AVC

[reedy]

Has there been any official news on what will happen to flexiplan next year?

[RobertT]

AVC’s are mentioned in the Q&A’s page in the booklet we all received:

20. I am paying additional contributions to Addplan – what impact does the Company’s proposal have on me?
Under the Company’s proposal, you would not build up any further Addplan pension after 31 March2018. The Addplan pension you have built up would be revalued in line with RPI (up to 5% a year), as is currently the case for active Plan members while you remain employed by Royal Mail or until you take your benefits. Unless you instruct otherwise, your Addplan contributions would continue, but as additional contributions to your DC retirement account instead.

21. I am paying additional contributions to Flexiplan – what impact does the Company’s proposal have on me?
Unless you instruct otherwise, your Flexiplan contributions would continue, but as additional contributions to your DC retirement account instead.

22. I am paying additional contributions to Bonusplan – what impact does the Company’s proposal have on me?
Bonusplan contributions, both yours and the Company’s, would cease on 31 March 2018. However, as DC pensionable pay does not have a Lower Earnings Deduction, both you and the Company would pay contributions on your full basic pay to your DC retirement account.

But as we don't yet know exactly what our pension will look like after April 2018, then things could yet change.

[reedy]

Thankyou Robert.In the new scheme will it still go into a seperate fund to build a lump sum or will it only be used to enhance the pension?

[RobertT]

Assuming RM get their way and a DC scheme is introduced, your Flexiplan payments will go into your DC pot along with yours and RM’s regular payments as stated in my post above. You will then be able to do a number of things with that money, within the limits set out by law at the time.

More info on what you can do with your DC pension here: http://www.which.co.uk/money/pensions-a ... se-schemes" onclick="window.open(this.href);return false;

[linntroika]

Assuming RM get their way and a DC scheme is introduced, your Flexiplan payments will go into your DC pot along with yours and RM’s regular payments as stated in my post above. You will then be able to do a number of things with that money, within the limits set out by law at the time.

More info on what you can do with your DC pension here: http://www.which.co.uk/money/pensions-a ... se-schemes" onclick="window.open(this.href);return false;

Hi Robert , im currently paying £400 into my AVC in Flexiplan and wish to retire in 4 years time . I had planned on ending my AVC contributions next March at the end of the DB scheme . What do you think would be the better option , still pay into DC AVC or take the contributions and invest into an ISA or something similar instead - Thanks in advance

[RobertT]

Hi Robert , im currently paying £400 into my AVC in Flexiplan and wish to retire in 4 years time . I had planned on ending my AVC contributions next March at the end of the DB scheme . What do you think would be the better option , still pay into DC AVC or take the contributions and invest into an ISA or something similar instead - Thanks in advance

RM pension contributions give you 2 valuable perks: tax relief(which everyone gets) and National Insurance relief(PSE), which in effect means a £10 gross contribution only actually costs £6.80. So your £400 is only really costing you £272, with the government paying the rest.
If you didn’t know, the amount shown on your payslip is the gross amount and what you pay in income tax and NIC's is being reduced accordingly.

If you were to stop paying your AVC's, not only would you lose those two perks on that money, but your assessable pay would increase and you’d pay more tax too, and you’d have a lot less than £400 extra in your pocket.

DC Pensions are less flexible than other savings vehicles because of various rules attached to them, but with the addition of tax breaks and employer contributions, they are actually a great way to save money.

Personally I see no reason not to continue my AVC’s into the new DC scheme(assuming DB closure) from April 2018, and may increase them!

[linntroika]

Hi Robert , im currently paying £400 into my AVC in Flexiplan and wish to retire in 4 years time . I had planned on ending my AVC contributions next March at the end of the DB scheme . What do you think would be the better option , still pay into DC AVC or take the contributions and invest into an ISA or something similar instead - Thanks in advance

RM pension contributions give you 2 valuable perks: tax relief(which everyone gets) and National Insurance relief(PSE), which in effect means a £10 gross contribution only actually costs £6.80. So your £400 is only really costing you £272, with the government paying the rest.
If you didn’t know, the amount shown on your payslip is the gross amount and what you pay in income tax and NIC's is being reduced accordingly.

If you were to stop paying your AVC's, not only would you lose those two perks on that money, but your assessable pay would increase and you’d pay more tax too, and you’d have a lot less than £400 extra in your pocket.

DC Pensions are less flexible than other savings vehicles because of various rules attached to them, but with the addition of tax breaks and employer contributions, they are actually a great way to save money.

Personally I see no reason not to continue my AVC’s into the new DC scheme(assuming DB closure) from April 2018, and may increase them!

Many thanks Robert for your valuable advice as always

[heapsy]

Assuming RM get their way and a DC scheme is introduced, your Flexiplan payments will go into your DC pot along with yours and RM’s regular payments as stated in my post above. You will then be able to do a number of things with that money, within the limits set out by law at the time.

More info on what you can do with your DC pension here: http://www.which.co.uk/money/pensions-a ... se-schemes" onclick="window.open(this.href);return false;

Robert, if people were to look at taking their DC pension as a lump sum, is there a figure above which you cannot do that. For some reason I seem to think I read somewhere, that there was a limit of 10k. I could be wrong tho.
Cheers.

[RobertT]

Robert, if people were to look at taking their DC pension as a lump sum, is there a figure above which you cannot do that. For some reason I seem to think I read somewhere, that there was a limit of 10k. I could be wrong tho.
Cheers.

There is no limit. But as your pension is treated as earned income(after the tax free lump sum), the bigger your pot, the more tax you’re likely to pay. A better option may be to draw down the money over a period of time to reduce any tax liability.

[heapsy]

Robert, if people were to look at taking their DC pension as a lump sum, is there a figure above which you cannot do that. For some reason I seem to think I read somewhere, that there was a limit of 10k. I could be wrong tho.
Cheers.

There is no limit. But as your pension is treated as earned income(after the tax free lump sum), the bigger your pot, the more tax you’re likely to pay. A better option may be to draw down the money over a period of time to reduce any tax liability.

Cheers for the reply. Will certainly think about that option when the time comes. I've got a few options available to me, due to diversification. Once again thanks.

[Hawkey99]

I assume the comments relating to the original proposal still stand with the rehashed scheme. i.e. You can continue making the same payments that you currently make into your AVC but these will now go into the Cash balance scheme.

Thanks

[RobertT]

I assume the comments relating to the original proposal still stand with the rehashed scheme. i.e. You can continue making the same payments that you currently make into your AVC but these will now go into the Cash balance scheme.

Thanks

The information we’ve received on the Cash Balance scheme has been very thin on the ground. But as the aim of it seems mainly to fund the tax free lump sum, which is also the aim of AVC’s, I would assume we will be able to continue to pay extra if we chose. You could argue as the CB proposal is effectively ‘Section D’ of the RMPP, there is scope to keep the current Flexiplan open, if not Addplan or Bonusplan(as they cost RM money). Only time will tell what happens.

According to the recent RMTV pensions special, we will have the option to join the DC scheme instead of the cash balance plan. So if you’ve already funded your 25% tax free lump sum with AVC’s, going DC may be a better option for some people. Based on the limited info so far, that’s certainly my current thinking.

[Snurgs]

Hi just a question about bonus / flexiplan . According to the latest statement ive saved around £32000 . i had hoped to get my hands on that money when i reach 55 . If this is now to be rolled into the new DC plan will i still be able to do so or will it just become part of the pot ?

[RobertT]

Hi just a question about bonus / flexiplan . According to the latest statement ive saved around £32000 . i had hoped to get my hands on that money when i reach 55 . If this is now to be rolled into the new DC plan will i still be able to do so or will it just become part of the pot ?

RM have made two proposals to how our pensions will look after 1st April 2018, it seems we will be given the choice which one we want to join:

1. Defined Contribution

The way I understand things is that what you’ve already saved in AVC’s will stay where it is, unless you instruct otherwise. That money can still be used to fund the tax free lump sum when taking your main RMPP benefits. Alternatively you can access that money under ‘pension flexibility’ rules any time after age 55, but only the first 25% would be tax free with the rest classed as income and potentially taxed.

Pension flexibility info: http://www.royalmailchat.co.uk/communit ... 27&t=69013" onclick="window.open(this.href);return false;
DC Q&A’s: http://www.royalmailchat.co.uk/communit ... 27&t=77960" onclick="window.open(this.href);return false;

Any AVC’s you make after April 2018 would go into the DC scheme, which can also be accessed any time after 55.


2. Cash Balance

We haven’t been given much info on how this scheme will work, and no info on how AVC’s will be affected whatsoever. So I can’t really give an answer.

[Snurgs]

Thanks for your reply . its all a bit confusing but your reply was helpfull