You have both DB and DC benefits. The two work in different ways and you have choices about what you want to do with the benefits you’ve built up.
The good news is there’s a range of ways you can access your money – and you don’t need to stop working to do it.
Choosing when to take your benefits
The DB Normal Retirement Age (NRA) under the pension scheme is 65, although you can choose to take your benefits at any age from 55 to 75. In some cases, the Trustee and/or HSBC need to agree to you taking your benefits early (see your section guide and if applicable, 2009 change leaflet in the Information centre). If you take your DB benefits early or late, then your pension will be adjusted accordingly. If you had an NRA under 65 before the 2009 changes and you paid the additional 3% contribution from 1 April 2010 up to 30 June 2015, you'll be able to receive an unreduced pension from an earlier age, generally age 60 (or an earlier age which applied to you before 1 April 2010).
You don’t have to take your DB and DC benefits at the same time but you’ll need to if you want to take your tax-free cash lump sum from your DC pension pot. If you take your DC benefits without your DB benefits, you’ll lose the salary linkage on your DB benefits.
If you don’t take your DB and DC benefits at the same time, or you have some of your DC pension pot left after taking your tax-free cash, you can use these your DC pot in other ways. You’ll be told about your options when you decide to take your benefits.
Your DC pension pot will have a Target Retirement Age (TRA) of 65 unless you choose a different age in My Pension.
However, if you paid Additional Voluntary Contributions (AVCs), made bonus sacrifice payments or were still paying AVCs into the DC investment funds as at 30 June 2015 you’ll already have a TRA and your DC pension pot from 1 July 2015 will target the same TRA (unless you decide to change it in My Pension).
You may want to think about what age you want to take your DB and DC benefits so that you can target your DC investment choices to that age. If you want to view or update your TRA for your DC pension pot simply log on to My Pension.
Set your target retirement age
If you're not on the HSBC network, you’ll need your user name and password to log in. Don’t know yours?
As an active hybrid member, when you decide you want to take your benefits, your DB pension will be calculated using two methods and you’ll receive whichever one produces the highest pension.
Either:
1. A pension based on your DB pensionable service up to 30 June 2015 and your DB pensionable salary at date of retirement (which will include any salary increases from 1 July 2015),
or
2. A pension based on your DB pensionable service and DB pensionable salary as at 30 June 2015, revalued in line with the Scheme rules as if you left service (to help protect your pension against the impact of inflation) from 1 July 2015 up to your retirement date.
You can take your DC pot as part of your overall tax-free cash.
Generally you can take up to 25% of the total value of your benefits (up to the Lifetime Allowance (LTA)) from the Scheme as a tax-free cash sum. To work out what that is, the value of your DB pension and the money in your DC pension pot are added together.
If the value of your DC pension pot is 25% or more of the total value of your Scheme benefits, you can take your maximum tax-free cash from that (provided you take your DB and DC benefits at the same time) – this means that you don’t have to give up any of your DB pension in exchange for cash if you don’t want to. Any DC pension pot left over can be used in other ways (such as to provide a further regular income or to transfer out and drawdown regular sums from) and you’ll be told about your options when you come to take your benefits.
If the value of your DC pension pot doesn’t cover the maximum tax-free cash sum you can take the remainder by exchanging part of your DB pension as well if you want to. If you do this, it will reduce the DB pension amount you receive.
If you’re intending not to take your DC pension pot as part of your overall tax free cash lump sum then there are other options available. You will be told more about these in your retirement pack which will be sent to you six months before your Normal Retirement Age.
You can use some or all of your DC pension pot to buy an income (called an annuity) with a provider if your choice. If you want to, you can take up to 25% of your DC pension pot (up to the Lifetime Allowance) as tax-free cash then use the rest towards securing an income. The income you'll get from your annuity depends on a number of things including:
The value of your DC pension pot
Annuity rates at the time you’re buying the income
The type of annuity you choose – for example, you might want to include a pension for a spouse or civil partner in case they outlive you
Whether you buy an annuity that increases or remains level
Your health – if you’re in poor health you might be able to get a higher income (this is known as an impaired life annuity)
Whether you wish your annuity to payments to continue to be paid to a dependant if you die during a specified period of time after the annuity starts (known as a guarantee period)
Take all your DC pension pot in one go – this is sometimes known as an Uncrystallised Funds Pension Lump Sum (UFPLS). This option gives you the opportunity to take 25% (up to the Lifetime Allowance (LTA)) tax-free and the rest is then taxed at your marginal income tax rate* (taking benefits this way may affect any ‘means-tested’ benefits you might be entitled to). If you’re still working when you decide to cash out for the first time, you can start to save again in a pension scheme (however, please note that you’ll have triggered the Money Purchase Annual Allowance). Currently, you can ask to cash out once every 12 months. If you are entitled to a higher tax-free cash lump sum this cannot be taken as an UFPLS.
*HSBC’s Administration Team won’t have your tax code so you’ll pay tax at the emergency rate (i.e. without any personal allowances) on the cash amount over the tax-free limit. You’ll need to reclaim any overpaid tax yourself. You can find more information about this here or you can contact your HMRC office.
This is also called ‘flexi-access drawdown’. First, you’ll need to transfer your DC pension pot out of the Scheme to a provider offering a drawdown facility. Then you can take up to 25% (up to the Lifetime Allowance (LTA)) of your DC pension pot as tax-free cash and invest the rest in one or more funds. These let you take income when you like, for example, monthly or on an irregular basis. You’ll pay tax on this income at your marginal income tax rate.
Alternatively, you can transfer your DC pension pot and ‘drawdown’ a series of cash lump sum payments, taking 25% (up to the Lifetime Allowance (LTA)) of each payment tax-free with the rest of the payment being taxed at your marginal income tax rate.
‘Cash out’ and ‘drawdown’ DO NOT give you a guaranteed, regular income.
Money Purchase Annual Allowance
Taking all your DC pension pot (or any other money purchase savings you have) as cash, opting for flexible drawdown or taking reducing annuities when you’re over the age of 55 will trigger the Money Purchase Annual Allowance, for any future DC contributions.
You can find out more about the Money Purchase Annual Allowance and other limits on tax relief at the Money Advice Service.
Help to make your choices
Are you aged 55 or over and thinking about taking your DC pension pot?
If so, there's lots of information to help and guide you through your options.
Pension Wise
Pension Wise is backed by the Government.
It gives free, impartial guidance to help you understand your options and how they work.
The Money Advice Service also offers free and impartial money advice. They’ve produced a guide 'Your pension - it’s time to choose', in conjunction with Pension Wise, which explains your choices.
