Another attempt at understanding the pension ?

[Postee2]

I'm specifically referring to section C as that's what I'm in.

The RMPP that we can take at 60 first, can I still calculate an approximate 25% tax free lump sum from this as one isn't mentioned on the Capita Statement ?
And if so to get an approximate figure, do I use the 20 year guide and multiply the annual pension by 20, and then work out 25% of that amount for the lump sum ?

Example RMPP annual pension £3000.
£3000*20= £60,000.
25% of £60,000 is £15,000 so is that my approximate lump sum if I should choose to take one ?

And then the annual pension would be approx 25% lower than the illustrated amount ?

Secondly the RMSPS. Would that work in a similar way to my previous example & calculation in terms of being able to obtain a 25% lump sum at age 65 ?

Thirdly I understand that the cash pension scheme that started in 2018 is supposedly a guide for the lump sum. But isn't this misleading ?
As strictly speaking these are all separate pension schemes ?
And If so, isn't it more accurate to say however much money is in the cash scheme is simply a pot of money to either buy a virtual annuity with within the royal mail plan, or transfer out to a different provider for an annuity or drawdown ?
And wouldn't that work in the same way for any AVC:s also ?


OR . . . . could the age 65 pensions, (the RMSPS and the cash scheme, plus any AVC's) be taken as a whole with the following calculation :

RMSPS annual pension example of £2000
£2000*20= approximately £40,000 valuation . . . .PLUS
Cash scheme "pot" example £30,000.
Could that approximate total then of £70,000 not be transferred out together to a different provider (in theory), and an approximate lump sum of £17,500 then be taken (25% of £70,000) and the remaining £52,500 in this example then be used to buy an annuity or drawdown ?

Or if all left with Royal Mail pension departments would they work out your 25% tax free allowance by taking into consideration the monetary cash transfer value of the RMSPS in conjunction with the balance of your cash pot.

It's all getting very confusing and to say I'm tying myself in knots is an understatement.
On any online pensions annuity calculator it simply asks for your total pot value. Clearly there are ambiguities here as we have defined benefit and hybrid DB and Defined Combination schemes to consider.

So how would you work out the total pot value ?
I assume you can't really use the RMPP for that or can you ?

But for the rest wouldn't you first have to obtain either a cash transfer value or would the 20 year multiplication rule (excluding the cash scheme and AVC's in the 20 year guide rule, but still adding their totals on as single amounts after the 20 year guide rule), give you an approximate cash transfer amount ?

What I mean by that is the 20 year guide rule on the £2000 annual pension example would give £40,000. But if the cash pot was £30,000, wouldn't it be true to say that if transferred out the whole £70,000 would be used to calculate the lump sum (£17,500 in this example), and the remaining amount (£52,500 in this example) used to work out the remaining annual pension ? (Which I know in this example would yield only about £2625 annually (5% of £52,500) over 20 years in drawdown but just saying).

Then if you had AVC's, these would be added on to the calculation in a similar way to the cash scheme ?

I'm not saying that I will transfer any of this out. I'm just trying to understand the mechanics and maths of reaching a lump sum figure more than anything. AND at the same time then with the remaining balance using a generalised 5% yield rule as the annual pension to work out how much I may end up with.

Thanks if RobertT or anyone else can help untangle.

[RobertT]

I'm specifically referring to section C as that's what I'm in.

The RMPP that we can take at 60 first, can I still calculate an approximate 25% tax free lump sum from this as one isn't mentioned on the Capita Statement ?
And if so to get an approximate figure, do I use the 20 year guide and multiply the annual pension by 20, and then work out 25% of that amount for the lump sum ?

Example RMPP annual pension £3000.
£3000*20= £60,000.
25% of £60,000 is £15,000 so is that my approximate lump sum if I should choose to take one ?

And then the annual pension would be approx 25% lower than the illustrated amount ?

Secondly the RMSPS. Would that work in a similar way to my previous example & calculation in terms of being able to obtain a 25% lump sum at age 65 ?

Are you getting your RMPP, RMSPS/Capita mixed up?

RMSPS/Capita provide benefits up to 2012. So that's all Age 60 and the first 2 years of Age 65.
RMPP provide benefits from 2012 to the present. That's Age65 from 2012-2018 plus the cash balance.

The RMSPS/Capita provides the vast majority of Age60 benefits. What you get from the RMPP Age60 will be very small.

You have to take all Age60 benefits at the same time, so the figures on your RMSPS/Capita statement need to be added to any on your RMPP statement.
The same applies to Age65.

Thirdly I understand that the cash pension scheme that started in 2018 is supposedly a guide for the lump sum. But isn't this misleading ?
As strictly speaking these are all separate pension schemes ?
And If so, isn't it more accurate to say however much money is in the cash scheme is simply a pot of money to either buy a virtual annuity with within the royal mail plan, or transfer out to a different provider for an annuity or drawdown ?
And wouldn't that work in the same way for any AVC:s also ?

The Cash Balance is there to be used to fund the lump sum with RMPP Age65 benefits(2012-2018), so you don't have to give up any pension. Although as the RMPP are responsible for some inflationary increases on RMSPS benefits, some Cash Balance can be taken with Age60.
You'll be advised how much at the time of taking it.
Therefore AVC's are better suited to fund the tax free cash with Age60

The Cash Balance and AVC's can be transferred out to a DC pension for annuity or drawdown. But neither can be used to provide more pension via either the RMSPS or RMPP.

OR . . . . could the age 65 pensions, (the RMSPS and the cash scheme, plus any AVC's) be taken as a whole with the following calculation :

RMSPS annual pension example of £2000
£2000*20= approximately £40,000 valuation . . . .PLUS
Cash scheme "pot" example £30,000.
Could that approximate total then of £70,000 not be transferred out together to a different provider (in theory), and an approximate lump sum of £17,500 then be taken (25% of £70,000) and the remaining £52,500 in this example then be used to buy an annuity or drawdown ?

Or if all left with Royal Mail pension departments would they work out your 25% tax free allowance by taking into consideration the monetary cash transfer value of the RMSPS in conjunction with the balance of your cash pot.

The RMSPS can only be transferred into another DB pension, so it's theoretical cash transfer value is irrelevant. Other than when working out your tax free lump sum.

The RMPP can be transferred into a DC scheme, with it's value being decided by the scheme actuaries at the time. That could be more or less than a 20x multiple of benefits.

To decide how much of your cash balance is tax free, the RMSPS and RMPP would assume the pension x20 is 75% of your pot, with the remaining 25% being funded by the Cash Balance/AVC's. Anything over being paid as a UFPLS. Anything under and you could commute some pension to increase the lump sum to 25%.

It's all getting very confusing and to say I'm tying myself in knots is an understatement.
On any online pensions annuity calculator it simply asks for your total pot value. Clearly there are ambiguities here as we have defined benefit and hybrid DB and Defined Combination schemes to consider.

Yes, you've got yourself tied up in knots!

No online calculator will be RM specific, as it's a pension all to itself. Most are only really for DC schemes anyway.

You have final salary(upto 2008), average salary(2008-2018) both of which are DB schemes as the pension you get is based on wages and length of service.
The Cash Balance is essentially a DC pot, but grows in a DB manner. It can't go down in value as a DC pot can. AVC's are 100% DC.

You also mention annuities.
They can be bought via a DC scheme and will provide an income for life(although fixed terms are also a thing). What they pay out will depend on your age at the time of buying it and the type of annuity you want.

In general terms the younger you buy one, the less you'll get per month because the pot has to last longer.

Plus, you may want a single life option, which effectively dies when you do, although there is usually some kind of guarantee period. Or you may want spouses benefits on death. Or maybe a level income(never goes up), or one that increases with inflation.

This will give you an idea of what to expect: https://www.hl.co.uk/retirement/annuiti ... -buy-rates

The 20x multiple has absolutely no connection with annuities. It's just a case of your pot will buy you an x amount of income until death/spouses death.

[Postee2]

Thanks RobertT for that very thorough and comprehensive answer..
Yes, I get the abbreviations mixed up.
I'm going to have to read your reply a number of times over the next few days and weeks. If I then have any further queries I'll let you know. I'm certainly going to get my head around it.
Thanks very much again.

[newckie]

With regards to the 20x pension rule in calculating the lump sum, are the pension supplements included in this , say 1245x20 ?
Or are they just added to the pension as the supplement they are?

[heapsy]

With regards to the 20x pension rule in calculating the lump sum, are the pension supplements included in this , say 1245x20 ?
Or are they just added to the pension as the supplement they are?

Good question. My take on this is that it is added later. If it were the other way round, this would screw the calculations up due to the fact that the supplement stops at your State pension age. I spoke with the RM pension office a while back and they informed me of this. I think it goes back to the time when they changed the pension to section C. The pension age was 60 back then due to us being civil servants. Most of the blokes I worked with, except for about 2, retired from RM at 60, although they were section B, (no supplement, but a guaranteed lump sum). Before the government changed the State pension age you could not access your works pension and continue to work. It was either or. The only exception was if you left a job due to redundancy etc and started somewhere else.

Tbh I think enabling people to access their pension and carry on working will in time, prove to be a massive own goal as tens of thousands find they do not have enough money to live on. Reduced pensions for early payment wont keep up with inflation and spending the lump sum too early will be a disaster for many. This will drive up the demand for more benefit payments. Also, I think more people will continue to work, depriving future generations of much needed work. As technology improves and the population grows due to uncontrolled immigration, more and more will find it impossible to find full time work. The government, and it doesn't matter which party it is, have manipulated National Insurance payments to favour part time working, this is an attempt to keep unemployment low. You cannot just create jobs to feed demand, it doesn't work that way. Since COVID, about 500,000 have left the workforce as they take a reality check, the government are panicking.

[newckie]

Yes, I did think the supplements would be added singularly after the calculations....
How straightforward is it to get the DBCBS cash pot transferred before 65 so as to purchase an annuity or whatever.....I’ve a sizeable AVC pot I want to use

[NorthernBoy]

With regards to the 20x pension rule in calculating the lump sum, are the pension supplements included in this , say 1245x20 ?
Or are they just added to the pension as the supplement they are?

I would have thought that if you are getting your supplement then it would be used in the calculation method for the lump sum as it is part of your pension. I am sure someone on this site will know for sure.

[heapsy]

With regards to the 20x pension rule in calculating the lump sum, are the pension supplements included in this , say 1245x20 ?
Or are they just added to the pension as the supplement they are?

I would have thought that if you are getting your supplement then it would be used in the calculation method for the lump sum as it is part of your pension. I am sure someone on this site will know for sure.

Except it is removed when you hit State pension age and therefore changes the calculations. Meaning your 25% cash lump sum would in fact be a higher percentage after removal.

[NorthernBoy]

Except it is removed when you hit State pension age and therefore changes the calculations. Meaning your 25% cash lump sum would in fact be a higher percentage after removal.

But if you are taking your nra 60 and 65 benefits and have left the business then the supplement is included, as such I don’t see why they wouldn’t include it in the calculations. The fact that it drops out at state pension age, I don’t believe is of any relevance as the payment has already been made.

We need someone who has taken their benefits to say whether the supplement is used in the x20 calculation method.

[buchanpeter]

Got a question i can't find an asnwer too.
If the Age60 stopped with capita RMSPS in 2010 why does RMPP offer a small Age60 when that scheme started in 2012 with Age65 benefits?

[heapsy]

When they changed the pension from FS to Career Average, a consession was made for those nearing their retirement, aged 60. So it was decided that the first two years of Career Average pension would have an NRA of 60. Therefore softening the blow. This applies to all the pension members at the time, including you and me.

[buchanpeter]

When they changed the pension from FS to Career Average, a consession was made for those nearing their retirement, aged 60. So it was decided that the first two years of Career Average pension would have an NRA of 60. Therefore softening the blow. This applies to all the pension members at the time, including you and me.

So that means that from 2012-2014 it was Age60 on the RMPP?

[RobertT]

Got a question i can't find an asnwer too.
If the Age60 stopped with capita RMSPS in 2010 why does RMPP offer a small Age60 when that scheme started in 2012 with Age65 benefits?

A bit of background:

The final salary scheme closed in 2008 and was replaced with the average salary scheme, which ran until 2018.
The increase in NRA from 60 to 65 happened in 2010.
The RMSPS pay pensions up to 2012.
The RMPP pay pensions from 2012-2018 plus DBCBS 2018-2024.

So the first two years of your NRA65(2010-2012) is paid for by the RMSPS.


There was also an agreement put in place when the government took over the pension liabilities up to 2012(as part of the privatisation process), which was when the RMSPS was formed.

That means the RMPP may also be responsible for paying an extra amount of NRA60 benefits. But that will depend whether your final salary pay increased by more than inflation between 2012 and when you take your pension.
See page 2 of your RMPP statement for a bit more info and your figures.

*As the RMPP has now closed, I assume the final salary pay used from now on will be the rate at the point of closure?

[mark.cup]

The box that relates CSDB

some years it's zero other years I have varying amounts do these all get banked so to speak added together and paid per annum at retirement?

[RobertT]

The box that relates CSDB

some years it's zero other years I have varying amounts do these all get banked so to speak added together and paid per annum at retirement?

Your CSDB benefits are what you've built up between 2008 and 2018, with 2012-2018 being on your RMPP statement.

The figures should be increasing with inflation each year, with what you accrued between 2008-2010 payable with NRA60 and the remainder with NRA65.