Future of AVC

[nataddick]

It is certainly a possibility that your 'transferred-in' Flexiplan to the new DC (assuming that option actually exists under 2018 Proposal) could outperform you existing AVC Flexiplan in the RMPP but what assumptions are you making for that decision ? Both investment options are with Zurich as the fund manager, albeit with a wider choice funds under the new DC plan but there is NO option to take whole of the existing fund as at 31 March 2018 under RMPP as 100% tax free. The choice is totally yours but I am in the same position and I am waiting for clarification on the proposal.

[Hawkey99]

So just to be clear.

We will have 2 completely separate schemes.

You will no longer be able to pay any AVCs into your NRA 60 or NRA 65.

You will be able to continue to make AVC payments but these will ultimately be added to your new DC into scheme and then you have the same options as now..

Is that right.....?

[RobertT]

AVC’s are designed to provide more benefits from the RMPP/RMSPS usually in the form of the tax free lump sum, so the NRA60, NRA65 and AVC’s are one scheme.

The DC pension is another scheme. If you want to pay more than 6% it will have to go into this pot.

Based on the proposal booklet, both schemes will be treated separately. So for example, you can’t use the DC pot to fund your RMPP/RMSPS lump sum.

[nataddick]

Hawkey/Robert - we do not yet know how existing Bonusplan or Flexiplan funds that have accumulated as at 31 March 2018,will be treated under current RMPP rules going forward. Let's all ask the question via feedback! I can see no reason why RM should not allow an existing Flexiplan to continue under the current rules until the selected retirement age as there would appear to be no additional cost to them. I for one, am not going to give up my right under existing RMPP rules to take the whole of my AVC fund in cash, without a real fight. I would, at least, like a sound explanation as to why this is not financially possible.

On the face of it, RM appear to want two separate schemes but they seem by no means sure of this, hence the caveats about either a new section of RMPP (what would that mean ?) or a separate but maybe revised existing RMDCP. We simply do not know have enough information at this stage of the consultation period. I urge anyone interested to write and ask for an explanation.

[RobertT]

Hawkey/Robert - we do not yet know how existing Bonusplan or Flexiplan funds that have accumulated as at 31 March 2018,will be treated under current RMPP rules going forward. Let's all ask the question via feedback!

It’s true there have been no indications of any change to how AVC’s are treated, therefore in my opinion it’s reasonable to assume there will be no change.

I can see no reason why RM should not allow an existing Flexiplan to continue under the current rules until the selected retirement age as there would appear to be no additional cost to them.

RM are not paying into Flexiplan but if they let it continue while closing the rest of the RMPP, their liabilities going forward will slowly be increasing. Because as your Flexiplan continues to grow with additional contributions off you, the amount of pension they have to pay out over the course of your retirement will also be growing.
Plus AVC’s form part of the overall RMPP ‘package’ so if the main scheme closes, it makes sense to me that AVC’s will close also.

I for one, am not going to give up my right under existing RMPP rules to take the whole of my AVC fund in cash, without a real fight. I would, at least, like a sound explanation as to why this is not financially possible.

Who said it’s not possible to take your AVC as cash? Personally my AVC’s total nearly 40% of my total RMPP pension pot and with taking the 25% tax free sum and drawing down the rest, I have no intention of paying tax on any of it(in practice I may well be paying tax initially & then claiming it back). Although I recognise that it will come down to personal circumstances to some extent.

On the face of it, RM appear to want two separate schemes but they seem by no means sure of this, hence the caveats about either a new section of RMPP (what would that mean ?) or a separate but maybe revised existing RMDCP. We simply do not know have enough information at this stage of the consultation period. I urge anyone interested to write and ask for an explanation.

I do agree that is misleading and needs clarification, and I will be bringing the matter up in my feedback letter. But in my opinion any new section of the RMPP will be for administrative reasons more than anything else.

[nataddick]

Robert - I never assume anything with RM ! I think many of us assumed that we would be retiring on a final salary pension at 60 and not end up with a hybrid final salary/CARE/DCP combination each with different rules and retirement ages. I have spoken to the Pensions Consultation Helpline and covered this point and several others in subsequent written FEEDBACK. The person I spoke to, not surprisingly, did not know the answer.

I disagree with the point you make with regard to not allowing the existing Flexiplan arrangement to continue under the current rules.

The RMPP is not actually closing on 1 April 2018 - the scheme simply prevents future accruals on the current basis. You hit the nail on the head when you mentioned RM are not paying into Flexiplan - members with such a plan are wholly funding their own AVC managed by Zurich, in most cases. I do not accept that RM would have any unfunded liability either now (through the value of an existing AVC fund ) or in the future by accepting ongoing contributions into an existing arrangement. The AVC fund value is whatever it is at the time it is taken, usually along with main scheme benefits.

Any increase in annual pension that is derived from someone having an AVC is funded wholly by it, and not by the main scheme. If you exercise the option to take the whole of your AVC as tax free cash it usually has 2 effects. First, it increases the overall amount of cash you are able to take from RMPP by 25% of the value of the AVC fund. Second, it has the effect of securing a higher residual pension. Why? because less cash is take out of RMPP which in turn means there is more money left in the scheme to pay for for any increased pension!

I suggest you re-read my comments about taking the whole of Flexiplan as tax free cash. I did not say it was not possible to take any of your AVC in cash. What I was referring to was the current option under Flexiplan that states 'At the point at which pension benefits are taken, most people use of the money from their AVC account to provide a larger cash lump sum (subject to certain HMRC limits) 'This is on page 8 of The Guide to AVC's booklet which can be viewed at :-

http://www.royalmailpensionplan.co.uk/s ... 6.11_1.pdf" onclick="window.open(this.href);return false;

For the avoidance of doubt, it is this crucial link between the Flexiplan AVC and the main scheme that I want to see preserved. Members have more choice, can opt to get a larger lump sum than they would otherwise get and secure a higher residual pension.I have also made this point via FEEDBACK !

[nataddick]

Robert - just read your post with latest Q&A's - at least we now have a response about existing AVC's which is a step in the right direction !

[RobertT]

Nataddick – we might have to agree to disagree on this. But the point I was trying to make regarding not allowing Flexiplan contributions to continue is that it’s often cheaper for a pension scheme to pay a lump sum plus a smaller pension rather than all pension. Because the lump sum is a one off payment their overall liabilities of funding that smaller pension will be lower, based on average life expectancy, than a full pension with no lump sum. After all you don’t receive inflationary increases on lump sums!

But when an employee funds the lump sum themselves via AVC’s, the ongoing cost to the pension scheme is higher than if they hadn’t paid them. Hence why I believe the schemes liabilities would slowly increase if employees were allowed to carry on paying into Flexiplan after 2018.

I understand your wish to keep Flexiplan open for the good of those sensible enough to contribute it, and I see no reason why it would ever be de-linked from the RMPP, although the option of transferring out does already exist. But I believe there are costs involved for RM, hence why I also understand their position in not allowing further payments into it.

As a side note, our pension scheme does allow us to combine the value of the main scheme benefits plus our AVC’s and take 25% of the total, resulting in being able to take the full value of our AVC’s as tax free cash. Whereas many schemes only allow 25% of the AVC value to be taken tax free.

[linntroika]

First post , so be easy on me

I will have nearly 33 years done by April 2018 and have been paying into Flexiplan for over 20 years , i currently have the fund evenly split between( balanced , cash, cautious and growth) . I would like to know do you think it would be a worthwhile idea to pay as much extra as i possibly can into my AVC from now until April 2018 ? and if so any particular Fund (ie balanced, cash, etc) to pay into ?

Thanks in advance

[jetblack]

On the basis that the AVC fund might well be taken wholly tax free so long as it constitutes 25% or less of you overall RMPP+AVC value then I personally would say yes - it wouldn't be a bad idea to put all you can into the Flexiplan over the next 12 months.
Probably not the Growth fund if you are getting close to retirement, which it sounds like you might well be.

Please consider other posts as I am not a financial adviser - just trying to give my own views and advice.

I'd always say that its worth putting in the maximum that you can afford into your pension pot.

[heapsy]

Just wondering if anyone made a lump sum contribution to their AVc plan, and if so is it relatively straight forward?

[RobertT]

Just wondering if anyone made a lump sum contribution to their AVc plan, and if so is it relatively straight forward?

It’s been a few years since I put in a lump sum and I always did it near the end of the tax year. But if the process is still the same, you contact Chesterfield and they will give you a quote of the maximum you can pay in. You then send a cheque for the full gross amount and you’ll get a refund of the tax via payroll a few weeks later.

Unless of course anything’s changed?

[foxyjarvis]

Just made a lump sum payment. I asked for a quote in October and the January figure was 5 grand more. As is the norm with Chesterfield they never send you any data informing you how that figure was arrived at.
I am now waiting for a tax certificate to claim relief via my tax office.

[RobertT]

Just made a lump sum payment. I asked for a quote in October and the January figure was 5 grand more. As is the norm with Chesterfield they never send you any data informing you how that figure was arrived at.
I am now waiting for a tax certificate to claim relief via my tax office.

You can pay nearly all of your wages into your RM pension arrangements if you want to, so the later in the tax year you get a quote, the higher it's likely to be.

[Hawkey99]

So just to be clear.

A good option if you want to pay in a lump sum would be to wait until February either this year or next and pay in the maximum you could. Is that correct.

You would then receive a cheque for the tax relief bit ????

Thanks as always for everybody contributions.