Your pension plan with BPFri Mar 27 14:39:00 GMT 2015 Back to results
Once you feel confident that you understand how your pension plan works and why it’s important to save for the future, you can actively make your pension choices though your benefits, your way – BP’s flexible benefits programme. To access the site, follow the link to your benefits, your way on the My HR(Opens new window) home page.
Through your benefits, your way you can choose how much of your flexible benefits allowance(Opens new window) you would like BP to contribute towards your pension each month, and where to invest your contributions from the range of investment funds available.
If you don’t make any choices at your enrolment opportunity, your contribution level will automatically be set at one third of your flexible benefits allowance*. Through your benefits, your way you can change your contribution level once a month.
Your contributions will be made by salary sacrifice(Opens new window) (unless you’ve been told otherwise by BP) meaning that you pay less National Insurance (NI). Although the same amount of money goes into your pension plan as if you were paying personal contributions directly from your pay, it is all paid by your employer (BP) and, as a result, you pay less NI, which increases your take-home pay.
And it’s easy for you, as BP will make all the arrangements and pay the contributions to your pension plan.
*Salary means your salary plus relevant allowances, before any adjustment for flexible benefits or salary sacrifice.
The table below shows how much you might need to contribute to your plan if you want to achieve a pension of 50% of your current earnings when you retire.
|Starting at age||Yearly contribution rate as % of salary|
These figures are based on someone retiring at age 65. Please read along with the assumptions and ‘More information’ below.
The cost of delay
While it’s never too late to start contributing to a pension, putting your decision off by even as little as a year can have a big impact on the amount you need to save.
Let’s look at the above example of a 31 year old. If they were to delay their decision by only one year, they would have to increase their contributions from 15.0% to 15.9% to achieve the same pension income in their retirement.
Based on a salary of £30,000, this would mean contributing £4,840 a year instead of £4,500, which is a total increase of £7,458 over the years to retirement.
The sooner you start saving the better, so don’t delay. It’s up to you to take the next step and take control of your retirement savings. We don’t guarantee these returns and please remember that the value of investments may go down as well as up and you may not get back the amount you originally invested.
Assumptions for our calculations
The contribution rates given above are based on the following assumptions:
- Current yearly salary of £30,000 and a target pension income of £15,000 a year at today’s prices.
- Pension to be paid for a single-life annuity, paid monthly in advance, with a five-year guarantee period, escalating at 3% a year and 25% of your fund value taken as tax-free cash.
- Gross growth rate of 7% a year.
- Annual management charge of 0.11% - the actual charges that apply to your plan are slightly different (see the Charges section on this page).
- All insurance companies use the same growth rates for illustrations and the same rates to show how funds may be converted into pension income but their charges may vary.
- We’re assuming here that price inflation is 2.5% and that your salary grows in line with National Average Earnings at 4%.
These figures assume you have no other pension benefits.
- The contribution amounts in the table above are just examples — they’re not minimum or maximum amounts you might need to contribute. We’re not suggesting that 50% of your current earnings is the correct amount of retirement income for you — that’s for you to decide. We’ve selected this amount for illustration purposes only.
- This example shows the contribution levels you might need to achieve a pension of 50% of your current earnings. If you're targeting a level of income which is linked to your salary immediately before retirement, then you may need to consider a higher contribution level than this.
- What you’ll get back when you retire depends on how your investment grows, how it’s taxed and interest rates when you retire. We don’t guarantee benefits and the value of any investments may go down as well as up.
- Don’t forget inflation may reduce what you could buy in the future with the amounts shown here if it turns out to be higher than the level that we have assumed.
- You should review your plan regularly to check whether you need to change your contribution level.
As you can see, joining just a few years earlier can really increase your retirement fund. And paying in more can increase this even further. But don’t worry if you’ve been putting it off – it’s still worth taking action now.
We charge for managing your plan and investments. We take these charges through deductions from your plan each month.
The Plan has an effective annual management charge (AMC) of 0.21% of your fund value. This is a gross AMC of 0.21% which is built into the unit price of each investment fund.
Some investment funds have an additional charge.
You'll get more information on these funds in your joining pack.
We reserve the right to vary charges in the future.
The normal retirement age for employees is 65. However, you can take your pension benefits from your plan at any time between the ages of 55 and 75 from us, including while you’re still working. You may be able to take your benefits earlier than this if you’re in ill health. If you don’t want to take your benefits at age 75, you can transfer the value of your plan to another plan and choose to remain invested. You may wish to speak to a financial adviser about your retirement options before you reach 55.
If you don’t already have a financial adviser, visit unbiased.co.uk to help you find one in your area.
For help and information about your defined contribution pension options, visit Pension Wise(Opens new window), a free and impartial government service. Here, you can find out what you can do with your pension pot, how to shop around and what to look out for with taxes and fees.
You can also search on My Learning if you would like to attend one of BP’s pre-retirement courses.
Your contributions will be made by ‘salary sacrifice’ (unless you’ve been told otherwise by BP), meaning that you pay less National Insurance (NI). ‘Salary sacrifice’ is where you exchange some of your future earnings in return for BP paying the same amount into your pension plan.
Although the same amount of money goes into your pension plan as if you were paying personal contributions directly from your pay, it is all paid by your employer (BP). As a result, you pay less National Insurance (NI) and less tax, which increases your take-home pay.
Where plan members pay their usual contributions from their after-tax salary, we add tax relief to their contributions. When you are part of ‘salary sacrifice’ the extra step of adding tax relief is simply not necessary. And it’s easy for you, as BP will make all the arrangements and pay the contributions to your pension plan.
If you decide to make additional single contributions in your plan, you do not make them through the BP payroll, but rather by a cheque direct to Aegon. Any additional single contributions you make into a pension plan, that’s within the annual allowance limit (£40,000 from April 2012), is entitled to tax relief – normally at your highest rate. For higher rate tax payers you may have to claim this back - for more information speak to a financial adviser.
Basic rate taxpayer
If you’re a basic rate taxpayer on a salary of £30,000 and contributing £3,000 a year to your plan (10% of your earnings), your tax and NI savings would be:
|Salary sacrifice amount of||£3000|
|Income tax saving (20%)||£600|
|NI saving (12%)||£360|
|Total saving to you||£960|
In this example, if you contribute £3,000 to your plan each year then your yearly take-home pay is reduced by only £2,040 (£3,000 less £960).
Higher rate taxpayer
If you’re a higher rate taxpayer on a salary of £60,000 and contributing £6,000 a year to your plan (10% of your earnings), your tax and NI savings would be:
In this example, if you contribute £6,000 to your plan each year then your yearly take-home pay is reduced by only £3,480 (£6,000 less £2,520).
|Salary sacrifice amount of||£6000|
|Income tax saving (20%)||£2400|
|NI saving (12%)||£120|
|Total saving to you||£2520|
Here’s how it works
The amount of NI you save depends on how much you earn. For earnings below the upper earnings limit (£42,385 for 2015/16), the NI savings will be 12%. For earnings above this limit, the savings will be 2%.
The amount of NI you save depends on how much you earn. For earnings below the upper earnings limit (£42,385 for 2015/16), the NI savings will be 12%. Salary sacrifice is an agreed change to your contractual terms and conditions. Once you’ve joined the plan you can change the amount you sacrifice once a month. Simply follow the link to your benefits, your way from the My HR(Opens new window)(Opens new window)(Opens new window) home page.
Please note: you can only use salary sacrifice on your future earnings.
Salary sacrifice isn’t always suitable for everyone but very much depends on personal circumstances. You should think about:
- mortgage lending that may be linked to your salary
- statutory benefits which may be affected by a reduced salary, for example:
- basic state pension
- statutory maternity, paternity and sick pay
- Working Tax Credit or Child Tax Credit
It’s your plan – you own it and it’s in your name for you to keep, even if you leave the company. You can:
- continue to contribute to the plan and you’ll continue to receive the same preferential contract terms
- make your plan ‘paid up’, which means you stop paying contributions and leave your benefits where they are
- take your plan with you to any scheme offered by a new employer at no additional cost – but you should get financial advice at the time and consider what benefits your new employer offers
Stopping contributions to your plan could have a serious effect on the final amount of your savings.
We reserve the right to vary charges in the future.
As long as you haven’t transferred your pension to another scheme, you’ll still be able to check your savings online with our online services.
Has this helped? If you still need more information, don't hesitate to contact us
Please note that the links below this line don’t apply to the DC2010 plan – these are links to generic Aegon information.