Talking Pensions Savings 2017The newsletter for all members of the JTI UK Retirement Savings Scheme

Annual Report & Accounts 6 Investment update 8 Taking charge of your tax affairs 11 MND elections 20

Contents Scheme membership 5

Annual Report & Accounts 6

Investment update 8

Retirement courses and education 10

Taking charge of your tax affairs 11

Pensions Advice Allowance 15

Money Purchase Annual Allowance 16

Talking Pensions online 17

Pensions Quality Mark Plus 18

MND elections 20

Trustee and Advisers 22

Getting in touch 242

This last year has been an unprecedented one for the Trustee with political uncertainties following the announcement of a brought-forward general election which, together with the result of that election, has given rise to many ‘will they, won’t they’ questions in respect of pensions and finance legislation. In fact, if you read about the Money Purchase Annual Allowance on page 16, it will give you an insight into this. And of course, we still have Brexit hanging over us all.

You may also have heard, particularly our JTI UK employed members, that the Company has proposed closing the two defined benefit Schemes (DB Schemes) to future accrual at the end of this year. This is something the Trustee has been in discussion with the Company about but it does not impact any of our JTI UK Retirement Savings Scheme (DC) members in any way.

Welcomefrom the Chairman...

Seeking financial advice on your pension savings is always recommended, particularly as you approach retirement; the problem is that this, in itself, can prove expensive. This year, the Government has introduced the Pensions Advice Allowance and if you would like to learn more about this, please turn to page 15. Don’t forget to register on the Talking Pensions website at: www.talkingpensions-jti.co.uk for your login details for the pensions modeller. This is a really useful tool to help aid your retirement planning, more details are on page 17.

In addition, for those of you who remain with JTI UK, the Company provides financial education both through retirement courses and a financial education service called Nudge. To learn more about this and how it can help you, just go to page 10.

In January this year, we said goodbye to one of our fellow Directors, Jean-François Leroux, who has decided he needs more time to fulfil his passion of travelling the world. I would like to give my very grateful thanks to Jean-François for his input and sound sense over the course of the last nine years.

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At the end of this year, we will also say goodbye to Davy Gray, who has been a Member Nominated Director (MND) on the GPL board since December 1997 and again, my grateful thanks go to Davy for his contributions to the board over the last 20 years. While it will be sad to see Davy go, and it will feel a little odd without him, we look forward to welcoming a new MND to the board next year following the MND elections which will take place towards the end of this year, please read more about this on page 20.

Finally, I hope you find this newsletter informative and I wish you and your families well.

With best wishes,

Nigel Bulpitt Chairman, Gallaher Pensions Limited.

Welcomecontinued...

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Scheme membership

DC Scheme 2017 2016

Active members 665 904

Pensioners 42 2

Deferred members 852 579

Total 1,559 1,485

2017

2016

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Annual Report & Accountsof the JTI UK Retirement Savings Scheme

Accounts approved by auditorsThe Scheme’s accounts for the year ended 31 March 2017 have been audited and signed by Deloitte LLP (the external auditors) and signed by the Directors of Gallaher Pensions Limited (the Trustee).

The highlights included here are extracted from the full statutory accounts and you can find the full report on the Talking Pensions website at www.talkingpensions-jti.co.uk by 30 September 2017.

nd a maximum of 2.5% for pension accrued post April 2009.

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Income and expenditure31 March 2017

£’000s31 March 2016

£’000s

Income

Employer contributions 4,111 4,998

Employee contributions 989 1,002

Employee augmentations 3,311 84

Transfers in 71 645

Insured lump sum death benefit 0 140

Total 8,482 6,869

Expenditure

Lump sum on retirement 1,037 133

Lump sum death benefits 0 201

Taxation 54 0

Transfers out 1,268 502

Refunds in respect of members leaving service 17 8

Account charges 1 1

Investment management expenses 0 (64)

Total 2,377 781

Difference between income and expenditure 6,105 6,088

Change in market value 16,042 405

Fund at start of year 51,701 45,208

Fund at end of year 73,848 51,701

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Investment updateThe Scheme’s assets at 31 March 2017 were split as follows:

£’000s

Aquila 70/30 Global Equity Index 15 ZP Fund 2.60% 1,916

Aquila Consensus 15 ZP Fund 1.37% 1,009

Aquila Over 15 Year UK Gilt Index 15 ZP Fund 0.34% 253

Aquila Over 5 Year Index Linked Gilt 15 ZP Fund 0.37% 277

Aquila UK Equity Index 15 ZP Fund 1.06% 779

Aquila World ex-UK Equity Index 15 ZP Fund 1.51% 1,118

Balanced Growth Fund 5.73% 4,226

BlackRock All Stock Corporate Bond Fund 15 ZP Fund 0.05% 39

Deutsche Managed Sterling 15 ZP Fund 0.86% 631

Growth Fund 75.25% 55,526

Through Retirement Fund 9.21% 6,794

Unconstrained Equity Fund 1.63% 1,203

HSBC Amanah Fund 0.02% 17

100.00% 73,788

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Investment performanceThis is how each fund performed against the relevant benchmark during the year to 31 March 2017:

Zurich Fund %

Benchmark %

Aquila 70/30 Global Equity Index 15 ZP Fund 25.6 25.1

Aquila Consensus 15 ZP Fund 21.3 21.8

Aquila Over 15 Year UK Gilt Index 15 ZP Fund 12.1 12.3

Aquila Over 5 Year Index Linked Gilt 15 ZP Fund 21.7 22.0

Aquila UK Equity Index 15 ZP Fund 21.0 22.0

Aquila World ex-UK Equity Index 15 ZP Fund 33.2 33.2

Balanced Growth Fund 6.1 3.9

BlackRock All Stock Corporate Bond Fund 15 ZP Fund 9.0 9.2

Deutsche Managed Sterling 15 ZP Fund 0.4 0.2

Growth Fund 32.2 31.4

Through Retirement Fund 12.4 12.4

Unconstrained Equity Fund 35.4 32.7

HSBC Amanah Fund 29.2 29.8

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Retirement courses and financial education‘If a man empties his purse into his head, no man can take it away from him. An investment in knowledge always pays the best interest.’ Benjamin Franklin.

Knowledge is power, as the saying goes, so why not live by this mantra by preparing for retirement well?

Are you approaching retirement?JTI UK is currently in the process of rolling out new retirement education courses for those of you who are approaching retirement or about to retire and we hope to send out invitations in the near future.

The sessions will be run by an external provider, Wealth at Work, one of the market leaders in retirement planning and financial education. The sessions will give you the information you will need to make an informed decision when the time comes and prepare you for the fundamental change in lifestyle that retiring from work represents.

Details of the courses will be available periodically throughout the year.

Is retirement some way off?For those of you who are a little further away from retirement, you are hopefully aware that JTI has implemented a financial education service called ‘Nudge’ for employees.

Nudge for JTI gives you three things:

• A ‘nudge’ when something happens that affects your finances. This could be if you move home, have a salary change or new legislation is introduced – you’re told what you need to know, without having to ask.

• An independent, confidential and sales-free website providing learning guides on everything from insurance to ISAs and crowd-funding to credit cards.

• ‘People like you’ comparisons that help you identify and achieve your dreams and goals.

You can get started and access Nudge for JTI through the website www.nudgeforjti.com. Your username is your email address.

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Taking charge of your tax affairs Many people find tax complex and burdensome but fortunately for most employees, contact with the tax authorities is minimal.

You might assume that under Pay as You Earn (PAYE), the correct amount of tax will automatically be deducted at source but unfortunately, this is not always the case. According to the charity, TaxAid, about 15% of PAYE taxpayers pay too much or too little tax at source and end up either receiving a tax rebate or a tax bill.

Tax refunds are normally issued first, so the good news often coincides with the summer months whereas tax bills often land on the doormat later in the year and it can be particularly stressful to receive a bill when you are already contending with Christmas shopping. However, by setting up a personal tax account, you can avoid unexpected bills.

Make sure your data is up to date Her Majesty’s Revenue and Customs (HMRC) expects all PAYE taxpayers to check and understand their tax codes. If the code is incorrect or not understood, HMRC expects the taxpayer to initiate contact to check the position.

In 2009, HMRC invested heavily in a national PAYE computer system which stores all PAYE records for each individual on a single database. Since 2013, there has been a statutory obligation on the Company, along with the majority of employers, to report this information electronically in real time (RTI).

Employers send an RTI report, which includes information such as tax code, pay and statutory deductions made in the tax period and the tax year-to-date values. This information feeds into your personal tax account, is used to help calculate any future entitlement to benefits and State pension, and from April 2017, it will contribute to real time, new tax coding notices.

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Your Personal Tax Account HMRC’s Personal Tax Account platform provides online access to its services, enabling you to take charge of your tax affairs and ensure your data is up to date. It only takes five minutes to register at: www.gov.uk/personal-tax-account

Using your Personal Tax Account, you can:

• verify your income (especially useful if you have more than one source of income)

• view your personal, tax-free allowance and your tax and National Insurance contributions

• populate a personal tax return with readily-available data

• claim a tax refund

• check and manage your tax credits

• check your State pension

• track tax forms that you have submitted online

• check or update your Marriage Allowance

• tell HMRC about a change of address

• check or update benefits you get from work, for example company car details and medical insurance.

HMRC will be adding more services, so it is well worth registering as soon as you can to keep your data clean and prevent unexpected tax bills.

What is your personal tax-free allowance? The threshold of the personal tax-free allowance is announced annually in the budget by the Chancellor of the Exchequer. For the current tax year, the amount of earnings where tax is not applied is £11,500.

Take a look at your tax code (you can find this on your last payslip). Replace the letter at the end of your tax code with a ‘9’ to identify the amount of pay you can earn in a tax year before tax is paid, for example, tax code 1150L equates to an allowance of £11,509. If you are not a high earner, you have only one source of income and your tax code is not 1150L, it is worth investigating why.

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Beware the £100,000 threshold High earners need to be aware of the £100,000 threshold – exceeding this triggers a liability to self-assessment and also signifies a reduction in your personal allowance. When you are earning over £100,000, your personal allowance reduces by £1 for every £2 you earn above £100,000. So, if you earn more than £123,000, your personal tax-free allowance will be zero. It sometimes happens that you may owe money at the end of the tax year in which you earn more than £100,000 for the first time. For example, HMRC may have estimated that you earn less than £100,000 and so you have the full allowance on your tax code, but you then receive a big bonus in the last pay period of a tax year.

Check your personal allowance is correct There are many reasons why you may receive a tax bill or refund but some of the most common relate to the misapplication of the personal allowance:

• Duplication of tax-free personal allowances

If you have two or more jobs (or perhaps one job and one pension income) and both have the standard 1150L tax code in operation for 2017-18, check your payslips now! You are likely to owe money at tax year end.

• Multiple jobs where the total tax-free personal allowance is not all used

A main job where you earn less than £11,500 in 2017-18 (£11,000 in 2016-17) and other jobs on a basic tax code. In this case, you would be owed money. In this instance, if you are married and you are both basic rate taxpayers, it may be worth looking to transfer some of your allowance to your spouse.

• Combinations of jobs/pension income

When income sources are combined and they produce a higher-rate tax liability, but where insufficient tax has been deducted at source from the second job, i.e. at basic rate instead of on a 40% tax code. In this case, you would owe HMRC money.

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Understanding your tax codeTax code Meaning

BRrequires the deduction of basic rate tax (20%) from all pay

Dthe employer must deduct tax at 40% (tax code D0) or 45% (tax code D1) on all pay

NT no tax is due from an employee’s pay

0T no personal allowance is due

K if your tax code is prefixed with the letter ‘K’, a notional element of pay is added into the tax calculation in order to collect tax on an ongoing basis. K-codes are normally issued if your non-payrolled taxable benefits or arrears of tax are in excess of your personal allowances or there is outstanding tax from a previous tax year. With this code, the amount of tax that can be deducted in a particular pay period is limited to 50% of your gross taxable pay.

Other reductions to your personal allowance In the past, it was very common for your personal allowance to be reduced by taxable benefits (a practice known as coding out). However, now an ever-growing band of employers payroll taxable benefits, meaning that these benefits are taxed at source via the payroll – the value of the taxable benefit is added to your taxable gross pay.

Other items to reduce your personal allowance may be the State pension or child benefit. If you earn more than £50,000, your entitlement to child benefit reduces and it ceases at £60,000. Additionally, HMRC has secured powers to reclaim any debt up to the value of £3,000 through your tax code, or up to £17,000 if you earn £90,000 or more.

Take chargeSo, you can see it makes sense to keep your tax affairs in order. Get a Personal Tax Account and let us all ensure we have no nasty surprises this Christmas!

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Pensions Advice AllowanceWe realise that pensions are complex and sometimes you may need to seek financial advice to help you make the right decision. This is particularly important for the choices you have when you retire. It’s one of the most crucial decisions you make in life.

To help you see the wood for the trees, the Government has introduced the option to use some funds from your DC Pension pot to pay for financial advice. This is known as the Pensions Advice Allowance (PAA – we love an acronym in pensions). It allows you to access up to £500 from your pension pot up to three times during your lifetime. You may use the PAA at any age but only once in any tax year.

The advice purchased with the allowance must be related strictly to pensions and retirement – it can include advice about your personal financial position, your pension arrangements and the use of your pension funds. The advice must also be provided by a financial adviser regulated and authorised by the Financial Conduct Authority (FCA).

To find out more, please contact the Pensions Department, using the details on the back page.

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Money Purchase Annual Allowance From April 2015, anyone taking income from a flexible drawdown plan or using an uncrystallised funds pension lump sum (UFPLS) will trigger the Money Purchase Annual Allowance (MPAA) of £10,000. On 6 April 2017, the MPAA was reduced from £10,000 to £4,000.

Legislation for this reduction was put on hold in the lead up to the snap general election. However, it has subsequently been confirmed that the reduction will go ahead as planned and members should note that it applies from this current 2017/18 tax year.

If you take flexible drawdown and only take your tax-free cash, the MPAA does not apply; it is only when you receive a taxable drawdown that the MPAA is triggered. It limits the amount of tax relief you can receive on your pension contributions and is designed to restrict the extent to which pension savings can be ‘recycled’ to take advantage of tax relief on pension contributions.

The MPAA works in a different way to the standard Annual Allowance in that it refers to contributions made to DC arrangements only. Also, when measuring the MPAA, you cannot carry forward unused Annual Allowance from the previous three years.

Annual Allowance re-capThe Annual Allowance (AA) is a limit on the amount that can be contributed to your pension each year, while still receiving tax relief. It’s based on your earnings for the year and is capped at £40,000. The AA applies across all of the schemes you belong to. It’s not a ‘per scheme’ limit and includes all of the contributions that you or your employer pay or anyone else who pays on your behalf.

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Talking Pensions onlineYou will recall we wrote to you in February this year to let you know that the Talking Pensions website has been updated. Although the look and feel of the site is the same, there have been a number of improvements to the member online section, which now gives you more information to help you plan for retirement.

Visit www.talkingpensions-jti.co.uk to find a library of forms, documents and general pensions information. You can also register to gain access to your own secure area of the website to enable you to:

• View your personal information, including:

- Pensionable salary

- Employer and Employee Contribution information

- Service details

- Your most recent benefit statement (coming soon)

• View your current fund value and investments, split by fund

• Estimate your benefits at retirement using the Pension Planner

It is easy to register to access the new member section of the website. Have your National Insurance Number, telephone number and email address to hand and follow these five simple steps:

1. Go to www.talkingpensions-jti.co.uk and select the Scheme.

2. Click on LOG IN.

3. Click Register and enter your National Insurance Number and postcode. Once you have done this, click NEXT. (If your address is not in the UK, please enter OVERSEAS.)

4. You will be prompted to choose a unique username and password to enter your email address and telephone number, then click NEXT.

5. Finally, you will be asked to answer a selection of security questions. Click NEXT when you are done. You are now registered!

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GovernanceThe accreditation is not just about contributions. The standard of governance required to achieve the award is set to ensure the Scheme is well run and operates in the best interests of its members. As our DC Scheme is overseen by a Trustee board, it achieves a high level of governance as the Scheme is regularly reviewed and monitored by the Trustee. In addition, there is a DC Investment Sub-Committee which comprises three Trustees and our investment advisers, who regularly examine the performance and suitability of the investment funds that are offered under the Scheme.

CommunicationIn order to meet the standard, communication must be clear, engaging and simple to understand. Our Talking Pensions website has always endeavoured to reflect a clear, straight-forward approach and is regularly reviewed to ensure it contains full, up-to-date details for all of our existing members and new employees.

Pensions Quality Mark Plus- accreditation renewed

For the seventh consecutive year, the JTI UK Retirement Savings Scheme has been awarded the Pensions Quality Mark Plus. This accreditation is in recognition of the high standard of provision that our Scheme provides.

In order to maintain our PQM Plus status, the Scheme is reviewed each year by the Pensions and

Lifetime Savings Association (PLSA) to ensure the required criteria are still met. The standards that the award expects are measured in three areas:

ContributionsOverall contributions into the Scheme need to be at least 15% with a minimum of 10% being paid by the employer. This is met by our current contribution by the Company of 16%, which is well in excess of the statutory minimum.

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The Pensions Department can be contacted by phone and email and is available for one-to-one meetings. In addition, presentations, workshops and retirement seminars are also organised regularly.

There are now 103 DC pension schemes with the Pension Quality Mark Plus. Bearing in mind there are over 35,000 DC schemes currently in active operation, this is quite an achievement. It strengthens the Company’s goal to continually provide benefits to employees in the upper quartile of the market.

Other companies with the PQM Plus award include Kelloggs, Vodafone, BMW and Sony.

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MND electionsMost occupational pension schemes in the UK, including the Gallaher ‘A’ and ‘M’ Pension Schemes and the JTI UK Retirement Savings Scheme (RSS), collectively known as ‘the Schemes’, are set up as trusts. This provides security for the members’ benefits by ensuring the assets of the Schemes are kept separate from those of Gallaher Limited. It also means that the Schemes can take advantage of certain tax allowances.

A Trustee is a person or company, acting separately from the employer, who holds the pension scheme assets for the benefit of the Scheme members. The Schemes have a corporate Trustee, a limited company called Gallaher Pensions Limited.

It is managed by seven Trustee Directors, of whom:

• four are selected by Gallaher Limited, and

• three are nominated by the members of the Schemes.

Out of the three Member Nominated Directors (MNDs), at least two need to be active (employed) members on appointment. We will be writing to active and pensioner members towards the end of the year because there will be a vacancy for a new MND, as Nigel has explained in his welcome to this issue of Talking Pensions.

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What does a Trustee Director do?The role of a Trustee Director is an extremely important one which carries a great deal of responsibility. The main duties can be summarised as follows:

• to see that all members receive the benefits to which they are entitled on a timely basis

• to be familiar with key Scheme documents, such as the Trust Deed and Rules and Scheme literature aimed at members

• to have sufficient knowledge and understanding of trust law, funding principles and investment principles to carry out their duties properly

• to ensure that the Schemes comply with all statutory requirements

• to appoint professional advisers to help with the running of the Schemes

• to monitor the security of members’ benefits and to ensure the Schemes are adequately funded

• to check that the correct amount of money is received by the Schemes and that proper records are kept, showing what happens from year to year

• to ensure that the assets of the Schemes are invested and held securely and separate from those of Gallaher Limited

• to exercise discretionary powers in certain situations, such as in the distribution of the lump sum death benefit

• to ensure that members know about the benefits they are entitled to and understand how the Schemes are run, through regular and timely communications.

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Trustee and AdvisersGallaher Pensions Limited is the Trustee of the JTI UK Retirement Savings Scheme and the Gallaher ‘A’ and ‘M’ Pension Schemes. The current Trustee Directors are:

Nigel Bulpitt (Chairman)

Simon Boyle

David Gray (MND)

Jason Melling

Karen Reynolds (MND)

Martin Southgate

Julie Steele (MND)

Sharon Brittain (Secretary to the Trustee)

The main advisers and specialists retained by the Trustee during the year were:

Investment Adviser Aon Hewitt

Legal Advisers Simmons & Simmons

Auditors Deloitte LLP

Bankers Royal Bank of Scotland Plc

DC Investment Platform Provider Zurich

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Stay in touch!Once you leave JTI UK, it is important to keep the Pensions Department informed of any changes to your own or your immediate family’s circumstances, including changes of address.

This ensures you continue to receive important notices about the Scheme from the Trustee. It also enables the Pensions Department to make sure that you and your family obtain the benefits you are entitled to under the Scheme without delay.

Contact details are on the back page.

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Getting in touchIf you have any queries concerning your benefits, please contact the Scheme Administrator:

Pensions DepartmentJTI UKMembers HillBrooklands RoadWeybridgeSurrey KT13 0QU

Telephone: 01932 372922

Email: UKPensions@jti.com

For payroll and tax queries:

HR Service CentreJTI UKMembers HillBrooklands RoadWeybridgeSurrey KT13 0QU

Telephone: 01932 372727

Email: UKHRServicecentre@jti.com

For the Scheme booklet, all the latest information and to download pensions documentation, visit: www.talkingpensions-jti.co.uk

JTI’s UK trading company is Gallaher Limitedjti.com/uk 7 0 4 4 8 1