Rolls Royce Pension: Scheme Spotlight

rolls royce pension scheme

The Rolls Royce UK Pension Fund

Rolls Royce have been long-admired for their commitment to employee benefits. Notably, the company’s defined benefit pension scheme offering, which remains in place for long-standing staff. Here, we explore the Rolls Royce defined benefit scheme, which supports the retirement of over 40,000 employees, former employees and pensioners. 

Key Scheme Facts:

  • Inflation linked income to and through retirement

     

    • Generally, pension income rises with the Retail Prices Index (RPI) to 5% pa max pre-retirement (revaluation) and references the Consumer Prices Index (CPI) to 3% max once in receipt of pension income (escalation).
 
  • Normal retirement age of 65 years

     

    • Many members may find they have secured a scheme-specific early retirement option from age 50 (earlier than the current UK minimum standard of 55 years).
    • The scheme allows early retirement, although income benefits would reduce to reflect this. For example, a retiree at 62 years would see their income start at 91% of pension accrued to that date; a 9% reduction.
    • While you defer scheme income later than normal retirement age, the scheme does not offer an enhancement to income. This means it’s usually best to take the income at 65 years, even if you don’t need it.
 
  • Lump sum options at-retirement

     

    • When taking pension income, retirees will have the option to generate a tax-free lump sum (‘Pension Commencement Lump Sum). This option involves taking a reduced pension income in exchange for a lump sum, but can only be taken at the point of ‘opening’ the pension.
 
  • Funding position

     

    • The scheme reported a financial surplus of £431 million at March 2020, announcing a positive a funding status of 104.8%.
 
  • Closed scheme

     

    • The scheme has been closed to new members since 2017, however still has active and contributing members, continuing to build their pension income under employment with the company.
 
  • Partial transfers are not permitted

     

    • While partial transfers have been encouraged by the regulator and advisors, many schemes do not yet offer this option.
 
  • Death benefits

     

    • Death before taking pension income: 50% of income, taxable and payable to a spouse.
    • Death after taking pension income: 50% of income, taxable and payable to a spouse, with a 5-year guarantee.
    • Childrens’ dependent pensions are available, see your scheme details for a full breakdown.
    • The trustee may approve a long-term partner as financial dependent, but it is up to their own discretion.
 

Future of the Rolls Royce pension

The Rolls Royce pension scheme remains in force for active members, allowing those who joined pre 2017 to continue to build retirement income benefits. While their ‘Defined Contribution’ (“DC”) scheme is in place for new staff, or those opted out of DB accrual. 

The new DC scheme is a good, low cost savings plan where members benefit from employer contributions and tax efficient savings, but is no comparison to the overall value of the defined benefit (final salary or career average) scheme, formerly offered to staff across the company. While a DC is a simple pension savings vehicle, it offers no promises or guarantees. Members’ savings are invested, and therefore funds can go down as well as up. Those fortunate enough to have been members of the defined benefit (“DB”) scheme, hold a guaranteed pension income. The responsibility of supporting and sustaining that income is down to scheme trustees correctly managing scheme funds. 

While the status of the scheme remains under trustee review, its latest actuarial valuation in March 2020 reported a positive funding status of 104.8%, showing surplus assets of around £431 million. It remains to be seen whether the scheme can maintain good health, with the announcement of 9,000 redundancies in May last year inevitably meaning an increase in reliance upon income from the scheme rather than savings going into it. 

Transferring out of the Rolls Royce pension

Members of the Rolls Royce DB scheme will have the option to ‘transfer out’. That is, effectively capitalising pension benefits and taking them to a private pension. 

It is vital to fully understand what you have in place with Rolls before taking any advice over whether a transfer could be right for you. Use our free online pension transfer quiz to help start the thought process and consider some key areas which could be important to you. 

In recent months, the Financial Conduct Authority, regulator for pensions, have had the Rolls scheme under their spotlight. Following the company’s restructuring announcements last year a surge in pension transfers were reported. The UK regulator is clearly concerned about wide miss-selling of pension transfers, particularly following the fallout of the British Steel pension transfer advice review. 

How to review your Rolls Royce pension

If you have a pension from former employment with Rolls Royce, it’s important to get an up to date value. Use our free toolkit to research your pension. Our toolkit includes a jargon-buster pension guide and template letters. Our letters ask all the right questions, so that you can research your own pension and ensure you have all the information you need. 

You can contact the Rolls Royce pension scheme directly via telephone, email, or visiting the website. Alternatively, contact us to be put in touch with a regulated financial adviser. 

Contact Rolls Royce pensions on 01332 333 335 or email pensions.web@rolls-royce.com 

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