How does my pension work? – DC Section
Your TotalEnergies pension makes up an important part of your retirement income.
When you join TotalEnergies and your employer participates in the TotalEnergies UK Pension Plan (the Plan), you will be automatically enrolled into our pension Plan and pay contributions via your monthly salary, before tax.
Your pension is known as a defined contribution (DC) arrangement and you build up a pot of money (your Pension Account), which is invested, and you choose how to take at retirement.
Your DC pension explained
A DC benefit is sometimes referred to as a ‘Money Purchase’ benefit and means that you pay a proportion of your salary (before tax) as contributions into your own Pension Account, and in return the Employer will also contribute money to your Pension Account. These contributions are then invested by the Plan, in funds, which you chose, or a default fund if you do not.
Unlike a defined benefit (DB) or final salary pension which promises a specific income at retirement, in the DC Sections of the Plan, the income you’ll receive depends on several factors including the amount you pay in, the investment performance of the funds which you invest your Pension Account in and the choices you make at retirement.
In order to build your retirement pot (Pension Account) in the relevant DC Section of the Plan you are a member of, you should consider how much you’ll need at retirement, review how much you’ve built up, your attitude to investment risk and also consider paying in more if you can afford it.
There are various DC Sections in the TotalEnergies UK Plan.
How much do I and the Employer pay in?
You will pay a percentage of your salary into your Pension Account. In return, the Employer will also contribute. The money you pay in is calculated before tax – so paying into the pension is a tax efficient way of saving for the future.
How much you and the Employer pays into your Pension Account will depend on which Section you’re in. Visit the TotalEnergies pension portal to see how much you and the Employer contribute.
How your contributions may be made
Depending on which Section of the DC Plan you’re in, how you pay your contributions may differ.
In some sections you do not pay your contributions directly to the Plan, but instead agree to exchange part of your Basic Salary in return for a contribution that your Employer agrees to pay into the Plan on your behalf. As a result of this, your Basic Salary goes down by a corresponding percentage of your Pensionable Salary. This is known as ‘Salary Sacrifice’.
Taking part in Salary Sacrifice means that you pay less National Insurance (NI) contributions because you only pay NI on your earnings after you have exchanged salary for a pension contribution.
How you choose to invest your pension contributions can make a big difference to the amount of money you have when you retire.
It’s important to ensure your Pension Account is invested in the best option for you. You can view how your pension contributions are invested by logging in to your TotalEnergies pension portal.
A little about risk
All investments involve some risk. Different types of investment have different levels of risk. When you choose an investment fund or a mix of investment funds, you will need to make sure that it has the right level of risk for you.
Your attitude to risk is likely to change during your working life. When you’re a long way from retiring, you may be prepared to accept a higher level of risk in order to achieve a higher level of performance on your investments over the long term. Equally, as you get closer to retirement, making sure your investment fund will not fall in value may be more important to you then getting a higher level of performance.
For more information on the different types of investment risk, please download the ‘Planning for the future – understanding your investment choices’ guide.
Your investment approach
There are currently a range of investment options available from the Plan. These include three ‘Lifestyle’ strategies and ten ‘Freestyle’ fund options.
Adopting a Lifestyle strategy means that your investments will automatically change as you approach your target retirement age. This approach takes away the need for you to make day-to-day investment decisions but you should still be satisfied that the strategy is right for you.
The ‘Lifestyle’ strategy you choose will depend on how you’d like to take your benefits when you come to retirement. If you choose one of the lifestyle strategies, you should keep the decision and your target retirement age under regular review.
The ‘Lifestyle’ strategies available to you are as follows:
- The Drawdown Lifestyle strategy – this will be appropriate if you want to vary the amount you take from your retirement savings each year when you retire. It may also be appropriate if you’re not yet sure how you might want to use your retirement savings.
- The Cash Lifestyle strategy – this will be appropriate if you’re interested in taking the full amount of your retirement savings as cash.
- The Annuity Lifestyle strategy – this will be appropriate if you like the idea of using your retirement savings to provide a guaranteed regular income.
All Lifestyle strategies also target (and make investments move towards) taking 25% tax free cash from your Pension Account at your target retirement age.
Freestyle options – pick your own funds
Freestyle options are ideal for you if you want to remain responsible for managing your investment strategy directly. If you choose the Freestyle option, you’ll need to continually monitor your investments and be comfortable making changes as a result of changing markets or your needs.
The ‘Freestyle’ fund options available are:
- Global Equity Fund
- UK Equity Fund
- Overseas Equity Fund
- Ethical Equity Fund
- Climate Aware Passive Equity Fund
- Diversified Multi-Asset Fund
- Index-linked Gilt Fund
- Fixed-Interest Gilt Fund
- Corporate Bond Fund
- Cash Fund.
For more information on these funds, please refer to the ‘Planning for the future – understanding your investment choices’ guide.
What if I do not make an investment decision?
You will be automatically enrolled in the Drawdown Lifestyle strategy with a target retirement age of 65. Please take time to think if this is right for you and perhaps change out of this if it is not.
Tax and my pension
Paying into the Plan means that you will get tax relief on your contributions, as these come out of your pay before tax is deducted.
The situation may be different if you pay your contributions using salary sacrifice.
Whilst most of us enjoy tax relief on contributions, there are limits in place on how much tax we can save when contributing towards a pension.
The Annual Allowance (AA) is the amount of pension benefits you can build up in a single tax year without a tax charge applying while benefiting from tax relief.
As of 6 April 2023, the standard AA is £60,000 per year (but see below for exceptions). For the DB sections of the Plan, it's based on the capital value of the increase in your pension benefits over the tax year.
It’s possible to save more than the standard £60,000 by carrying forward unused AA from three previous tax years.
Also, there are currently two situations where your AA may be lower than £60,000
- If you have a high income totalling over £240,000 per year (from 2020/21). This threshold income is different for earlier tax years.
- If you have accessed some of your pension savings from a Defined Contribution (DC) arrangement. In which case the AA is substantially reduced to £4,000 in a given tax year (known as the Money Purchase Annual Allowance).
You can find out more about AA and what it potentially means for you on the Gov.uk website: https://www.gov.uk/tax-on-your-private-pension/annual-allowance
Lifetime Allowance (LTA)
The Lifetime Allowance (LTA) is the amount of pension benefits you can build up over your lifetime, whilst still enjoying the full tax benefits.
The Lifetime Allowance (LTA) sets the total value of all the pension savings you can build up before having to pay extra tax. This figure is currently £1,073,100, but the charge for breaching the LTA has been removed from 6 April 2023, with the allowance expected to be abolished entirely from April 2024.
Although if your pension savings exceed the LTA, you’ll no longer be liable to pay the extra tax charge, Pension Commencement Lump Sums will continue to be limited to 25% of the current LTA.
You can find out more about the LTA and what it potentially means for you on the MoneyHelper website: https://www.moneyhelper.org.uk/en/pensions-and-retirement/building-your-retirement-pot/lifetime-allowance-for-pension-savings