Defined cash balance scheme

[hatter68]

I’ve just turned 60 and was given the option of a lump sum as part of RMPP NRA 60. This relates to DBCBS part which i have taken.

And has that been reduced in any way?
For early payment or by income tax?

This is a tax free lump sum which I could have deferred until NRA65, when I will receive the remainder of this fund.

I take it that the tax free lump sum was 'attached' to the part of your NRA60 benefits that RM are responsible for, i.e the inflationary increases on your pre 2012 benefits?
Could you have taken the rest as a taxable lump sum aswell, rather than deferring it until you take your NRA65.

I was given four options 1Take basic annual pension no lump sum 1a Take basic annual pension same as 1 and lump sum from DBCBS 2 Take reduced basic annual pension and lump sum from main benefits and option 2a which is almost identical to option1a which was the I chose. This all relates to RMPP part.

[NWpostie]

Given that we are nearing the end of the current pension year, 31st March, I would have thought that nothing would change until 1st April 2021. Especially as our government never do anything at any real pace. Is there a danger that the Cash Balance scheme could be worth more than 25% of the NRA65 scheme, especially for those in section C?

31st March is the end of the RMPP pension year. But as CDC will be a completely separate scheme, then it's year could potentially start at any time.

Personally I think progress towards the introduction of CDC has been relatively fast considering what needs to be done.

Yes, the longer the DBCBS is in place, the more likely it is to be more than 25%. If that is the case, we may have to pay tax on anything over.

A few months ago RM sent us a letter(dated August 2019), in which they stated:

…..We still expect most members to be able to take their Cash Balance benefit as part of their overall tax free lump sum at age 65. Anything remaining would be liable to tax....

….Based on analysis. If we launch CDC in the expected time frame we believe the governments decision not to allow integration of the DBCBS into the RMSPS will not have a significant impact on the total benefits paid to members....

What we don't know is what that time frame is. Although the letter did include examples based on the DBCBS running until September 2020.

Based on this, this could mean the end of AVCs ?

That's a subject that was covered recently!

In my opinion, once the RMPP closes completely and we get moved over into the new CDC scheme, the ability to pay AVC's into Bonusplan and Flexiplan will probably stop.

But at the moment we don't yet know exactly what will happen.

I remember discussing this with you RobertT, I'm just thinking out loud, as it is, there is uncertaintay as what will happen, my main concern is that I'm able to retire with a good pension and big lump sum to tide me over til my 65 NRA benefit and state pension kicks in.

At the moment I'm unsure as much of us are as to how it will work out in practice.

I would prefer to have some clarity as to my options come retirement as soon as possible.

One of thing I would like to know under the CDC scheme is whether its possible to build a lump sum without impacting on your CDC payout. The sooner I know the better I can plan.

[RobertT]

I was given four options 1Take basic annual pension no lump sum 1a Take basic annual pension same as 1 and lump sum from DBCBS 2 Take reduced basic annual pension and lump sum from main benefits and option 2a which is almost identical to option1a which was the I chose. This all relates to RMPP part.

You've taken your NRA60 which relates to service up to 31st March 2010, that part of our pensions actually comes under the RMSPS.
Your NRA65 relates to service from 1st April 2010.
The RMPP is from 1st April 2012 onwards, plus inflationary increases of RMSPS benefits.

[RobertT]

I remember discussing this with you RobertT, I'm just thinking out loud, as it is, there is uncertaintay as what will happen, my main concern is that I'm able to retire with a good pension and big lump sum to tide me over til my 65 NRA benefit and state pension kicks in.

At the moment I'm unsure as much of us are as to how it will work out in practice.

I would prefer to have some clarity as to my options come retirement as soon as possible.

One of thing I would like to know under the CDC scheme is whether its possible to build a lump sum without impacting on your CDC payout. The sooner I know the better I can plan.

As part of the CDC arrangements we will also be building up a tax free lump sum of 3/80ths of pensionable pay via the Defined Benefit Lump Sum Scheme. Based on current full time basic pay of £441 per week that equates to around £860 per year.

The plans also stated we'd have the opportunity to pay another 1% which will be matched by RM. That would increase the yearly lump accrued by about £460 to £1,320.
The plan is that will be guaranteed, with the addition of inflationary increases assuming investment performance allows it, in a similar way to the current DBCBS.

But both the lump sum and the pension itself(accruing at 1/80ths) will have an NRA of 67, meaning a probable reduction if taken beforehand. CDC Q&A's here: https://www.myroyalmail.com/node/11511" onclick="window.open(this.href);return false;

If we are no longer able to pay into the current AVC's once CDC starts, then my suggestion would be to pay into a personal pension instead, and access the money via drawdown to supplement your pension until 65/SPA.
You won't get the benefit of PSE, but you'll still get the tax relief, plus a better choice of investments.

If your NRA60 is lower than the personal tax allowance(currently £12,500 p/y) you may be able withdraw all the money in your personal pension tax free over that 5-7 year period.
I'm planning on doing just that!

For example:

You retire at 60 and have an NRA60 of £8,000 per year, you have no other income, therefore you have £4,500 of unused personal tax allowance.

You also have a personal pension pot of £30,000. You take 25% tax free up front to leave £22,500 to drawdown over the next 5 years at the rate of £4,500 per year.
And you've withdrawn all your £30,000 tax free.

That obviously doesn't account for any fluctuations in the value of the investments or changes in the PTA. But it would be in addition to your AVC cash as that is not classed as taxable income, as long as it's lower than 25% of your RM total pot value.

[hatter68]

I was given four options 1Take basic annual pension no lump sum 1a Take basic annual pension same as 1 and lump sum from DBCBS 2 Take reduced basic annual pension and lump sum from main benefits and option 2a which is almost identical to option1a which was the I chose. This all relates to RMPP part.

You've taken your NRA60 which relates to service up to 31st March 2010, that part of our pensions actually comes under the RMSPS.
Your NRA65 relates to service from 1st April 2010.
The RMPP is from 1st April 2012 onwards, plus inflationary increases of RMSPS benefits.

The NRA60 RMSPS part I was given choice of taking full pension or reduced pension with maximum tax free lump sum. I had to send this back to capita before I received RMPP options.