1. Distinctive. Choice. Pension outcomes after 2016 John Wilson JLT EMPLOYEE BENEFIT SOLUTIONS

2. Agenda  Reform of State Pension  Automatic-Enrolment  Pension Outcomes Page 1 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

3. Background  Currently 2 ‘tiers’ to UK State pension » BSP  Contributory, flat-rate, payable at SPA, full amount (after 30 years conts/credits) is £110.15 (2013/14) » Pension Credit may also be payable  Guarantee Credit (MIG) £145.40pw (single person)  Savings Credit up to £18.06 for a single person » S2P – partly earnings related » Derives from conts between LEL and UEL, but increasingly flat-rate  (Also graduated pension : 1961 – 1975) » Or ‘EPB’ Page 2 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

4. Background 2012/13  BSP - 13m recipients  SERPS/S2P - 10.1m  Expenditure » BSP - £63bn » SERPS/S2P - £16bn Page 3 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

5. Uprating of State pension and ‘SPA’  SERPS / S2P : CPI  Basic State pension : ‘triple guarantee’  SPA » Originally 65m, 60f » 65 for both by November 2018 » 66 by October 2020 » 67 by March 2028 » Plus periodic reviews in light of life expectancy improvements » Is it fair? Page 4 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

6. Need for reform  Complexity and uncertainty of outcomes  High levels of means-testing  Inequality (women, low paid and self-employed) Page 5 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

7. Single-tier State Pension (STP)  Key features of STP » To be introduced in April 2016  So men born from 6/4/51 and women born from 6/4/53 » About £144, in today’s terms » 35 qualifying years for full STP (minimum qualifying period of 10 years, ‘probably’) » Uprated at least in line with earnings » Can still defer receipt, but no lump sum option » Savings credit will close to those reaching SPA after 2016 » But other means-tested pensioner benefits will remain  Housing, council tax, cold weather payments, health benefits  27% of pensioner households will still receive means tested benefits in 2026/7 Page 6 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

8. Means-testing and pension savings  Universal Credit includes a disregard for pensions saving - this is line with the current disregard of pension contributions in tax credits but is more generous than the current 50% disregard in Housing Benefit and the income related benefits.  This disregard means that £10 saved into a pension will not count toward income for UC calculations, and the UC award will then be higher by £6.50.  Effectively, the disregard means that someone on UC could contribute nearly £6 into their pension pot at a net cost of only £1. Page 7 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

9. Transition process  People who have a ‘foundation amount’ equal to full level of STP » Will get the full amount of the single-tier pension, and will not get extra state pension by gaining more qualifying years  Foundation amount which is more than the full level of the STP » Will not get extra pension for further qualifying years because they already have more than the full level of the single-tier pension. Keep any amount above STP as a “protected payment” (increased by CPI) » Estimated that 5%, reaching SPA between 2017 and 2060, will have protected payment  Foundation amount that is less than the full level of the STP » Will be able to build upon their foundation amounts by gaining post- implementation qualifying years until they reach SPA Page 8 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

10. People who have been contracted-out  A deduction (a “rebate derived amount”) will be applied to reflect the lower rate of NICs paid when contracted-out » For those who have been contracted out, a deduction – the ‘rebate- derived amount’ – will be applied to the single-tier valuation, as of the date of the implementation of single tier, to reflect the lower rate of NICs paid when contracted out » But, they will be able to increase their STP up to the full level, at the rate of 1/35th of the full rate for each additional qualifying year they gain before reaching SPA Page 9 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

11. Winners and losers  TUC report  Also DWP - http://www.dwp.gov.uk/docs/riaannexa.pdf  10 largest State pensions above £450pw (99% £240pw or less) » Average amount for all pensioner units in receipt was £149 per week in 2010-11 (£124 for singles and £177 for couples)  Depends on timings – even government concedes that, longer term (2060), more losers than winners  Long-term (2060), percentage of GDP spent on pensioner benefits reduces from 8.5% to 8.1% (mainly due to female SPA)  Long-term 85% expected to get full STP even though 35 QYs increase  Perhaps, the best that can be said is that the new State pension provides more certainty in the system Page 10 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

12. Abolition of contracting-out  DC contracting-out ended in April 2012  When STP introduced, there will be no S2P to contract-out of; so, all contracting-out ends » Over 4,000 COSRS affected » 8 million people – 5m, public and 3m private Page 11 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

13. Automatic-Enrolment Page 12 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

14. Pension Outcomes (‘Turner’) Page 13 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

15. Pension Outcomes Page 14 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.  Base scenario for our three workers  They are all 22  Have just been enrolled into the National Employment Savings Trust (NEST)  And earn, respectively, £12,000, £25,000 and £50,000 per annum

16. Pension Outcomes Page 15 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

17. Pension Outcomes Page 16 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

18. Pension Outcomes Page 17 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

19. Pension Outcomes Page 18 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

20. Pension Outcomes Page 19 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

21. Pension Outcomes Page 20 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

22. Pension Outcomes Page 21 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

23. Bridging the gap – Who is responsible?  The State  Additional cost of setting STP at £160pw and £180pw compared to current state pension  The employer  The individual  ‘Us’? Page 22 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96. £ billion, nominal cash terms 20202030204020502060 £160 per week 18264660 £180 per week 12073147213

24. A retirement plan  Individuals need to have a ‘retirement plan’ » Outcome orientated » Contributions, investment, pension age, retirement choices  And be regularly updated on the progress of their retirement plan » Red, Amber, Green Page 23 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.

25. Page 24 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96.. Questions

26. JLT Benefit Solutions Ltd Tel+44 (0)20 7528 4000 Fax+44 (0)20 7528 4500 JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. Registered in England No 02240496. VAT No. 244 2321 96. © August 2013 Whilst all reasonable care has been taken in the preparation of this presentation no liability is accepted under any circumstances by Jardine Lloyd Thompson for any loss or damage occurring as a result of reliance on any statement, opinion, or any error or omission contained herein. Any statement or opinion unless otherwise stated should not be construed as independent research and reflects our understanding of current or proposed legislation and regulation which may change without notice. The content of this document should not be regarded as specific advice in relation to the matters addressed. JLT Benefit Solutions Limited. Authorised and regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London, EC3A 7AW Registered in England No. 02240496. VAT No. 244 2321 96.