DBCBS taking early reduction....

[RobertT]

Stephen, these are my figures based on the info you've given and increases in pensionable pay:

2018/19 = £5,724 + 3.7% bonus(applied on 1st April 2020) = £5,935

From April 2019 pensionable pay and contributions increased by 3.3%, as a result of the changes in 2014 which de-linked pay rises from pensions.
Therefore:
2019/20 = £5,915

From April 2020 pensionable pay and contributions increased by 2.4% as a result of 2014 changes.
Therefore:
2020/21 = £6,059 for a full year and aprox £3,534 for 7 months worth.

Giving you a total DBCBS of aprox £15,384, which is £105 less than the amount quoted on your attachment. I have no definite explanation for that difference to be honest.

*The next DBCBS increase will be 1.7% which will be added to years 2018/19 & 2019/20 from 1st April 2021, and therefore I assume, will not apply to you as you've already taken your cash. Unless the £105 was a pro rata amount applied to your balance when you left?

[stephen500]

Stephen, these are my figures based on the info you've given and increases in pensionable pay:

2018/19 = £5,724 + 3.7% bonus(applied on 1st April 2020) = £5,935

From April 2019 pensionable pay and contributions increased by 3.3%, as a result of the changes in 2014 which de-linked pay rises from pensions.
Therefore:
2019/20 = £5,915

From April 2020 pensionable pay and contributions increased by 2.4% as a result of 2014 changes.
Therefore:
2020/21 = £6,059 for a full year and aprox £3,534 for 7 months worth.

Giving you a total DBCBS of aprox £15,384, which is £105 less than the amount quoted on your attachment. I have no definite explanation for that difference to be honest.

*The next DBCBS increase will be 1.7% which will be added to years 2018/19 & 2019/20 from 1st April 2021, and therefore I assume, will not apply to you as you've already taken your cash. Unless the £105 was a pro rata amount applied to your balance when you left?

So for the DBCBS (cash balance) it looks like the reduction for taking early, is tiny, if any thing at all.
So for the original enquirer, it appears the only real reduction is the yearly pensionable amount and standard or max lump that gets reduced by around 5% per year.

[renrag40]

The main drawback to taking your nra 65 early other than the 5% per year reduction is that the maximum that you could then have put into a pension is £4000 per year. That is both employee and employer contributions added together. The employee is also responsible for informing the employer that they are receiving the nra 65 pension and to ensure that the £4000 per year limit is not exceeded.

[RobertT]

The main drawback to taking your nra 65 early other than the 5% per year reduction is that the maximum that you could then have put into a pension is £4000 per year. That is both employee and employer contributions added together. The employee is also responsible for informing the employer that they are receiving the nra 65 pension and to ensure that the £4000 per year limit is not exceeded.

It sounds like you're referring to the Money Purchase Annual Allowance(MPAA)?
Which only applies to Money Purchase, otherwise known as Defined Contribution, pensions!

As RM's NRA60 and NRA65 pensions are Defined Benefit, they don't come under MPAA rules.

However, the MPAA will apply:

1. When taking AVC's over the 25% tax free total pot value limit.

2. When taking RMDCP cash over the 25% tax free lump sum. Although there is also a DC small pots rule which allows up to £10k to be taken from three different pensions without triggering the MPAA.

3. I'm not 100% sure about the DBCBS!
In theory it's DB so won't be affected by the MPAA, but as it's possible to have an amount of excess DBCBS and as that is paid out as a Uncrystalised Funds Pension Lump Sum(UFPLS), then the MPAA may well be triggered.

[renrag40]

I was referring to taking your nra 65 early and then joining the proposed CDC scheme when it eventually starts at some point next year. The MPAA will apply to that scheme.
I would say that the majority of people I work with who have taken their nra 65 pension early have no idea (and in a fair few cases, are not interested) about the MPAA or that it is their responsibility, not the employers, to ensure that the £4,000 limit is not exceeded.

[RobertT]

The point is that the MPAA doesn't apply when taking DB schemes, whether they've been taken early or not. You can take as many DB schemes as you like without the MPAA being an issue!

The MPAA only becomes a potential problem, limiting further contributions to £4,000 per year, after you've accessed a DC scheme over and above the 25% tax free amount.

Therefore, in the case of NRA60 and NRA65 benefits, the MPAA will only come into play if you have AVC's of more than 25% pot value. As explained here: viewtopic.php?f=27&t=69013

I suspect taking excess DBCBS(over and above the 25% pot limit) will also trigger the MPAA, although tbh I'm not sure.

General MPAA rules here: https://www.moneyadviceservice.org.uk/e ... out%20more.

*As the secondary legislation for CDC is currently being sorted, at this point in time, we don't actually know for certain if the exact same rules will apply to CDC as they do to DC anyway!

[renrag40]

My reading of it is that when you take your nra 65 pension, which will include the CBDCS, the surplus left in the CBDCS is paid as a taxable lump sum which will then trigger the MPAA .
Given that we now have 3 full years of contributions built up in the cash balance scheme and will probably have 4 years of contributions by the time the CDC scheme starts I would have thought that everyone in both Section B and C will have a taxable surplus in their CBDCS by the time they draw their nra 65 pension.
So, even if they do not take their nra 65 early they will still be limited by the MPAA from 65 until when they retire.

[RobertT]

It's definitely a grey area!

For me, the only thing that's preventing the MPAA being triggered is the fact the DBCBS is classed as Defined Benefit and the MPAA is only a factor when taking DC pensions.

I would guess that a majority of section B members will have an excess amount of DBCBS when taking their NRA65, as they already get a lump sum as standard.

I'm in section C and even with 4 years worth of payments into the DBCBS, I don't expect that to be more than 25% of my NRA65 pot value.
Although it's easy to forget that the DBCBS is only attached to 2012-2018 benefits(NRA65 is 2010-2018), so in practice the maths would be tighter. But personally I'd be just one the limit, although my AVC's would still take me over.

But we obviously don't know how much future annual bonuses and inflation rates are going to be, which could change things over time.

It's also worth noting that when the DBCBS was first introduced, it was billed as a way of funding the tax free lump sum so we don't have to give up as much pension to get one.
But from posts on this forum, it seems that it's also possible to take the maximum 25% lump sum from your main pension and also take the DBCBS, 25% of which is tax free.

I'm not aware of any other DB Cash Balance schemes being offered by other companies, so for anyone concerned about this, it might be an idea to get in touch with the PSC for guidance. And post it here for the information of others.

[garnery]

I phoned the PSC to ask this a while ago. I wanted to know if i could transfer my dbcbs to my private pension & was told that is an option. I also asked if taking as a lump sum would trigger mpaa. I was told no. It is DB

[RobertT]

I phoned the PSC to ask this a while ago. I wanted to know if i could transfer my dbcbs to my private pension & was told that is an option. I also asked if taking as a lump sum would trigger mpaa. I was told no. It is DB

Thanks for that!

Transferring my DBCBS out is definitely something I intend to consider when the scheme stops, and if it's allowed.

However, the info on the plan website doesn't specifically say you can transfer out the DBCBS, just NRA65 benefits.

So further investigation is needed!

[stephen500]

I phoned the PSC to ask this a while ago. I wanted to know if i could transfer my dbcbs to my private pension & was told that is an option. I also asked if taking as a lump sum would trigger mpaa. I was told no. It is DB

Thanks for that!

Transferring my DBCBS out is definitely something I intend to consider when the scheme stops, and if it's allowed.

However, the info on the plan website doesn't specifically say you can transfer out the DBCBS, just NRA65 benefits.

So further investigation is needed!

Included in the options for DBCBS are
Using part of it towards your tax free cash and the rest as excess (25% tax free, 75% taxed)
Taking it all (25% tax free, 75% taxed)
or
Buying an annuity
or transferring it to another scheme.

[stephen500]

I phoned the PSC to ask this a while ago. I wanted to know if i could transfer my dbcbs to my private pension & was told that is an option. I also asked if taking as a lump sum would trigger mpaa. I was told no. It is DB

Thanks for that!

Transferring my DBCBS out is definitely something I intend to consider when the scheme stops, and if it's allowed.

However, the info on the plan website doesn't specifically say you can transfer out the DBCBS, just NRA65 benefits.

So further investigation is needed!

When taking your pension
Included in the options for DBCBS are
Using part of it towards your tax free cash and the rest as excess (25% tax free, 75% taxed)
Taking it all (25% tax free, 75% taxed)
or
Buying an annuity
or transferring it to another scheme.

[RobertT]

Thanks Stephen!

Although what I would specifically like to do is transfer out the DBCBS completely separately and preferably anything up to 11 years earlier than taking my NRA65 benefits, like you can with AVC's.