Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

[RobertT]

The way I understand things, most of the contributions would go into the equity investments. Leaving a smaller amount in more readily available cash/bonds to fund those leaving and taking their pensions. But there wouldn't be much going out early on, because nobody will have accrued very much pension. And there would continue to be a similar arrangement over the longer term too as the assets increase. Meaning more of our money is invested in more rewarding investments and for longer and they'll be less costs in selling those investments to pay out our pensions.

I would hope there would be some moving of funds to protect gains, as that would be the correct and proper thing to do in managing the money. But it would obviously be done on a collective basis.
But time in the market rather than timing the market, is usually the way to make your money grow!

I would agree that the long term viability of RM being able to pay a significant sum into any pension whether DB, DC, DBCBS or CDC is a concern. But just because they can't pay into it to enable us to accrue more benefits, doesn't mean what we've already accrued isn't safe.
The RMPP(post 2012) is in surplus and should be enough to pay the liabilities over time. As long as CDC is in a similar position, there shouldn't really be a problem.

There will always be a concern whether any pension scheme will last over the longer term, especially DB. But another thing with CDC, is that as far as RM are concerned they just pay the money in(as long as its affordable). There is no liability on the company to pay benefits we've built up. So if investments under perform for any reason or life expectancy goes up for example, our benefits would be reduced, unlike with DB.

The idea is that it will be a funded pension scheme. It's not going to be like the state pension where the workers of today pay for state benefits via taxation! So any future reductions in hours and staff should presumably just mean a pro- rata reduction in future benefits.

But as I said in an earlier post, CDC will work best with as big a membership as possible. Which is where industry wide schemes could be the answer, assuming other companies are willing to take the plunge. So that could be an issue.

If we were given the choice of the CSDB scheme continuing past April 2018 or a DC replacement, I'm sure everyone would have been up in arms and would want CSDB to continue.
But because they come up with a CDC scheme designed to provide similar benefits to DB but with no guarantees, people would rather have DC instead. I don't quite understand the logic myself!
Surely for most people, a scheme that aims to provide a pension for life along with a 50% dependants pension on death, is better than one that just provides a pot of cash.

Even if our CDC pensions in payment never go up with inflation(or down due to other factors), what we're likely to get is better than if buying an annuity with the same amount of contributions.

Let's say we pay into the scheme for 10 years at current pay rates(as my previous post) and we build up a pension of £2,810 and a lump sum of £8,440 from a total of £44,120 in contributions.

If buying an annuity with that same £44k at 67, it would get us a pension of around £2,375 with no lump sum; or
A pension of around £1,780 and a max lump sum(25%) of £11,000; or
A pension of around £1,920 with a lump sum of £8,440.

Everyone is obviously entitled to their opinion, and I can understand how a DC scheme might be better for the small minority of posties amongst us who've saved diligently for our retirements, via AVC's, SIPP's, ISAS, etc. As that DC pension could sit quite nicely alongside what you've already accrued from your RM pension. And I count myself in that number.

But the CWU have negotiated a pension scheme for the masses, not just for that minority. I'm fully aware of potential caveats, but it's a scheme that should provide a much better pension for the majority compared to the original DC proposal, which had a lower RM contribution rate.

It's not perfect and there's always the chance it could last a relatively short period of time, depending on RM's ability or willingness to contribute what was agreed during negotiations. Or it might not even happen at all!!

Personally I plan to leave RM and retire in about 4.5 years from now and won't be getting much from CDC – 3 years worth of pension at the most! But I intend to see the pluses of being in it, rather the minuses.

[Schiff]

If we were given the choice of the CSDB scheme continuing past April 2018 or a DC replacement, I'm sure everyone would have been up in arms and would want CSDB to continue.
But because they come up with a CDC scheme designed to provide similar benefits to DB but with no guarantees, people would rather have DC instead. I don't quite understand the logic myself!
Surely for most people, a scheme that aims to provide a pension for life along with a 50% dependants pension on death, is better than one that just provides a pot of cash.

Even if our CDC pensions in payment never go up with inflation(or down due to other factors), what we're likely to get is better than if buying an annuity with the same amount of contributions.

Let's say we pay into the scheme for 10 years at current pay rates(as my previous post) and we build up a pension of £2,810 and a lump sum of £8,440 from a total of £44,120 in contributions.

If buying an annuity with that same £44k at 67, it would get us a pension of around £2,375 with no lump sum; or
A pension of around £1,780 and a max lump sum(25%) of £11,000; or
A pension of around £1,920 with a lump sum of £8,440.

You are comparing apples with oranges here. A CDC scheme could only pay out its target pensions if it achieves significant growth on its investments. In your example you are assuming that it will achieve sufficient growth, yet when looking at the returns from a DC scheme you are assuming that there will be no growth at all.

A CDC scheme denies access to all of those pension freedoms which were legislated for to allow people's pension pots to work best for their particular circumstances. If a postie wanted/needed to retire say 5 years early, with a normal DC scheme he could draw more each year up to state pension age then buy an annuity with the remainder. With the CDC he could only claim a reduced amount per year from 62 for life.

[heapsy]

You are comparing apples with oranges here. A CDC scheme could only pay out its target pensions if it achieves significant growth on its investments. In your example you are assuming that it will achieve sufficient growth, yet when looking at the returns from a DC scheme you are assuming that there will be no growth at all.

A CDC scheme denies access to all of those pension freedoms which were legislated for to allow people's pension pots to work best for their particular circumstances. If a postie wanted/needed to retire say 5 years early, with a normal DC scheme he could draw more each year up to state pension age then buy an annuity with the remainder. With the CDC he could only claim a reduced amount per year from 62 for life.
Schiff


You've made some very valid points there Schiff. Lack of flexibility will be a major concern for many. With many having different pensions with RM along with their different NRAs, it will be a difficult task for most when it comes to maximising their income. As I understand it, the new scheme will also have an NRA of 67!. A deal breaker if ever there was one for me at least. Why the union came up with THAT I will never know.

[RobertT]

You are comparing apples with oranges here. A CDC scheme could only pay out its target pensions if it achieves significant growth on its investments. In your example you are assuming that it will achieve sufficient growth, yet when looking at the returns from a DC scheme you are assuming that there will be no growth at all.

I was going by the proposed accrual rate of CDC not including any of the target RPI increases. But what you say about comparing apples and oranges is a fair point.

A CDC scheme denies access to all of those pension freedoms which were legislated for to allow people's pension pots to work best for their particular circumstances. If a postie wanted/needed to retire say 5 years early, with a normal DC scheme he could draw more each year up to state pension age then buy an annuity with the remainder. With the CDC he could only claim a reduced amount per year from 62 for life.

A normal DC scheme allows those freedoms you mention, which is what they were bought in to cater for.

A DB scheme on the other hand doesn't allow those same freedoms, but you still have the ability to transfer out via a Cash Equivalent Transfer Value(CETV).

With your RM DB pensions, you can transfer your RMSPS(pre 2012) benefits to another DB scheme, but not a DC one. With the RMPP(post 2012) you can transfer out to a DC scheme, pending the necessary financial advice(for amounts over £30k). You can then exercise those freedoms!

CDC will be classed as a DC type of pension, but as the aim of CDC is to provide similar benefits to DB, I suspect any ability to transfer out will involve something similar to the CETV route. Which is covered in the consultation information:

5.6 Transfers of Benefits Between Schemes

165. In broad terms, we see no reason why a member of a CDC scheme should not have the opportunity to transfer out of the scheme before they start to draw a pension. We are considering how existing legislative requirements should apply in relation to advice and information.

166. The existing approach to cash equivalent transfer values for money purchase benefits is based on determining the ‘realisable value’ of a member’s benefits, and gives trustees a discretion to pay a higher amount. This approach may need adjustment for CDC benefits.

167. One potential approach under consideration would require CDC transfer values to be determined as the member’s share of the total fund reflecting investment performance to date and any benefit from risk sharing and efficiencies up to the point of transfer but no further. The member’s ‘best estimate’ share of the total fund would in effect be determined as part of each annual valuation, adapted by the scheme actuary to determine the transfer value.

168. We also recognize that some CDC schemes may wish to allow transfers in, for example to allow members to consolidate other pensions into the collective fund. We do not envisage prohibiting this as it may hold advantages for both the individual member and the membership as a whole. However, we may need to implement some requirements to ensure members are made aware of the nonguaranteed nature of the CDC benefit they will be purchasing with their transfer, and that once transferred into the scheme the member is treated like any other member when it comes to adjustments to benefits.

169. We are also considering whether transfers into CDC schemes should be restricted so that transfers can be received only where the transferring member is actually accruing benefits. We do not intend to permit decumulation-only CDC schemes at this stage, although this is something we may consider in future.

We shall have to wait for the consultation to end to find out what will be possible!

In many ways CDC is going back in time to pre 2008, when it was a case of being in the DB scheme or opting out altogether. Since then many posties have become more pension savvy and understand the flexibility that DC provides and want that to continue, which I understand.
But all the literature seems to say we won't get a choice, unless you make your own DC provision.

[anini]

I still believe CWU went back on their word with the 5 year qualifying period for the transitional scheme which we're stuck with forever. Taking the biscuit a bit after saying we want one pension scheme for all. What really riles me is the ten years they sat on their arses doing nothing 2008-2018 for the DC members. That was the death of the DB scheme in my opinion.

[RobertT]

I still believe CWU went back on their word with the 5 year qualifying period for the transitional scheme which we're stuck with forever. Taking the biscuit a bit after saying we want one pension scheme for all.

The one pension for all applies to the CDC scheme!

The transitional DBCBS offers different benefits for ex RMDCP members compared to RMPP members.

For RMPP members it provides a tax free lump sum at the point of taking our pensions, so we don't have to give up as much or any pension to get one – particularly good for section C'ers. NRA of 60 or 65.

For ex RMDCP members(section F) it provides a lump sum, which only 25% is guaranteed to be tax free. With reductions if taken before NRA of 65.

Personally I struggle to see the advantage of DBCBS for ex RMDCP members!

DBCBS is unlikely to last forever due to the extra liabilities it's putting on RM over the longer term for section A/B & C members.
Plus the mediator published a report during the negotiations saying it's only got a lifespan of about 5 years. And the agreement says, if CDC doesn't look like happening in a reasonable amount of time, the pension issue will be revisited.

If CDC doesn't happen, we probably will be in one scheme for all - a DC scheme!

What really riles me is the ten years they sat on their arses doing nothing 2008-2018 for the DC members. That was the death of the DB scheme in my opinion.

I can't argue with the CWU's lack of action over the last 10 years. But a bigger membership means more money going in, but also higher liabilities for RM. Which they don't want because of the long term unknown funding nature of DB schemes.

The RMPP is currently in surplus, but RM want a pension scheme where they know what their costs are going to be upfront. A DB scheme doesn't do that.