appeals Sub-committee, which has powers to award certain
discretionary benefits. This Sub-committee also considers appeals made at the Second Stage
of the Scheme’s Internal Dispute Resolution procedure.
The Risk and Assurance Sub-committee, which oversees the Trustees’ overall risk
management framework to ensure that it is efficient and capable of providing an
appropriate level of assurance. This Sub-committee also reviews the role, activities,
resources, independence and effectiveness of the Scheme’s Internal Audit function, and the
scope of the External Auditor’s annual Audit Plan.
Other Trustee Groups:
The Investment Strategy Working Group considers
issues relating to the three yearly review of the
Scheme’s investment strategy.
The Nomination Group proposes recommendations
for Appointed Trustees when vacancies arise on the
Committee of Management.
The Valuation Working Group considers the work of
the Actuary in preparing three-yearly Scheme valuations
and reports its findings to the main Committee.
The Trustees’ Office
The Trustees have a full time executive employed by Coal Pension Trustees Services
Limited, a company jointly owned by the Trustees of the Mineworkers’ Pension Scheme and
the Trustees of the British Coal Staff Superannuation Scheme.
20
Trustees and Scheme Management
The Scheme’s Advisers
The Scheme has appointed a number of specialist
investment managers to manage and invest the Scheme’s
assets. In addition, professional advice to the Scheme is
provided on legal, actuarial, medical and investment
matters. All contracts with advisers and service providers
are reviewed periodically, and their performance is closely
monitored. More details of these appointments are
contained in the Scheme’s Report and Accounts.
The Scheme’s Administrators
Pension scheme administration services are provided by a
third party administrator selected by the Trustees.
The main point of contact for Scheme pensioners and deferred pensioners is the Scheme’s
Administration Office. The Trustees expect the administrators to work to high standards of
customer service and their performance is closely monitored. Every year, the Trustees carry
out a survey of a sample group of Scheme members to obtain an independent view of how
members regard the services provided by the Scheme.
The Government guarantee
The British Coal Corporation, as the principal employer, was until 1994 primarily
responsible for funding the Scheme. The Corporation was formally dissolved following the
making of a ‘Restructuring Scheme’ under the Coal Industry Act 1994 which provided for
the remaining assets and liabilities of British Coal to transfer to the Department of Trade and
Industry (DTI).
The Government Guarantee was put in place on 31 October 1994, the day the Scheme was
changed to reflect the impact of the privatisation of the coal industry. Certain powers
changed with effect from the Closure Date and, at the request of the Committee, the
Guarantor amended the Rules to ensure that a small number of important powers and
obligations held by British Coal were not lost - in particular, the power to augment
benefits. These powers were transferred to the DTI.
In 2007, the DTI was replaced by the Department for Business, Enterprise and Regulatory
Reform (BERR). In October 2008, responsibility passed to The Department of Energy
and Climate Change (DECC). This change does not affect the Scheme’s Guarantee
arrangements in any way.
The Government Guarantee is a legally binding contract between the Trustees and the
Government. In addition to ensuring that benefits earned up to privatisation, and benefit
improvements from surpluses before 1994, will always be paid and keep their real value,
the Guarantee provides protection to ensure that the total pension is not reduced in cash
terms each year.
If a future valuation of the Scheme shows there is not enough money in the Guaranteed
Fund to pay benefits, funds will be drawn from the Investment Reserve to make up the
shortfall. Should the funds in the Investment Reserve be insufficient to achieve this, the funds
in the Guarantor’s Fund and the Bonus Augmentation Fund would be used to make good
the remaining shortfall.
If this happens, the ‘standstill’ arrangement ensures that combined pension payments from
the Guaranteed Fund and the Bonus Augmentation Fund do not decrease (although the
total may stand still for a period). If the combined assets of the Guarantor’s Fund and the
Bonus Augmentation Fund are not enough to achieve this, the Government will have to put
new money into the Scheme to fund the Guarantee.
21
Trustees and Scheme Management
The guarantee arrangements provide:
●
that 50% of any surplus after 1994 is made available to provide Bonuses for
Scheme members. The remaining 50% is payable, in equal instalments over
10 years, to the Guarantor;
●
an unconditional guarantee that the level of pensions in payment will never
be less than the level earned up to 1994 indexed in line with the RPI since
then regardless of whether the Scheme has sufficient funding itself to meet
the cost; and
●
an unconditional guarantee that the total amount of a member’s pension in
payment will not be reduced in cash terms, even if there is insufficient
money in the Scheme.
If there is a deficit, as there was in 2003 and 2009, payment of any remaining sums to the
Guarantor is reviewed and, if appropriate, revised.
The Sub-funds
All of the assets of the Scheme are invested together in one fund and the same investment
policy is applied to all of the assets. However, for accounting purposes, the Scheme is split
into a number of sub-funds. There are four principal sub-funds, one of which is the
Investment Reserve, which holds the unused balance of British Coal’s share of surpluses
from the final valuation before privatisation. The other three sub-funds are explained below.
The Guaranteed Fund contains the assets necessary to pay all of the guaranteed liabilities,
which are the benefits due to members from their employment in the industry and the
annual RPI increase on these benefits.
The Bonus Augmentation Fund receives 50% of any surplus declared after 1994 and is
used to pay bonuses, to current and future pensioners.
The Guarantor’s Fund receives the Guarantor’s 50% share of the surpluses declared
after 1994, which is gradually released to Government as a stream of annual payments.
Valuations, Bonuses and other benefit improvements
The purpose of the valuation is for the Scheme’s Actuary to assess whether the long term
value of the assets held is sufficient to meet the liabilities.
The liabilities are the Actuary’s current estimate of the total cost of paying pensions and
other benefits for the remaining life of the Scheme.
The valuation result is based on a series of assumptions about the likely long term rates on
various classes of investments, on economic factors like the rate of inflation and on
assumptions about the life expectancy of the members of the Scheme and their dependants.
As any valuation can only be an estimate of the Scheme’s assets and liabilities at a point in
time, it is important to carry out regular valuations to check that the Scheme continues to
have sufficient assets. Valuations of the Scheme are normally carried out every three years,
although the Trustees, with the agreement of the Government, can vary this period.
The amount of money in the Fund is maintained at the level necessary to provide the
benefits promised in the Rules. If there are more than enough funds to pay the promised
benefits, the difference is known as a surplus. Where a surplus is disclosed by the periodic
actuarial valuations, under the terms of the Government guarantee, it is divided equally
between Scheme members and the Government. Scheme members’ share is used to
provide benefit improvements.
22
The bonuses added to pensions in recent years were funded by surpluses in the Fund
disclosed by the periodic actuarial valuations. There are no other funds available to
increase benefits.
Trustees and Scheme Management
Benefit improvements awarded before privatisation
1987 valuation - changes effective 1 April 1990
Pensionable Age reduced to 62 for men
Pension builds up at 80ths, backdated to April 1975 for members in service at
1 April 1990
Additional 5% pensions increase
Improved increases on deferred pensions
Early payment of pension available to current contributors from age 59
1990 valuation - changes effective 1 March 1992
Pensionable Age reduced to 60
Increased death in service lump sums
Pension builds up at 60ths, backdated to April 1975 for members in service at
1 March 1992
25% service credit for current contributors
Additional 8% pensions increase, effective from 28 September 1992
Deferred pensions payable from age 60
Early payment of pension available to current contributors at any age from 55
Levelling option made available to current contributors on retirement
Lump sum of 156 times the weekly pension payable on the death of a deferred
member who left the MPS after 6 April 1975
1993 valuation - changes effective 4 July 1994
7.13% service credit for contributors
7.13% increase to pensions for pensioners and deferred pensioners
23
Trustees and Scheme Management
Bonuses awarded after privatisation
1996 valuation - changes effective 2 June 1997
The 1996 valuation showed that the Fund was in surplus, allowing the Trustees to pay a
20% Bonus for all pensioners and deferred pensioners.
1999 valuation - changes effective 3 July 2000
The 1999 valuation showed that the Fund was again in surplus. In addition to paying
a 9% bonus for pensioners and deferred pensioners, Trustees were able to add an
8.1% index-linking increase to the 20% Bonus awarded in 1997 to pensioners and
deferred pensioners.
2002 valuation - changes effective 22 September 2003
The 2002 valuation revealed a deficit in the Guaranteed Fund and that there was not enough
money to pay guaranteed benefits. In autumn 2003, the Trustees called on the Standstill
guarantee to maintain guaranteed pension levels and £390 million was transferred from one
of the four Sub-funds, the Government’s Investment Reserve.
The Bonus Augmentation Fund (the fund from which bonuses are paid) was also found to
be in deficit. As a result, previously awarded bonuses were converted from level bonuses
to reducing bonuses. This conversion reduced their value, requiring a further valuation of
the Bonus Augmentation Fund to be undertaken. This second valuation showed a small
residual surplus, which enabled the Trustees to award a special bonus, allowing increases to
be paid in 2003, 2004 and 2005.
2005 valuation - changes effective 18 September 2006
The 2005 valuation showed that the Fund had returned to surplus. After repaying the
money transferred from the Investment Reserve, part of the remaining money was used,
from September 2006, to maintain the annual inflation linked increases for a further three
years, from 2006 to 2008.
In addition, sufficient funds remained to provide a further new bonus. Scheme members
receiving their pension on or before 18 September 2006 received a 6% bonus on the
Guaranteed Pension level immediately prior to the 2006 cost of living increase. Scheme
members under 60 whose MPS pension was not in payment by 18 September 2006
received a 10% bonus on Guaranteed Benefits, deferred until their retirement.
2008 valuation
The 2008 valuation revealed a deficit in the Fund. In autumn 2009, the Trustees called
on the Standstill guarantee to maintain pension levels. The Trustees were able to
maintain pension levels in 2009 by borrowing £1,044 million from the Government’s
Investment Reserve.
As the rate of RPI increase was negative, no increase was applied to benefits in 2009.
The guarantee arrangements mean that pensions cannot reduce; accordingly, there was no
reduction in 2009 to reflect the negative change to RPI. As a consequence of the fall of
inflation below zero, it was not necessary to award a replacement bonus in 2009 in order
to maintain the real value of pensions in payment.
24
Retirement Income
General Notes about the Scheme and Retirement Income
In most instances, retirement income will come from more than one source. Most Scheme
members are entitled to a State Pension as well as a Scheme pension and may have income
from other pension arrangements.
The State Pension Scheme
There are two parts to the State Pension currently payable from State Pension Age:
●
Basic Pension
The basic pension is a flat rate amount paid to everyone from State Pension Age who has paid sufficient National
Insurance Contributions.
●
State Earnings-Related Pension Scheme
SERPS (the State Earnings Related Pension Scheme), also known as the Additional State Pension, ran from 6 April
1978 to 5 April 2002 when the State Second Pension was introduced. SERPS pays an additional earnings
related State pension to people who paid full National Insurance Contributions between 1978 and 2002.
For members of contracted-out schemes like the Mineworkers’ Pension Scheme, who paid lower rate National
Insurance Contributions, their contracted-out scheme provides the earnings related element, although they may
have a small residual SERPS benefit.
Guaranteed Minimum Pension
From age 65 (for men) and 60 (for women), the Scheme is required to pay a minimum level of pension for MPS
members who contributed to the Scheme after April 1978. This minimum level is called the Guaranteed
Minimum Pension (GMP) and it replaces an equivalent benefit which, had an MPS member not been contracted
out, would have been payable by the State. The GMP is not an additional pension. It is simply a minimum which
the Scheme pension must not fall below.
Some married female members, who chose to pay reduced National Insurance Contributions, do not qualify for
the additional component from the State and so are not entitled to a GMP from the Scheme.
Contracting-out
The Scheme “contracted-out” of SERPS on 6 April 1978 and Scheme Members paid the
lower contracted-out rate of National Insurance Contributions whilst they were
contributing members of the Scheme. The Scheme therefore ensures that a member’s
pension is not less than the Guaranteed Minimum Pension (broadly equivalent to the
benefit which would have been payable from SERPS) for contributing members from 6 April
1978, and meets the requirements of the Pension Schemes Act 1993 in this respect.
Member may find that they have some residual SERPS pension payable by the State but it
will be smaller than for those who remained contracted-in.
The Second State Pension (S2P)
From April 2002, SERPS was replaced by the Second State Pension (S2P). As the MPS has
not accepted payment of ongoing contributions since the industry was privatised, at the end
of 1994, this has no effect on MPS members. However, MPS members who are still
working in other employment may be accruing benefits under the S2P arrangements, or
may be contracted out of S2P.
Income Related State and Council benefits
Scheme benefits and any increases may be taken into account by the Benefits Agencies and
local councils in working out an individual’s entitlement to Income Support, Council Tax
rebates and Housing Benefit. There is no action the Trustees can take to prevent the
Benefits Agencies and local authorities from applying their rules.
Assignment of benefits/Court Orders
A member may not assign his Scheme benefits to another person or use them as security
for a loan. The Courts and certain Government agencies can make orders against the
Scheme to make a deduction of pension to settle a debt. These include Attachment of
Earnings Orders and Orders to make payments to a former spouse as part of a divorce
settlement. Where the Scheme is obliged by law, we will comply with an order.
25
Scheme Publications
The Scheme provides a range of publications for members, which are available from the
Administration Office. Some of these can also be downloaded from the Scheme’s website.
Pensions Newsline
The Trustees send this regular newsletter to Scheme members. Any member who
does not receive copies, or would like any recent back copy, should contact the
Administration Office.
Actuarial Valuation Review and Report
The Scheme’s Actuary carries out a review or valuation of the Scheme usually every three
years. Scheme members can ask for a copy of the latest valuation report.
Annual Report and Accounts
The Trustees produce an annual Report and Accounts which includes a report from the
Committee of Management and a financial review of the year. A summary of the Report
and Accounts is always included in the spring edition of Newsline, but any Scheme member
can ask for a copy of the full Report and Accounts.
Statement of Investment Principles
The Scheme is exempt from producing a Statement of Investment Principles (SIP) under the
Occupational Pension Schemes (Investment) Regulations 2005. However, under Clause 9A
of the Scheme and Rules the Trustee is required to prepare and maintain a written
statement of the principles governing decisions about investments for the purposes of the
Scheme. The Statement is reviewed annually and immediately after any significant change in
investment policy.
The statement covers a range of issues including the Trustee’s policy in choosing
investments, the type and proportion of investments held, the expected return on
investments, and disinvestment.
Data Protection
It is necessary for the Trustees to
hold and process personal data
about members. This data will
be used by the Trustees and their
advisers and service providers,
to calculate and pay benefits, to
communicate with members, for
statistical and reference purposes
and to administer the Scheme.
This information and its use have
been registered under the Data
Protection Act 1998 which gives
individuals certain rights to ensure
that the information is accurate
and that proper security is
maintained. The Trustees require
all their service providers to abide
by the eight Data Protection
principles in the handling of
member data.
As a member of the Scheme, members agree to provide such personal data to the Trustees
and consent to the processing of it. If a member’s circumstances change at any time in the
future, they should inform the Administration Office as soon as possible to ensure the
information held by the Trustees remains accurate.
26
Useful Contacts
Pension Queries
The Administration Office will be able to help with information about Scheme benefits.
Write to:
Mineworkers’ Pension Scheme
Sutherland House, Russell Way, Crawley RH10 1UH
or telephone them on the Lo-call number 0845 606 4444
The Trustees take their responsibilities under the Data Protection Act very seriously and a
member who contacts the Administration Office will be required to answer some security
questions before any information can be provided.
Questions about tax
If a member’s total retirement income is greater than his personal income tax allowance,
then his Scheme pension will be subject to income tax in the same way as earnings.
Staff at the Administration Office may be able to help with some enquiries about any tax
deducted from Scheme pensions. However, HM Revenue and Customs (HMRC) is usually
best placed to answer questions about liability for tax and how this is assessed in detail.
For any detailed questions about tax, write to:
HMRC, Bootle Maritime, The Triad, Stanley Road, Bootle L75 2TT
or telephone them on 0845 300 3939
In order to answer an enquiry, HMRC will ask for the member’s National Insurance
number and the reference 083/MPS.
For more information about the Scheme
More information about the MPS, including copies of Scheme Newsletters, factsheets, and
a regularly updated Scheme News section, can be found on the Scheme’s website:
www.mps-pension.org.uk
During 2010, the website will be revised to contain information provided in this Handbook.
Coal Industry Social Welfare Organisation (CISWO)
CISWO was established as an independent national charity upon privatisation of the coal
industry for the delivery of Community & Personal Welfare Services to those who work or
have worked in the industry, and their families.
CISWO HQ can be contacted on 01709 728115
27
Useful Contacts
Problems and complaints
The Trustees aim to ensure that the Scheme is
administered and managed to high standards.
Please contact the Administration Office first with any
query or problem about the MPS.
Where this does not resolve the matter, a formal
complaint can be made through the Scheme’s own
Internal Dispute Resolution (IDR) procedure.
The Scheme’s IDR Procedure complies with the
requirements of Section 50 of the Pensions Act 1995.
Who can use the IDR procedure?
The IDR Procedure can be used by any MPS member, pensioner or deferred pensioner.
It is also available to the widow, widower, civil partner, child or other dependant of a
member who has died, to a pension credit member, and to a prospective beneficiary.
Anyone who used to be in these groups may also still use the procedure, but should apply
within 6 months of leaving or ceasing to be in the group.
How does the IDR procedure work?
A formal complaint should be made in writing to the Benefits Manager, Coal Pension
Trustees Services Limited, Hussar Court, Hillsborough Barracks, Sheffield S6 2GZ. The first
stage involves the Benefits Manager considering the complaint on the Trustees’ behalf.
A decision on the complaint will normally be provided within two weeks, although complex
matters may take a little longer. We aim to provide a decision within four months. If this is
not possible, we will provide an interim reply giving reasons for any delay and an expected
date for the decision.
How to take a complaint further
Where the Benefits Manager’s decision does not resolve the matter, the Trustees can be
asked to consider the complaint. This is the second stage of the Dispute Resolution
procedure. The Trustees will usually be able to give their decision within two months of an
appeal. They may confirm the decision of the Benefits Manager or they may take a
different view. In any case where the Trustees cannot give their decision within four months
they will write, setting out reasons for the delay and an expected date for giving
their decision.
If a complainant is not satisfied with the Trustees’ decision, or would like any independent
help at any stage, The Pensions Advisory Service (TPAS) can be contacted for help and
advice. If TPAS is unable to resolve the complaint, the Pensions Ombudsman may be
prepared to assist.
A guide to the Scheme’s IDR procedure is available on the Scheme’s website, or from the
Administration Office.
28
Useful Contacts
The Pensions Advisory Service
The Pensions Advisory Service (TPAS) can help with any complaint about the Scheme which
cannot be resolved with the Administration Office or the Trustees.
TPAS is an independent voluntary organisation with locally based advisers who provide help
and advice on pensions matters in confidence and free of charge. TPAS can be contacted at:
11 Belgrave Road, London SW1V 1RB.
Telephone: 0845 601 2923
Email: [email protected]
TPAS’ website is: www.pensionsadvisoryservice.org.uk
The Pensions Ombudsman
The Pensions Ombudsman, appointed by the Government, may investigate and decide any
complaint or dispute of fact or law in relation to the Scheme made or referred to him in
accordance with the Pension Schemes Act 1993.
Although they are separate organisations, the Pensions Ombudsman is at the same address
as TPAS:
11 Belgrave Road, London SW1V 1RB.
The Registrar of Pension Schemes
The Scheme has provided the Registrar of Pension Schemes with details about the Scheme
and a contact name and address. The Registrar holds a list of the up to date addresses of
pension schemes to help former scheme members trace their pension rights.
The Pensions Tracing Service
Tyneview Park, Whitley Road,
Newcastle upon Tyne, NE98 1BA
The Pension Service can be contacted on
0845 6002 537 to trace a pension scheme
over the phone, or request an application form.
The website is: www.direct.gov.uk
The Pensions Regulator
The Pensions Regulator was established to protect the benefits of members of work-based
pension schemes, to promote good administration of work-based pension schemes, and to
reduce the risk of situations arising that may lead to claims for compensation from the
Pension Protection Fund. With its separate Government Guarantee, the MPS is not eligible
to join the Pension Protection Fund.
The Pensions Regulator issues codes of practice and guidance on how to comply with
pensions legislation.
The Regulator is able to intervene in the running of schemes where trustees, employers or
professional advisers have failed in their duties.
The address at which the Regulator may be contacted is:
The Pensions Regulator
Napier House, Trafalgar Place, Brighton, BN1 4DW
The website is: www.thepensionsregulator.gov.uk
29
Glossary
A number of special terms are used in this Handbook. They are necessary to
enable the benefits provided by the Scheme to be described accurately.
The following terms are used throughout this Handbook and the meanings given
below should be referred to wherever necessary.
Accrual Rate
The rate at which pension earned after 6 April 1975 built up. The Accrual Rate used in the
benefit calculation depends on the date a member left the Scheme.
Actuarial Valuation
An investigation by an actuary into the ability of a pension scheme to meet its liabilities.
This is usually to assess the funding level and a recommended contribution rate based on
comparing the actuarial value of assets and the actuarial liability.
Actuary
An adviser who calculates the value of the Scheme’s total pension liabilities by analysing
current membership, the economic outlook and long-term demographic trends to
determine whether the Scheme is in surplus or deficit. The Actuary for the MPS is the
Government Actuary.
Additional Voluntary Contributions
Contributions over and above a member’s normal contributions, which the member elects
to pay to the scheme in order to secure additional benefits.
Bonus Augmentations
Benefit improvements from valuation surpluses arising from valuations undertaken after
October 1994. Bonus Augmentations are not fully guaranteed by the Government.
Bonus Augmentation Fund
The sub-fund which holds members’ 50% share of surpluses.
Child
Includes a posthumous child, stepchild, a child whom he has legally adopted and a child for
whose care and maintenance the member was, in the opinion of the Trustees, responsible
at the relevant date.
Committee of Management
The Committee of Management or the Board of Directors of the Trustee.
Commutation
The exchange of a part, or all, of the pension due for an immediate lump sum.
Contributing service
The total of a member’s total Scheme service after 6 April 1975, plus any service
transferred into the Scheme from another pension scheme, and any additional service
credit due following the 1992 and 1994 valuations of the Scheme, but excluding any period
of strike absence for which Scheme contributions were not repaid.
Deferred Pensioner
A person entitled to benefits from the Scheme which are not already in payment.
30
Glossary
Deficit
Where the Scheme’s assets are insufficient to pay the pensions benefits due to members
during the remaining lifetime of the Scheme.
Dependant
Any person to whose maintenance the member contributed financially at the relevant date.
Earmarking
An order of the Court when a member of an occupational pension scheme or personal
pension scheme divorces, directing the trustees or managers to pay some or all of the
member’s benefits to the ex-spouse at the time they become payable to the member.
Guaranteed Fund
The sub-fund which contains the assets necessary to pay all of the Guaranteed liabilities,
which are the benefits earned by members during their employment with British Coal and
the annual RPI increase on these benefits, ie all benefits except Bonus Augmentations.
Guaranteed benefits
Scheme benefits which are fully covered by the Government guarantee.
Guaranteed Minimum Pension
An amount broadly equivalent to the entitlement to the pension from the State Earnings
Related Pension Scheme (SERPS) at State Pensionable Age which members would have
earned during their years of contributing service had they not been contracted out of the
State Scheme.
Guarantor
At the date of privatisation, the Secretary of State for Trade and Industry. In 2007, the DTI
was replaced by the Department for Business, Enterprise and Regulatory Reform (BERR).
In October 2008, its responsibility passed to The Department of Energy and Climate
Change (DECC).
Guarantor’s Fund
The sub-fund which holds the Guarantor’s 50% share of surpluses.
Internal Dispute Resolution (IDR) procedure
The formal complaint procedure which gives Scheme beneficiaries a route to pursue a
complaint that they have not been able to resolve with the administrators of the Scheme.
Investment Reserve
The balance of British Coal’s share of surplus from valuations before 1994 which is available
as a first call to meet a deficiency in the Guaranteed Fund. Any balance not used for this
purpose is payable to the Government over a period of not less than 25 years from
31 October 1994.
IWMPS
The Industry Wide Mineworkers’ Pension Scheme, the Scheme which MPS contributors
who continued to work in the coal industry after privatisation were able to join as of right.
31
Glossary
Liabilities
Amounts which the Scheme has an obligation to pay now or in the future.
Lifetime allowance
The maximum amount of pension savings that any one individual can build up.
The allowance applies to the total benefit value of all registered schemes, not just the MPS,
at the time benefits are put into payment. In the tax year this Handbook was published
(2009/10) the Lifetime Allowance is £1.75 million.
Pension Sharing
The splitting of a member’s benefits under a pension scheme between the member and the
divorced spouse, either within the scheme or by means of a transfer payment.
Pensionable age
The age at which full benefits become payable to former MPS members. Since 1 March
1992, in respect of both male and female members, the Scheme’s pensionable age has
been 60.
Pensionable salary
The amount of a Scheme member’s earnings used to calculate his or her pension
entitlement at the date of leaving service, in accordance with the provisions of the Rules of
the Scheme at that date.
Reducing Bonus
Following a shortfall in the Scheme, bonuses awarded at valuations before 22 September
2003 start to reduce. These are called “Crystallised Augmentations” in the Scheme Rules.
Retail Prices Index (RPI)
An index used by Government to measure the average change from month to month in the
prices of goods and services purchased in the UK.
Special Bonus
The increase made to Guaranteed benefits in autumn 2003.
Standstill guarantee
An agreement with Government meaning that in addition to the protection of the 1994
pension level and the guarantee of index linking on that amount, the level of pension, plus
bonuses, will never reduce in cash terms.
State Earnings Related Pension Scheme (SERPS)
The additional earnings based component of the State pension scheme, which ran from
6 April 1978 to 5 April 2002.
State Second Pension
The additional pension provisions of the State pension scheme, introduced from 6 April
2002 to replace SERPS.
32