QinetiQ Pension Scheme Defined Benefit Section

Understanding your pension

“The QinetiQ Pension Scheme is one of the most important and valuable benefits the Company offers you”

Contents Welcome to the QinetiQ Pension Scheme __________________ 1 Joining the Scheme ___________________________________ 2 Who is eligible? ___________________________________________________ 2 Transferring other pension benefits into the QinetiQ Pension Scheme _________ 2 Opting Out of the QinetiQ Pension Scheme _____________________________ 2

Contributions ________________________________________ 4 Tax advantages ___________________________________________________ 4 National Insurance contributions ______________________________________ 5 Company contributions _____________________________________________ 5 Additional contributions _____________________________________________ 5

Drawing pension benefits _______________________________ 6 Benefits at Normal Pension Date ______________________________________ 6 Early payment of pension benefits _____________________________________ 8 Late payment of pension benefits _____________________________________ 8 Flexible pension payment ___________________________________________ 8 Ill health retirement_________________________________________________ 9 Part time employees _______________________________________________ 9 Payment of your pension benefits ____________________________________ 10 Options on drawing your pension benefits ______________________________ 10

Death _____________________________________________ 11 Death in Service__________________________________________________ 11 Lump sum death benefit ________________________________________________ 11 A pension for your Spouse ______________________________________________ 11 A pension for your children ______________________________________________ 11

Death after drawing pension benefits__________________________________ 12 Death after leaving the Scheme but before payment of pension benefits ______ 12

Leaving the Scheme__________________________________ 13 Up to 3 months Qualifying Service ________________________________________ 13 3 months to 2 years Qualifying Service ____________________________________ 13 2 or more years Qualifying Service________________________________________ 13

Rejoining the Scheme _____________________________________________ 13

Scheme information __________________________________ 15 Pension increases ________________________________________________ 15 Absence from Work _______________________________________________ 15 Divorce _________________________________________________________ 15

State Benefits _______________________________________ 17 Tax & Legal Notes ___________________________________ 19 Queries____________________________________________ 21 Other contacts ___________________________________________________ 22

Glossary ___________________________________________ 23 Your notes _________________________________________ 28

Welcome to the QinetiQ Pension Scheme The QinetiQ Pension Scheme (the “Scheme”) is one of the most important and valuable benefits the Company offers you. It has been designed with your future financial security in mind. The Defined Benefit (DB) Section of the Scheme provides you with a tax-free cash sum and a regular income when you draw your pension. In addition the Scheme provides you with life cover and valuable benefits for your family and / or dependants on your death. The DB Section of the Scheme is a defined benefit arrangement. Contributions from you and the Company go towards the cost of running the DB Section of the Scheme. Even if you leave the DB Section, your benefits will receive valuable protection against inflation until they are paid to you. Alternatively, you may be able to transfer the value of them to another pension arrangement. You will receive an annual Summary Funding Statement which details the funding position of the Scheme. In addition, a statement will usually be issued each year giving you details of the benefits you have built up, or alternatively this can be provided on request. Other details you may require, such as retirement and transfer quotes, as well as the Scheme’s Annual Report, are available on request. This booklet is designed as a guide broadly summarising the DB Section of the Scheme. The Scheme Rules however set the formal legal basis of the Scheme and your legal rights under it. In the event of any difference between these two documents, the Scheme Rules will prevail. A copy of the Scheme Rules is available from the Company’s Intranet site, nucleus, or by contacting the HR Services who will provide a copy if you do not have access to nucleus. We have tried to provide a helpful summary of the tax regime applicable to pensions in this booklet. We cannot however take any responsibility for individual financial or tax planning decisions you may take. You should take independent financial advice if you are in any doubt about your personal financial or tax position. Please note that this booklet is based on our understanding of tax and pensions legislation as at October 2010. This legislation, including the limits applicable for tax purposes, is liable to change. We have tried to keep jargon to a minimum, but inevitably there are some terms that require explanation. These are highlighted in blue in the text and details can be found in the glossary. If you wish to find more detailed information visit the pension website, address below. This contains useful information about the Scheme, including a frequently asked questions section. You can also let us have your feedback at our email address [email protected]. The Scheme is administered on behalf of the Trustees of the QinetiQ Pension Scheme by ACS, a Xerox Company. Their contact details are on page 22.

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Joining the Scheme Who is eligible? Membership of the DB Section of the QinetiQ Pension Scheme is limited to: 1)

Employees who were contributing members of the Principal Civil Service Pension Scheme (PCSPS) or the UK Atomic Energy Authority (UKAEA) arrangements as at 30 June 2001 and were part of the staff transfer to QinetiQ and joined the Scheme as from 1 July 2001;

2)

Employees who were not members of the PCSPS or UKAEA arrangements as at 30 June 2001, but were eligible to be members as at that date, and were part of the staff transfer to QinetiQ and have since joined the Scheme;

3)

Other employees invited to join at the discretion of the Principal Employer.

Employees who fall under category 3 must apply to join the DB Section using the discretionary entry process on the pension website on nucleus. This is also available through the QinetiQ HR Services. Other than employees within category 3, the Scheme is now closed to new members. NB: If you hold a certificate for Enhanced Protection you will not be able to contribute to the Scheme without invalidating this certificate.

Transferring other pension benefits into the QinetiQ Pension Scheme You can apply to transfer the value of any other pension you hold into the Scheme to provide additional benefits. The transfer-in process can be found on the pension website on nucleus. Transfers are accepted at the discretion of the Trustees and there may be circumstances when a transfer cannot go ahead. If this happens you will be told the reason. The QinetiQ Pension Scheme is not a member of the Public Sector Transfer Club.

Opting Out of the QinetiQ Pension Scheme You may, if you wish, opt out of the Scheme by giving at least two months' written notice to your employer and the Trustees. Remember to consider the valuable benefits that you will be surrendering by opting out including: • • • •

Retirement benefits that could be earned for the period of service after you opt out. Death benefits. Ill health provision. Employer’s contributions.

The pension website sets out the issues you should consider before opting out. . You are advised to take independent financial advice before deciding to opt out of the Scheme. If you do not have access to nucleus the QinetiQ HR Services will be able to send you a copy. In particular you should note that the Company will not contribute to any other pension arrangement on your behalf. Furthermore should you wish to rejoin in the future it will be at the discretion of the Trustees and Principal Employer. If you decide not to remain a member of the Scheme, you must follow the opt out process on the pension website

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“To increase your benefits you may make Additional Voluntary Contributions (AVCs)”

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Contributions Your member contributions will normally be made under the Salary Sacrifice arrangements. • •

All members who have joined since 1 November 2005 will automatically be entered into the Salary Sacrifice arrangement. It is possible for members who joined before 1 November 2005 to opt out of Salary Sacrifice but continue to be members of the Scheme. If you do this, there will be an additional contribution added to your existing contribution at a rate depending on what Category of Membership you are in.

Your Salary Sacrifice amount is paid to the QinetiQ Pension Scheme by the employer. The Salary Sacrifice that you make is based on your Pensionable Earnings up to the Earnings Cap. At January 2010 the rates are: Category of Membership

Salary Sacrifice

No Salary Sacrifice

Option 1

5.00%

5.50%

Option 2

8.25%

9.075%

Option 3

10.00%

11.00%

Tax advantages The Scheme is classed as a Registered Scheme under the Finance Act 2004. In broad terms, this means that: • •

you are not taxed on the contributions the Company makes (both normal Company contributions and the contributions paid by the Company that relate to Salary Sacrifice). Any employee contributions made through Additional Voluntary Contributions (including Added Years contributions) receive full tax relief via the PAYE system, subject to the limit set out below.

Contributions made by you in a tax year that do not exceed 100% of your taxable earnings for that tax year will receive full tax relief. If your taxable earnings are less than £3,600, tax relief will apply on contributions up to £3,600. In addition to this you should note that all contributions and benefit growth (for defined benefit schemes) will be assessed against the Annual Allowance. Values above this are taxed at 40%. Please note that the tax advantages and the relevant limits mentioned above are very likely to change as a result of changes in legislation. It is expected that from 6 April 2011 the Annual Allowance is expected to be substantially reduced from its currentl level.

What if your total earnings are more than £130,000 per annum? For tax years 2009/10 and 2010/11 a ‘special’ annual allowance charge (SAAC) has been introduced for individuals with taxable income of £130,000 or more in either tax year or either of the two preceding tax years. Taxable income for the purpose of SAAC includes employment income, member pension contributions, all salary sacrifice arrangements, compensation payments, income from self employment, partnerships, savings, rental and trust income. If you believe your taxable income in one of these tax years is likely to be close to or above £130,000, the possible tax charge (SAAC) may mean that additional pension contributions may not be a tax efficient way for you to save for your retirement. If you believe you may be affected and wish to discuss this further please contact the Group Pensions Department or an Independent Financial Advisor.

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Contributions (continued) National Insurance contributions The DB Section of the Scheme is contracted-out of the State Second Pension (S2P) and you therefore pay lower National Insurance contributions. In addition to this, the amount of salary that is sacrificed is not subject to National Insurance contributions. Example The example below shows how Salary Sacrifice saves Tax and National Insurance. It assumes the member is contributing at 5% of Pensionable Earnings. The calculation is based on a member with Pensionable Earnings of £25,000 a year.

Gross Salary Tax payable National Insurance Contributions Scheme Contributions Company pays Salary Sacrifice Contribution Net Income

Pre Sacrifice £25,000 £3,455 £1,812 £1,250 Nil £18,483

Post Sacrifice £23,750 £3,455 £1,695 Nil £1,250 £18,600

The employee saving in this example is £117 per annum or £9.75 per month.

Company contributions The Company pays your Salary Sacrifice to the Scheme. The Company also pays an employer contribution rate that is agreed with the Trustees of the Scheme, and based on the advice of the Scheme actuary. Details of the current employer contribution rate are available on the pension website on nucleus. All contributions are paid into a trust fund, which is separate from the Company’s assets. The fund is invested in line with the Trustees’ investment strategy. The Scheme’s investment returns are largely free of income and capital gains taxes. The trust fund is used to provide benefits when they become payable.

Additional contributions To increase your benefits you may make Additional Voluntary Contributions (AVCs). These attract full tax relief as set out under ‘Tax advantages’ above. Details of the options available to you can be found in the AVC booklet and on the pension website on nucleus.. As mentioned previously from 2009/10 to 2010/11 a ‘special’ annual allowance charge (SAAC) has been introduced for individuals with total earnings of £130,000 or more in a relevant tax year. Furthermore, the Annual Allowance is expected to be substantially reduced from 6 April 2011. Please see above. If you believe your total earnings in each tax year is likely to be close to or above £130,000, the possible tax charge (SAAC) may mean that additional pension contributions may not be a tax efficient way for you to save for your retirement. If you believe you may be affected and wish to discuss this further please contact the Group Pensions Department or an Independent Financial Advisor.

You should note that the Company does not pay contributions to match any AVCs that you may have chosen to pay.

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Drawing pension benefits The Normal Pension Date of the Scheme is your 65th birthday. You may have a different Contractual Retirement Age, so to avoid confusion we will refer to Normal Pension Date. It is possible for you to draw your pension from the Scheme while continuing to work for the Company, subject to the Company’s retirement policy. This is called “flexible retirement”. If you decide to take flexible retirement, you will not be able to re-join the Scheme whilst having continuous employment with the Company.unless the Company and the Trustees agree. All of the pension benefits that you have accrued over your working life will be assessed against the Lifetime Allowance when you draw your benefits. If you have pension benefits that exceed the Lifetime Allowance, you may have registered for certain protections. These are known as ‘Primary’ or ‘Enhanced’ Protection. If you applied for either protection you will need to provide the certificate you received to the pension administrators to avoid any additional tax liability.

Benefits at Normal Pension Date The DB Section is designed to provide you with a pension related to your earnings. Your Normal Pension Date benefits will be the total of your Pre and Post (1 June) 2008 pension calculated in the following way: Pre 2008 Pension Pension

1/80th x Final Pensionable Earnings x Pre 2008 Pensionable Service

AND Tax-free cash sum

3 x Pension

Post 2008 Pension If you are an Option 2 or Option 3 Member, your pension will be calculated as above using Post 2008 Pensionable Service. OR If you are an Option 1 Member, your Post 2008 Pension is calculated on a Career Average basis rather than Final Salary basis as follows: Pension

1/90th x Pensionable Earnings for each year (ended 31 May) of Pensionable Service as an Option 1 Member plus inflation protection in line with the RPI

AND Tax-free cash sum

3 x Pension

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Example For a member retiring after 28 years membership. They have 25 years Pre 2008 service and 3 years Post 2008 service. Their Final Pensionable Earnings are £25,000, and their Pensionable Earnings in the two years before retirement were £24,500 and £24,000. Pre 2008 Pension Pension

1/80th x £25,000 x 25 years = £7,812.50 pa

AND Tax-free cash sum

3 x £7,812.50 = £23,437.50

Post 2008 Pension If the individual was an Option 2 or Option 3 Member, their pension will be calculated as above using Post 2008 Pensionable Service. Pension

1/80th x £25,000 x 3 years = £937.50 pa

AND Tax-free cash sum

3 x £937.50 = £2,812.50

On Normal Pension Date the member will therefore have a Total Pension of £8,750 pa and Tax-Free Cash of £26,250 (as an Option 2 or Option 3 Member). OR If the individual is an Option 1 Member, their Post 2008 Pension is calculated as follows: Pension (Yr 0) Pension (Yr -1) Pension (Yr -2) Pension Account

1/90th x £25,000 1/90th x £24,500 x 1.03* 1/90th x £24,000 x 1.03* x 1.05**

= £277.78 pa = £280.39 pa = £288.40 pa £846.57 pa

* RPI Inflation in the year before retirement (Yr -1) was 3% pa. ** RPI Inflation two years before retirement (Yr -2) was 5% pa. AND Tax-free cash sum

3 x £846.57 = £2,539.71

On Normal Pension Date the member will therefore have a Total Pension of £8,659.07 pa and TaxFree Cash of £25,977.21 (as an Option 1 Member).

Your QinetiQ Pension Scheme benefits may only be part of the income you receive when you retire. You may also have pension benefits from previous employers or if you chose to defer your PCSPS benefits at 30 June 2001. Remember to contact the administrators of these pension arrangements to claim your benefits if they have not already been in touch. You will also need to consider whether your total benefits from all sources are within the Lifetime Allowance as if they are not you will be liable for a tax charge. In addition your State Pension will also be paid from State Pension Age (which may be later than when your QinetiQ Pension Scheme benefits are paid).

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Drawing pension benefits (continued) Early payment of pension benefits Legislation means that the earliest age at which you may draw your pension benefits depends on the date you joined the DB Section. How this applies in practice is summarised in this table: Earliest date you may draw a pension Up to 5 April 2010 From 6 April 2010 50 50 50 55

Date joined DB Section On or before 5 April 2006 On or after 6 April 2006

If you decide to draw your pension benefits before Normal Pension Date your pension and tax-free cash sum will be based on your Pensionable Service to the date of early retirement and will be reduced to take account of the longer period that it will be in payment. If you were an ex-UKAEA member at 1 July 2001 you have a Normal Pension Date of 65 for all of your benefits. Therefore all your benefits will be reduced if taken before age 65. For these purposes, all other members have a Normal Pension Date of 60 for benefits accrued by Pensionable Service before 1 June 2008 and a Normal Pension Date of 65 after this date. This means that the reduction that will be applied if you draw them early will vary for Pre and Post 2008 benefits. This is summarised in the following table: Reductions Pre 2008 benefits Post 2008 benefits

Age benefits are paid unreduced Ex-UKAEA at 1 July 2001 All other DB members 65 60 65 65

NB: All benefits must be brought into payment at the same date. Early payment may be restricted if the reduction in your pension would cause the amount payable at age 60 (for women) or age 65 (for men) to fall below your Guaranteed Minimum Pension (GMP).

Late payment of pension benefits If you draw your pension benefits after Normal Pension Date your pension and tax-free cash sum will be calculated in the same way as described in the above section ‘Benefits at Normal Pension Date’ but based on your Pensionable Service, Final Pensionable Earnings, Career Average benefits and your Pension Account as at the date you draw your benefits. The Pensionable Service and the benefits you build up after Normal Pension Date are treated in the same way as those you built up before. No enhancements or reductions are applied to it. You may continue to pay money purchase AVCs. If you have not drawn your benefits by age 75 you will be treated automatically as having retired on reaching that date.. Your lump sum will be charged to tax if it is not drawn before age 75..

Flexible pension payment At Scheme Normal Pension Date Subject to QinetiQ retirement policy allowing you to continue to work past the Scheme’s Normal Pension Date you have the following options: • •

Draw your retirement benefits and continue to work for the Company. No further contributions will be paid and no extra pension will be built up. Your benefits will be calculated as for ‘Benefits at Normal Pension Date’; OR Defer drawing your pension benefits and continue to pay contributions and build up benefits. When you do draw your retirement benefits they will be calculated on the same basis as for ‘Late payment of pension benefits’.

Before Normal Pension Date • Draw your retirement benefits and continue to work for the Company. No further contributions will be paid and no extra pension will be built up. Your benefits will be calculated as for ‘Early payment of pension benefits’. You cannot draw your retirement benefits before the earliest age that applies to

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you as described under that section. If you draw your benefits you will only be allowed to rejoin the Scheme at the discretion of the Company and the Trustees.

Ill health retirement If you have at least 2 years' Service and are retiring because of a breakdown in physical or medical health which permanently prevents you from carrying out your normal occupation you can apply for early payment of your benefits on the grounds of ill health, even if you are younger than the earliest age for retirement applicable to you as described in ‘Early payment of pension benefits’. The Trustees must be satisfied that the requirements for payment of ill health early retirement benefits are satisfied and they have a formal process to assess whether members meet the criteria. The Trustees employ a registered medical practitioner who will assess your case and give them an opinion on whether you meet the criteria. The Trustees will use this medical opinion to help them decide whether to grant ill health early retirement. If ill health retirement is granted to you, your pension will commence on the agreed date of your ill health retirement. Benefits are calculated as for ‘Benefits at Normal Pension Date’ but using Enhanced Pensionable Service with no reduction applied for early payment. Enhanced Pensionable Service will be applied to Post 2008 benefits you are accruing as an Option 2 or 3 member. Enhanced Pensionable Service is equal to your: •

Pensionable Service at date of retirement

Plus •

The lesser of: o 6 years 243 days service; OR o Remaining years to your Normal Pension Date.

If you are accruing Pensionable Service as an Option 1 Member this same period of enhanced Pensionable Service will be used to credit you with benefits based on your Pensionable Earnings at date of retirement. Your ill health pension may also be reviewed during your period of retirement and if you no longer meet the criteria the Trustees will notify you and in that event the pension may be terminated or suspended. You may be asked to provide medical information or undergo a medical examination for this purpose. If your medical condition means that you have a life expectancy of less than 1 year then the Trustees have discretion to allow total commutation of your benefits (other than a pension for a surviving spouse required under the contracting-out legislation). Any payment in excess of the Lifetime Allowance. would be taxed at 55%.

Part time employees For part time employees, benefits are calculated using Pensionable Service multiplied by the ratio of actual hours worked to full time hours, and on Final Pensionable Earnings based on full time equivalent pay. In practice therefore your accrual of Pensionable Service is pro rated down in line with the part time hours worked. See part-time process on nucleus pension website process page An example be found on page 10.

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Drawing Pension Benefits (continued) Example For an Option 2 member retiring after 28 years’ membership, made up of 20 years at full time, 5 years at 15 hours per week and 3 years at 23 hours per week, with a full time equivalent Final Pensionable Earnings of £25,000. Service is calculated as follows: 20 x 37/37 5 x 15/37 3 x 23/37 Total service

Annual Pension Tax-free cash sum

= 20.0 = 2.0270 = 1.8649 = 23.8919 years

1/80 x £25,000 x 23.8919 = £7,466.22 3/80 x £25,000 x 23.8919 = £22,398.66

Payment of your pension benefits When your pension benefits are paid you may be asked by the pension administrators for details of any other pension arrangements that you have, in order that your QinetiQ benefits can be paid with the correct tax applied. You will receive your benefits from the date you have elected to draw your pension. They will be paid at the beginning of each month in arrears for the rest of your life.

Options on drawing your pension benefits If you wish, subject to the Trustees’ agreement, you can choose to vary your benefits. •

• •

You could reduce the amount of tax-free cash that you take in order to increase either your pension or the Spouse’s pension payable on your death. Actuarial factors used to determine the amount of additional pension that each pound of lump sum will buy, are determined by the Trustees on advice from the Scheme Actuary. You could possibly take a larger tax-free cash sum of up to 25% of the value of all of your QinetiQ Pension Scheme benefits within the Lifetime Allowance. Increasing the tax-free cash would affect your other benefits as your annual pension would be reduced. You could give up part of your pension to provide additional pension on your death for a nominated Dependant or your Spouse.

If you want to take advantage of any of these options you must inform the scheme administrators when you receive the letter quoting your options and at least one month before you are due to take your benefits. Small pensions If the value of your benefits in the Scheme is below £2,000 the Trustees may at their discretion pay you a one off lump sum instead of them.. This will only be possible if your total benefits in the Scheme are paid out, payment is made to you between age 60 and 75, and no other benefits you have in the Scheme have been transferred-out in the last 3 years. Details, including the tax treatment are available from the pension administrators. Options after you have left the Scheme and retain a deferred pension If you leave your benefits in the Scheme the earlier sections ‘Benefits at Normal Pension Date’, ‘Early payment of pension benefits’, ‘Late payment of pension benefits’ and ‘Small pensions’ will still apply to you, but based on your Pensionable Service, Final Pensionable Earnings, Career Average benefits and Pension Account at your date of leaving. You would also be able to apply for early payment of your benefits on medical grounds, but, if your application was approved, no enhancements would apply to your benefits.

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Death Death in Service If you die in the Company’s service before your Normal Pension Date whilst you are: • Below age 75; • Still at work with the Company; and • An Active Member of the Scheme or a Postponed Pensioner (i.e. you have continued in service and are paying contributions (or your employer is paying Salary Sacrifice contributions for you) after your Normal Pension Date, but have not drawn your pension) then the following benefits will be payable.

Lump sum death benefit •

A lump sum of 3 times your Final Pensionable Earnings at the date of your death will be paid.

•

An additional lump sum of 0.25 times your Final Pensionable Earnings will be paid to your Spouse where there is no Qualifying Child OR, a lump sum of 0.5 times your Final Pensionable Earnings will be paid where you are survived by a Qualifying Child.

The Trustees must decide who receives the lump sum, as, under current legislation, this will allow the lump sum to be paid without inheritance tax being applied. So that the Trustees know how you would like any lump sum to be paid you should complete an Expression of Wish form (the process can be found on the pension website) and keep this up to date as your circumstances change. The Expression of Wish form will not be binding on the Trustees but they will take it into account in reaching their decision.

A pension for your Spouse If you are married at the date of your death a pension will be paid immediately to your Spouse or Civil Partner. They will receive a pension equal to 50% of the pension that you would have received if you had retired on grounds of ill health on the date of your death. The only difference is that there is no requirement for you to have had 2 years service in the Scheme. Notes on Spouse’s pensions • In cases where there the Spouse is more than 10 years younger than the member, the Trustees may apply a reduction factor to the spouse’s pension to allow for the longer period it may be paid for. • In cases where the marriage took place within six months of the date of death a pension is not payable except at the Trustees’ discretion. • This pension will be paid for the rest of your Spouse’s life. • The Scheme definition of Spouse includes Civil Partnership. • If you leave no legal Spouse, a pension may be paid to someone who, in the Trustees’ opinion, was financially dependent on or interdependent with you at the date of your death.

A pension for your children A pension will also be paid to your Qualifying Children. The pension payable is based on a fraction of the pension that would have been payable to you had you retired through ill health retirement. Notes on children’s pensions • Where a spouse’s or dependant’s pension is being paid, each child will receive one quarter of the member’s pension, subject to the total pensions being limited to two-thirds of the member’s pension. • Where no spouse’s or dependant’s pension is being paid, each child will receive one third of the member’s pension. Where there are 3 or more children, the total children’s pensions will be limited to two-thirds of the member’s pension.

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Death (continued) Death after drawing pension benefits Once you draw your pension it is paid for the rest of your life. On your death, the following benefits are payable. Lump sum If you retire from or leave Pensionable Service on or after 1 June 2008 and you die within five years of drawing your pension, a lump sum of the value of five years’ pension, less any pension payments and taxfree cash sum already paid, is payable and will be distributed by the Trustees at their discretion . In addition, a further lump sum will be paid to your Spouse equal to the value of pension that would have been paid to you had you survived for a further 3 months. If payment of these lump sums is made on or after age 75 then tax will generally be payable and your legal personal representative will need to declare the amounts paid to HM Revenue and Customs. A pension for your Spouse If you are married, on your death your Spouse will receive a pension equal to 50% of the pension in payment at the date of your death. See the ‘Notes on Spouse’s pensions’ for more details. A pension for your children A pension will also be paid to Qualifying Children. Is it based on a fraction of the pension in payment at the date of your death. See the ‘Notes on children’s pensions’ for more details.

Death after leaving the Scheme but before payment of pension benefits Lump sum If you die before your deferred benefits (these are benefits you have in the Scheme after you leave) become payable, a lump sum calculated in the same way as the tax-free cash sum that would have been paid to you at Normal Pension Date, will become payable. This lump sum is payable at the discretion of the Trustees. A pension for your Spouse If you are married your Spouse will receive a pension of 50% of the pension that would have been payable to you had your benefits come into payment on the date of your death. See the ‘Notes on Spouse’s pensions’ for more details. A pension for your children A pension will also be paid to Qualifying Children. It is based on a fraction of the pension that would have been payable to you had your benefits come into payment on the date of your death. See the ‘Notes on children’s pensions’ for more details. Expression of Wish form Please keep this up to date if your circumstances change. It is an important guide to the Trustees on where you would like any lump sum benefits to be paid. Blank forms can be obtained from nucleus or the HR Services.

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Leaving the Scheme The following applies whether you leave the Company or opt out of the Scheme while still working for the Company:

Up to 3 months Qualifying Service Contributions paid via Salary Sacrifice would be lost. If you paid Additional Voluntary Contributions (AVCs), the accumulated value of your AVCs will be refunded to you, less tax at 20% on amounts up to £10,800 and 40% tax thereafter.

3 months to 2 years Qualifying Service A a transfer value of your accrued pension can be paid to another registered pension arrangement at your request. If you paid Additional Voluntary Contributions (AVCs), the accumulated value of your AVCs will be refunded to you, less tax at 20% on amounts up to £10,800 and 40% tax thereafter. NB: You will have 6 months after leaving to decide where to transfer the value of your accrued pension. If you have not arranged for the transfer to be made within 6 months you will lose the benefit.

2 or more years Qualifying Service You will be entitled to a deferred pension payable from your Normal Pension Date. This will represent the pension and tax-free cash you earned up to the date you left, calculated as described in the ‘Benefits at Normal Pension Date’ section on page 7 but using earnings and service at your leaving date. If you decide to transfer your deferred benefit to another pension arrangement this can be requested at any time between the date you leave the Scheme and one year before your Normal Pension Date.

Rejoining the Scheme If you decide to opt out of the Scheme you will be able to apply to rejoin it at a later date but re-admission to the DB section will be at the discretion of the Company and the Trustees. Your membership may then be limited and any death or ill health benefits may be subject to medical evidence of your good health.

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“Your pension, either if it is in payment or deferred, will increase annually, on 1 April”

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Scheme information Pension increases Your benefits, if they are deferred, will be revalued by the increase in the Retail Prices Index (RPI) in respect of the period from leaving to your Normal Pension Date or if earlier the date your draw your pension, or such other period as the Trustees determine. Once in payment, pension you earned before 1 June 2008 will increase annually on 1 April by the percentage increase in RPI over the 12 months ending at the preceding 30 September. Pension earned from 1 June 2008 will increase in payment as follows: Option 1 member

RPI up to 4% pa

Option 2 member

RPI up to 5% pa

Option 3 member

Full RPI

If 1 April falls before your pension has been in payment for 12 months a proportionate increase will apply. Similarly your Spouse’s pension (and any pension paid for the benefit of children or other dependants) will be increased each year in the same way as your own pension. Separate terms apply to increases on that part of your pension that relates to your Guaranteed Minimum Pension. It will be increased in line with statutory requirements, which are broadly in line with increases in average earnings in respect of the period from leaving to your Normal Pension Date or if earlier the date your draw your pension and in line with RPI up to 3% once in payment .

Absence from Work Most absence from work is for a relatively short time and does not affect your membership of the Scheme. However, if you are absent for a longer period of time or where there is an expectation that you may not return to work, the Company will decide on whether and how your membership of the Scheme will be affected. Special rules apply to maternity and other types of statutory family leave. The full details of the absence policy are available on the pension website on nucleus and from the HR Services.

Divorce You may ask the pension scheme administrators to provide an estimate of the cash equivalent value of your benefits. If this estimate is needed because of a divorce settlement, you should tell the administrators this when asking for it, as they may need further information from you. Pension Sharing on Divorce For divorce proceedings which commenced on or after 1 December 2000, pensions may be shared (or ‘split’) between a member and their spouse. This is not the only way that pension rights may be divided at the time of divorce, and your legal advisers will be able to suggest whether pension sharing is the right course of action in your circumstances. When sharing a pension on divorce, the Court will establish the value of the member’s pension and the amount of the pension that is to be shared. A pension ‘debit’ will then be made against the Scheme Member which will reduce his/her pension. A corresponding pension ‘credit’ will be given to the spouse to transfer to a pension arrangement of their choice. The ‘credit’ will be included against the spouse’s Lifetime Allowance. If you have Primary Protection and a ‘debit’ results in your benefits falling below the level of Primary Protection your personal lifetime allowance will also be reduced. If the ‘debit’ results in your benefits falling below the Lifetime Allowance you will lose your Primary Protection. Full details of the process comprising a policy statement and details of the administration charges are available on the pension website. No advice can be given as to the suitability of any arrangement and members and their spouses are strongly advised to take independent advice before taking any action.

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“you are contracted-out of the State Second Pension (S2P)... ...and pay lower National Insurance Contributions”

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State Benefits The State Pension Scheme is in two parts: • •

The State Basic Pension Scheme; and The State Second Pension (S2P) which replaced the State Earnings Related Pension Scheme (SERPS) in April 2002.

• State Basic Pension The Basic State Pension is a flat rate pension payable from age 65 for a man and age 60 for a woman. State Pension Age will change to 65 for everyone by 2020. It is paid to everyone who has made sufficient National Insurance contributions during their working life. It is likely to increase from age 65 in due course according to Government proposals current at the time of publication of this booklet. To be paid in full, you must have paid National Insurance contributions for nine-tenths of your working life. The Department for Work and Pensions (DWP) website contains more information on your State Pension benefits. They can also provide a forecast of your potential State Pension benefits. The pension is usually increased each April in line with retail prices.

Contracting-out While you are a member of the DB Section and in Pensionable Service, you are contracted-out of the State Second Pension (S2P). You will not therefore receive a S2P pension when you retire for the proportion of your service at QinetiQ. This means that both you and the Company pay lower National Insurance Contributions on the part of your salary between the Lower and Upper Earnings Limit. Although you are contracted-out of S2P, you will still receive the Basic State Pension in addition to your DB Section pension (subject to you having paid in sufficient National Insurance contributions over the course of your working life). To be contracted-out, the DB Section has to meet certain conditions and provide benefits of a required level. Contracting-out prior to 6 April 1997 If you were a member of the Scheme before 6 April 1997 and were contracted-out of SERPS, your Scheme pension at State Pension Age will be at least equal to your Guaranteed Minimum Pension (or ‘GMP’). The GMP is roughly equal to the SERPS pension that you would have received for service up to 6 April 1997 if you had stayed in SERPS. From 6 April 1997 a GMP was no longer be provided for the future but any GMP you had already earned will be paid as if the contracting-out conditions had not changed.

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“The Trustees’ duty is to ensure that members’ interests as a whole are protected”

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Tax & Legal Notes Tax approval The Scheme is a registered pension scheme as described in the Finance Act 2004. Income tax Your Scheme pension when in payment may be subject to income tax. If your pension savings into registered pension schemes exceed the Annual Allowance, or Lifetime Allowance, income tax will be due on the excess over these allowances. See also under "Contributions" for an outline of the Special Annual Allowance Charge. Inheritance tax Under present legislation your lump sum death benefits will not normally be subject to Inheritance Tax as . the Trustees have discretion as to who receives them. Assignment of benefits You are not allowed to assign your benefits under the Scheme or to use them as security for a loan. Trustees The Scheme’s benefits are paid from a trust fund which is built up by investing the Company’s and the members’ contributions. The Scheme’s assets are entirely separate from those of the Company. The Trustees of the Scheme are responsible for the administration of the Scheme and for the investment of the money in the fund. It is their duty to ensure that members’ interests as a whole are protected. Rules and Regulations The Trustees administer the Scheme according to the formal Rules, which satisfy the requirements for a registered pension scheme. This booklet is a guide to the Scheme and will always be overruled by the formal Rules if there is any difference between the two documents. The rules are available on the pension website on nucleus or you can request a copy from the HR Services. Amendment or discontinuance The Principal Employer fully intends to keep the Scheme in force but reserves the right to amend or discontinue it, with the Trustees’ consent and following the consultation requirements laid down in legislation. Each individual employer also has the right to terminate its participation in the Scheme at any time, and the Principal Employer also has the right to terminate the DB Section or the DC Section. If the Scheme is discontinued the Trustees will use the assets of the Scheme in the way set out in the legal documents, for example legislation and the Scheme Rules.

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Tax & Legal Notes (continued) Personal information You should keep the HR system up to date with your personal details, including your address. All personal information is held on behalf of the Trustees under the Data Protection Act 1998. No personal data concerning you or your dependants will be processed without your or their consent, or unless it is necessary for the purpose of operating the Scheme. Disclosure to the advisers and administrators appointed by the Trustees and the employers may be necessary for the purpose of the proper management of the Scheme. Any sensitive personal data (as defined in the Act, but including for example, details about your health etc.) will not be obtained by the scheme administrator on behalf of the Trustees without your explicit consent given in writing. The administrator will not write or telephone you about any issue unconnected with the legitimate interests of the Trustees or Managers of the Scheme. At any time you are entitled to a description of all data held on the administrator’s records, and the names of any persons or firms who are eligible to see the data. As some of the data may be technical in nature, you are entitled to an explanation in ‘plain English’ about what is held. You will be asked to pay a small charge for the report, but if any data is recorded incorrectly, you are entitled to have it corrected immediately. Annual Report and Accounts A copy of the formal Annual Report and Accounts of the Scheme is available upon request to the QinetiQ Pensions Department. The abbreviated Annual Report and Accounts is posted on the pension website on nucleus when it has been issued to all members.

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Queries The Trustees aim to ensure the Scheme is administered and managed to high standards but there may be times when you are unhappy about something concerning your benefits or other matters relating to your Scheme membership. Any query or problem should initially be referred to the scheme administrators. If you are still unhappy about the matter you may wish to make a formal complaint through the Internal Dispute Resolution Procedure. Internal Dispute Resolution Procedure The procedure is available on the pension website on nucleus. The Internal Dispute Resolution Procedure only applies to matters concerning the Scheme and to members or potential members. It also applies to ex-Scheme members who had been in the Scheme in the six months before making a complaint. The procedures do not apply to complaints and disputes between employees and the Company or between the Company and the Trustees. Nor do they apply to complaints or disputes where Court proceedings have started or which are being investigated by the Pensions Ombudsman. The Pensions Advisory Service (TPAS) The Pensions Advisory Service is a voluntary service that is available to assist members and beneficiaries of pension schemes at any time, free of charge. They will help with any pensions query you may have or any difficulty you have failed to solve with the administrators or Trustees of the Scheme and can be contacted via: Email: Phone: Fax: Address:

[email protected] 0845 6012923 020 7233 8016 The Pensions Advisory Service, 11 Belgrave Road, London, SW1V 1RB.

Pensions Ombudsman The Pensions Ombudsman investigates and decides complaints about the way that pension schemes are run. The Ombudsman will normally only deal with problems that have first been investigated by TPAS and gone through the Internal Dispute Resolution Procedure. Email: Phone: Fax: Address:

[email protected] 020 7834 9144 020 7821 0065 Pensions Ombudsman, 11 Belgrave Road, London, SW1V 1RB.

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Queries (continued) Pensions Regulator The Pensions Regulator is the regulatory body governing pensions. It has a defined set of statutory objectives with its top priority being to protect members’ benefits and it has wide powers to intervene in the running of pension schemes to enable it to do so. Details of the QinetiQ Pension Scheme have been given to the Pensions Regulator who can be contacted via: Email: Phone: Fax: Address:

[email protected] 0870 6063636 0870 2411144 The Pensions Regulator, Napier House, Trafalgar Place, Brighton, BN1 4DW.

Pension Tracing Service A tracing service is available to help you if you need to contact the Trustees of a previous pension scheme and cannot trace them yourself: Phone: Address:

0845 6002 537 The Pension Tracing Service, Tyneview Park, Whitley Road, Newcastle upon Tyne, NE98 1BA.

Other contacts Scheme Administrators If you would like further information about the Scheme and your benefits contact the pension scheme administrators, ACS, a Xerox Company: Email: Phone: Address:

[email protected] 0870 901 2161 Newfoundland Court, 31-49 Newfoundland Circus, Bristol, BS2 9AP

QinetiQ HR Services For all queries that are not in respect of general policy issues, including requests for hard copies of forms please contact: Email: Phone: Address:

[email protected] 01252 392020 HR Services, QinetiQ Boscombe Down, Salisbury, SP4 0JF.

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Glossary The following definitions should help you understand any terms used which you may be unfamiliar with. Additional Voluntary Contributions (AVCs) AVCs are extra contributions, which you can choose to pay if you wish to increase your benefits. Annual Allowance This is the total amount that can be paid towards or built up in respect of your pension every tax year. Any amounts in excess of the allowance will be taxed at 40%. The amounts have been declared by the Government for years until 2011. When future allowances are declared they will be posted on the pension website. Tax year 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011

Annual Allowance £215,000 £225,000 £235,000 £245,000 £255,000

Defined benefit arrangements. Value of the pension built up in the year multiplied by 10, plus any tax-free cash built up in the year,

+ Defined contribution arrangements. Value of all contributions (including AVCs).

+ Any other contributions paid to or benefits built up in other pension arrangements in the year.

= Amount to assess against the Annual Allowance. (The factor of 10 is a Government figure and applies to all schemes) Example • Defined benefit arrangements:

Value of pension Value of tax-free cash

• •

5 April 2009 £10,000 £30,000

5 April 2010 £10,725 £32,175

Pension built up in year: 725 x 10 Tax-free cash sum built up in year: Defined contribution arrangements (employee & employer): Other: e.g. Payment to a Free Standing AVC

Difference in value £725 £2,175

= £7,250 = £2,175 = £7,500 = £1,000

Value to assess against the Annual Allowance

= £17,925

Scope to accrue further pension benefits of:

= £227,075 (£245,000 - £17,925)

In this example the value would be within the current Annual Allowance.

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Glossary (continued) Civil Partnership Same sex couples may register their partnership under the Civil Partnership Act 2004 and gain rights to the Scheme as a result. It is important to note that same sex couples must formally register their Civil Partnership if they wish to gain these rights. Same sex couples who do not register their partnership, even if they are living together in a relationship akin to marriage, will be treated in the same way as unmarried opposite sex partners are treated under the Scheme. References throughout the booklet to ‘spouse’ should be read as including your Civil Partner with effect from 5 December 2005. In order to ensure that the Trustees can give effect to your Civil Partner’s entitlement it is important to let the Scheme Administrators and QinetiQ HR Services know that you have entered into a registered Civil Partnership and to provide proof of that registration. You should also be aware that if your Civil Partnership is formally dissolved at any point, your former Civil Partner may also be entitled to a share of your pension entitlement in the same way as is described in the section in the booklet which deals with ‘Pension Sharing on Divorce’. Company The employers participating in the DB Section, and, where relevant, your employer specifically. Contractual Retirement Age This is the age your contract of employment states as your retirement age. It may differ from the Scheme Normal Pension Date. Earnings Cap The DB Section of the Scheme has three Earnings Caps; two for Pre 1 June 2008 pension benefits, and one for Post 1 June 2008 pensions benefits. The Pre 1 June 2008 cap that applies to you depends on the date you joined the Scheme (or where relevant the Previous Scheme). The Post 1 June 2008 cap applies to all members. Future values will be posted on the pension website. The Earnings Caps for the 2009/2010 tax year are as follows: Date Joined Scheme Pre 2008

Post 2008

Pre 1 June 1989

Earnings Cap for 2009/2010 £152,400

On or after 1 June 1989

£123,600

Applies to all members.

£84,000

Increases

Increased on 6 April each year in line with the change in inflation declared on the previous 30 September or earnings, whichever is lower. NOTE: Earnings above this Cap will be pensionable in the Defined Contribution Section of the Scheme. Increased on 6 April each year in line with the change in inflation declared on the previous 30 September. Increased on 6 April each year in line with the change in inflation declared on the previous 30 September. NOTE: Earnings above this Cap will be pensionable in the Defined Contribution Section of the Scheme up to the Pre 2008 cap.

The Earnings Cap is confirmed in your contract of employment when starting, and each new tax year figure is updated on the pension website on nucleus. The Earnings Cap is the maximum amount of earnings on which your Defined Benefit contributions and benefits will be calculated. Eligible Service Eligible Service is Pensionable Service together with, in respect of those Previous Scheme Members who have not transferred accrued benefits from the Previous Scheme to the QinetiQ Pension Scheme, the period treated as pensionable service in relation to membership of the Previous Scheme.

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Enhanced Protection This is one of two protections that could be applied for before 6 April 2006. Members having this protection will have a certificate from HM Customs and Revenue. It is applicable to employees whose pension benefits in all Registered Schemes may have exceeded or have been expected to exceed the Lifetime Allowance. Anyone who has elected enhanced protection will no longer accrue any benefits in the QinetiQ Pension Scheme. Final Pensionable Earnings Used to calculate your benefits for pre-2008 Pensionable Service or Pensionable Service as an Option 2 or Option 3 Member, these are the highest Pensionable Earnings received over 12 consecutive months during the 3 year period prior to your retirement, death or leaving the Scheme. They are limited in accordance with the Earnings Cap. Guaranteed Minimum Pension (GMP) The Guaranteed Minimum Pension (GMP) is the statutory minimum pension that must be provided by an occupational scheme that was contracted-out of the State Earnings Related Pension Scheme (SERPS) between 5 April 1975 and 5 April 1997. It becomes payable from age 60 for women and age 65 for men. Lifetime Allowance This is the total value of pension scheme benefits that you may receive from all registered pension schemes. The value of any benefits in excess of the allowance will be taxed at 55%. Figures have been published until 2011. When the Government declares further updates these will be posted on the pension website. Tax year 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011

Lifetime Allowance £1.50 million £1.60 million £1.65 million £1.75 million £1.80 million

In very broad terms all of the retirement benefits that you have saved in Registered Schemes over your working life will be assessed against the Lifetime Allowance. Pensions in payment. Your annual pension multiplied by 25.

+ Defined benefit arrangements (including Added Years). The pension due to be taken at retirement multiplied by 20, plus any tax-free cash.

+ Defined contribution arrangements (including money purchase AVCs). The value of the monies accumulated at retirement.

= Total value of your retirement benefits. (The factors of 20 and 25 are Government factors and apply to all schemes.) Example • Pensions in payment: • Defined benefit arrangements: •

Pension Tax-Free Cash

5,000 x 25 10,000 x 20

Defined contribution arrangements:

= £125,000 = £200,000 = £30,000 = £275,000

Total value of retirement benefits

= £630,000

Scope to accrue further pension benefits of £1.75m (2009/10) less £630,000

= £1,120,000

In this example the total value of retirement benefits would be within the current Lifetime Allowance.

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Glossary (continued) Normal Pension Date The Normal Pension Date of the Scheme is your 65th birthday. If however you have accrued benefits in the Scheme before 1 June 2008, you may have a right to take your pension from age 60. This will depend on the Normal Pension Date of your benefits in the Previous Scheme. If your benefits in Previous Scheme had a Normal Pension Date of age 60, your benefits accrued before 1 June 2008 will be unreduced if taken on or after age 60 and before age 65. Post 1 June 2008 benefits will however in all cases be reduced if taken before age 65. The Scheme Normal Pension Date can differ from your Contractual Retirement Age. Option 1 Member This is the category of membership you may have chosen following the changes to the DB section of the Scheme with effect from 1 June 2008. As an Option 1 Member your benefits from the date of change will be based on your Pensionable Earnings in each year (with revaluation) Your contribution rate will be 5% (or 5.5% if you opt-out of Salary Sacrifice). Option 2 Member This is the category of membership you may have chosen following the changes to the DB section of the Scheme with effect from 1 June 2008. As an Option 2 Member your benefits will remain unchanged from those accrued before that date, except that your pension accrued from 1 June 2008 will increase up to a maximum of RPI or 5% per annum. Pre 1 June 2008 pension will increase by RPI (uncapped). Your contribution rate will be 8.25% (or 9.075% if you opt-out of Salary Sacrifice). Option 3 Member This is the category of membership you may have chosen following the changes to the DB section of the Scheme with effect from 1 June 2008. As an Option 3 Member your benefits will remain unchanged from those accrued before that date. Your contribution rate will be 10% (or 11% if you opt-out of Salary Sacrifice). Pensionable Earnings These are your basic earnings (before any Salary Sacrifice) together with the premium element of any Additional Hours Payment and any other earnings specified as pensionable by the Principal Employer. They are limited in accordance with the Earnings Cap. Pensionable Service This is the number of years and days of continuous service you complete as a member of the Scheme plus any period of transferred in service that you have. Previous Scheme This is the Principal Civil Service Pension Scheme (PCSPS) or the UK Atomic Energy Authority Principal Non Industrial Superannuation Scheme (UKAEA arrangements). Primary Protection This is one of two forms of protection available when the new tax regime was introduced on 6 April 2006. Members who would have a pension benefit that exceeded the Lifetime Allowance at 6 April 2006 may have opted for this protection. Principal Employer This is QinetiQ Holdings Limited. Public Sector Transfer Club Mutual Arrangements in place between certain Schemes in the public and private sectors to provide, in broad terms, equivalent service credits for members transferring between them, irrespective of any change in salary between the two employments.

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Qualifying Child These are; 1. 2. 3. 4.

Your child or children. The child or children of your brother or sister. Your brother or sister. Your grandchildren.

Who are financially dependant on you at the date of your death AND who are also either; 1. 2. 3.

Under 17 years of age OR Aged between 17 and 23 and in full-time education or vocational training. OR A child may also be classed as a Qualifying Child if they are financially dependent on you by reason of mental or physical incapacity (in this case no upper age limit is applied).

Qualifying Service Your period of Eligible Service (with any periods of part time service being treated as though you were employed on a full time basis). Registered Scheme A registered pension scheme is a pension scheme that is registered with HM Revenue and Customs. It qualifies for tax privileges not available to pension schemes that are not registered. Salary Sacrifice In the QinetiQ Pension Scheme the contributions you would have made to the Scheme will be via Salary Sacrifice. This means your salary is reduced by the amount of contributions you would have made, with the employer paying this amount to the Scheme on your behalf.

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Your notes

October 2010

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