Vodafone pensions

Q&As

The Defined Contribution Plan

HOW DOES A DEFINED CONTRIBUTION PLAN WORK?

A Defined Contribution (DC) plan is one where contributions are made to a member's individual account. This account is then invested to provide an income in the future. The amount you will receive from a DC plan is dependent on three things:

  • the amount of money saved in your account
  • the performance of your investments; and
  • the choices you make at the time you take your benefits.

The Vodafone DC Plan operates in the following way:

  1. You choose your contribution rate. If you don’t choose your contribution rate you will be auto-enrolled with a contribution rate of 2% (see below). Vodafone makes the appropriate matched contribution to your account.
  2. You choose where to invest your account from a range of options available.
  3. Over time, your total account will increase or reduce in value depending on the performance of your investments and the contributions made to it.
  4. When you retire, the value of your account is available to provide you with an income in retirement.
HOW DO I MAKE CONTRIBUTIONS TO THE DEFINED CONTRIBUTION PLAN?

Contributions to the Plan are made through salary sacrifice unless you choose to opt out of this arrangement.

WHAT ARE MATCHED CONTRIBUTIONS?

Matched contributions are the contributions Vodafone makes to your pension (over and above your sacrificed amounts). The amount you receive depends on the contribution rate you choose. Contribution matching is shown in the table below.

Selected contribution rate Company 'matched' contribution rate Total contribution to your fund
2%4%6%
3%6%9%
4%8%12%
5% or more10%*15% or more
* This is the maximum Company matched contribution.
HOW DOES THE PLAN PROVIDE ME WITH AN INCOME IN RETIREMENT?

Your DC account will give you flexibility and choice about how you provide an income in retirement. You can choose to:

  • Take a cash sum
  • Transfer your pot to an income Drawdown product
  • Buy an annuity from an insurance company

You can also use a combination of the above options to design a retirement income that best suits your circumstances.

Taking a cash sum

You can take your account as cash.

Advantages Disadvantages
  • It gives you the flexibility to pay off a debt or put the cash into another type of savings vehicle, like an ISA.
  • When you die, any cash you haven’t spent will form part of your estate.
  • You need to manage when and how you spend the money.
  • Once you’ve spent it, you will need to find an alternative source of income.
  • It may not be the most tax-efficient way of accessing your account.

Using drawdown

A drawdown arrangement enables you to leave your fund invested (with a provider outside of the Plan) and decide how much income to take and when. You can stop, start or vary income to suit your needs and tax position. There are no restrictions on the amount you can withdraw.

Advantages Disadvantages
  • As your money remains invested, it has the chance to keep increasing in value.
  • When you die, the remainder of your fund can be passed on to any beneficiary.
  • You need to make sure the money doesn’t run out.
  • Your fund will be subject to the investment market, so its value could go down as well as up.

Buying an annuity

An annuity is an income for life; to buy an annuity you will need to transfer your account to a provider outside of the Plan.

You can choose the type of annuity you want to buy. There are a number of options, which will affect the amount of income you receive, for example you might buy an annuity that:

  • increases each year; and/or
  • provides a spouse’s pension when you die.

You can also take up to 25% of your account as tax-free cash.

Advantages Disadvantages
  • Your money won’t run out – you’ll have a regular income for the rest of your life.
  • You can choose to provide an income for your spouse when you die.
  • If you don’t shop around, you could get a poor deal – the amount you receive will be agreed on the day you purchase the annuity.
  • If you die soon after buying an annuity, then you may not benefit from all of the money you paid in.

How do I decide?

Think about how much money you might have when you retire and how you might want to use that money. The options have advantages and disadvantages. You may also be taxed differently depending on the option you choose. You might want to speak to a financial adviser to decide what’s best for you.

IF I TAKE MY PENSION SAVINGS AS A LUMP SUM HOW WILL IT BE TAXED?

The first 25% of your pension savings can be taken tax free. The remainder of your savings are subject to income tax at the time it is paid. This means that if you take your pension savings as a single cash payment you may pay more tax than you would if you spread your income in retirement over a number of tax years.

The process for applying tax to pension lump sums is complex and we understand that HMRC will require the administrator to apply an emergency tax code. This means that, if you do choose to take your pension savings in the form of a cash payment, you may find that too much or too little tax is deducted. The pension administrator will give you information about the payment and tax that has been deducted; it will then be your responsibility to liaise with HMRC to correct any tax under or over payment.

HOW MUCH DOES MEMBERSHIP OF THE PLAN COST ME?

The Plan has a contribution rate starting at 2% of pensionable salary for new members. You can choose to increase your contribution rate to benefit from increased Company contributions and to save more for retirement.

Because contributions are made through salary sacrifice, you benefit from National Insurance savings in addition to tax relief.

A calculator is available on the Vodafone pensions website (www.vodafonepensionsupdate.co.uk/calculator), to allow you to see the cost of different contribution rates in the Plan. The calculator will show the impact of the different contribution rates on take-home pay.

WHAT WILL HAPPEN TO MY PENSION IF I OPT OUT OF THE PLAN?

If you have been a member of the Plan for more than 30 days you can leave your Account invested in the Plan until you decide to take your benefits, or you can transfer the value of your Account to another registered pension arrangement.

If you were a member of the Plan for less than 30 days you will receive a refund of any contributions that have been taken from your pay.

WHAT SHOULD I DO IF I NEED TO UPDATE MY ADDRESS OR MARITAL STATUS?

If you are a current employee, you should update your details through EVO, this will automatically feed through to the pension system

If you no longer work for Vodafone you can update your details online.

WHAT ARE THE PLAN’S INVESTMENT MANAGEMENT FEES?

The current management fees (also known as annual management charge or total expense ratio) for the investment funds in the Plan are shown on the fund factsheets: www.vodafonepensionsupdate.co.uk/pension_info/vodafone_dc/investment_docs

CAN I PAY MORE THAN 5% TO THE PLAN?

Yes. The maximum regular contribution is 5% which receives a 10% match from Vodafone, but it is possible to make Additional Voluntary Contributions (AVCs) either as a regular monthly sum alongside the 5% payments, or as a lump sum. You can set up AVCs online through MyChoices.

DO I NEED TO BE IN THE PLAN TO RECEIVE LIFE COVER?

No. All current employees have life cover irrespective of whether they are contributing to the Plan.