MRM.COM : Committed to providing the best retirement benefits in the industry

[POSTMAN]

https://www.myroyalmail.com/news/2017/06/your-pension" onclick="window.open(this.href);return false;

We are committed to providing the best retirement benefits in the industry. We are sorry that Sections B and C of the Royal Mail Pension Plan (the Plan) will close to future accrual on 31 March 2018.

We have proposed a Defined Benefit cash balance scheme for Plan members. It is based around the choices you make at retirement.

97% of Plan members to take a tax free lump sum at retirement, while 86% take the maximum.

Our scheme boosts your annual pension on average compared to what we originally proposed. It avoids the need for many Plan members to give up some or any of their annual pension for a tax free lump sum at retirement.

Under our proposal, we expect the annual pension of a member earning £25,000 a year, who takes an annual pension plus a tax-free lump sum, to increase from £10,400 – under our original Defined Contribution proposal – to £12,100*. Your State Pension is on top of these numbers. That is always worth factoring in.

SNIP.PNG

Royal Mail Defined Contribution Plan

As previously announced, we are also ready to make improvements for Royal Mail Defined Contribution Plan (RMDCP) members. From 1 April 2018, we propose increasing the Company’s standard contribution by 1% in each tier, up to a maximum of 10%. This would be for current and future RMDCP members. This is very good compared to what other large UK employers offer.

Facts to be aware of:

When we were owned by the State, the Defined Benefit pension scheme closed to new members. The company was balance sheet insolvent.
The Post Office, which is in State ownership, closed its Defined Benefit scheme this year.
*The illustrative example is for a Section C member aged 50 in 2018 with 30 years’ pensionable service, who is paid £25,000 a year and stays with the Company until retiring at age 65. It shows the possible effect on a member’s retirement benefits of the Company’s original proposal and its proposed Defined Benefit cash balance scheme on the basis of the assumptions used. It is for illustration purposes only and does not guarantee any benefits or give rise to any entitlements. It should not be used for financial or retirement planning purposes. Original proposal “pension + cash” figures based on Defined Contribution benefits being provided outside of RMPP. The figures are shown in today’s money terms relative to CPI inflation, exclude the State Pension, and are consistent with those in the original proposal booklet.

The example makes no allowance for pension increases or interest in payment. It assumes that Defined Benefit cash balance scheme target increases of 2% a year above CPI inflation are achieved, but please note that under the Defined Benefit cash balance solution these would be targeted but not guaranteed until granted. The member is assumed to live for 20 years, which represents broadly average life expectancy, and is not survived by a spouse. Pay quoted is pensionable pay before the lower earnings deduction.

[iceman1277]

What about the real postie who earn 21,000 a year and have only been the old pension for 15 years and who are 40 and still have to do another 25 years in the new pension and will lose about 4000 a year.

[TheTrolleyMan]

Yeah why not base the examples on my 21k " pensionable " pay ?

[fly-catchers]

Perhaps they are planning on giving us a pay rise to £25000? Perhaps not...

[heapsy]

What a load of tripe. The way this has been worded implies no need to take a lump sum, as one is already provided. THAT is a complete lie, and the CWU and CMA/Unite should make a legal challenge on that. A lump sum, up to 25% of your total pension pot is an OPTION. You do not have to take the lump sum, as this will reduce your monthly income AND subsequent annual increases. You can, in fact, take a smaller lump sum than 25%, giving you a bit of both.

[mark.cup]

I'm wondering how this will pan out for people who were making AVC payments in the hope they could build enough to take their 25% lump sum from the AVC and still have the maximum monthly pension.....?

The cash balance scheme is trying to do a similar thing but giving a much poorer monthly pension after doing so

[RobertT]

I'm wondering how this will pan out for people who were making AVC payments in the hope they could build enough to take their 25% lump sum from the AVC and still have the maximum monthly pension.....?

The information on the CB scheme is still severely lacking – a far cry from the glossy red 42 page DC proposal booklet and helpline!

But I would guess you will be able to combine the CB pot and the AVC pot to fund your lump sum at retirement? While anything over 25% of your total pot would be treated the same as it would be with AVC’s over 25% currently. Info here: http://www.royalmailchat.co.uk/communit ... 27&t=69013" onclick="window.open(this.href);return false;

RM are saying that we’ll have the choice of whether we go DC or CB. So perhaps another option might be that we pay into the CB scheme until we’ve built up that 25% lump sum amount, and then divert our contributions to DC?

We may also be able to pay AVC’s into the CB scheme?

But as RM haven’t been very forthcoming with how things are actually going to work, we can currently only guess.

The cash balance scheme is trying to do a similar thing but giving a much poorer monthly pension after doing so

The way I see it, and if I understand things correctly, we will have an x number of years service in the RMPP up to 31st April 2018. Which based on the original proposals will then increase with either inflation or pay depending on which section you’re in(details in the review booklet). Plus:

1. A ‘cash balance’ and any AVC’s to be used to fund the tax free lump sum when we take our RMPP pension; or
2. A DC pot that can be accessed totally independently of the RMPP and can be used to buy an annuity or drawdown as cash after age 55.

Most people don’t have AVC’s, so I would think the cash balance scheme is probably the way to go for the majority. Because it potentially provides the maximum pension amount, plus a lump sum as standard.
While the DC option provides a reduced pension amount(because most people take a lump sum) plus a pot of money with the two basic options as above.

Personally as I already have AVC’s worth 25% of my total ‘pot’, and unless the finished CB scheme drastically differs from my expectations, I plan to go DC.

[heapsy]

I'm wondering how this will pan out for people who were making AVC payments in the hope they could build enough to take their 25% lump sum from the AVC and still have the maximum monthly pension.....?

The cash balance scheme is trying to do a similar thing but giving a much poorer monthly pension after doing so

AVCs will add to the overall total in your pension. Any lump sum and pension would be greater as more pension has been built up. The one outstanding issue is whether the AVCs going forward will still count towards the NRA60 pension, or will they be added to the NRA65 pension. I started paying AVCs quite late, and may end up with not very much added to the NRA60 pension. However, I also started paying into a stocks and shares ISA. I intend to use this alongside the AVCs to provide a decent cash lump sum. This may in fact mean I can have more than 25% of my overall pension as cash. You don't get tax relief on ISAs but, they are a useful addition with greater flexibility. It will also enable me to take LESS than 25% of my RM pension as cash, as I can then use the ISA to top up my cash. I, like many, am a section C member, so my pension is somewhat reduced. That being said, an ISA gives added flexibility, as it not subject to the same stringent rules that govern pensions, including AVCs. Hope that helps a bit.

[mark.cup]

I suppose we will have to wait and see but can't imagine the cash balance scheme will not be anything like as good as the 20x your pension valuation on the current scheme?

[heapsy]

I suppose we will have to wait and see but can't imagine the cash balance scheme will not be anything like as good as the 20x your pension valuation on the current scheme?

In a word, no. although they ALL work to the same 20 year lifespan rule when it comes to calculating your pension. The problem is that the final salary and the career average schemes are a bit like virtual money. They are calculated on the basis of what the pension industry experts, actuaries, reckon you need to provide the same pension. Defined contribution schemes are based on the actual money you have built up. THEN it is divided by 20. The problem is that in reality, very few, if any manage to build up such a large sum of money, partly through lack of funds to do so, and partly down to the fluctuations in stock market performance over the course of time. That is the reason why companies are moving away from the final salary model.

[RobertT]

The one outstanding issue is whether the AVCs going forward will still count towards the NRA60 pension, or will they be added to the NRA65 pension.

That will depend on which scheme you chose to join, and assumes AVC’s are allowed into the CB scheme.

DC = access any time after 55 independently of the RMPP.

CB = access at the time of taking the RMPP. The main issue being, will the CB scheme have a NRA associated with it and so early payment reductions?

[RobertT]

Defined contribution schemes are based on the actual money you have built up. THEN it is divided by 20.

That will give you a rough ballpark figure of what you might get based on buying a level single life annuity at 65.

But the actual pension amount your DC pot is going to give you will depend on annuity rates, age, health and the type of annuity you purchase.

For example, if you want an annuity with similar benefits to your RM pension at 60, i.e with inflation proofing and spouses pension on your death, then dividing your pot by 40 would give you roughly the starting pension you’d get.

[heapsy]

Defined contribution schemes are based on the actual money you have built up. THEN it is divided by 20.

That will give you a rough ballpark figure of what you might get based on buying a level single life annuity at 65.

But the actual pension amount your DC pot is going to give you will depend on annuity rates, age, health and the type of annuity you purchase.

For example, if you want an annuity with similar benefits to your RM pension at 60, i.e with inflation proofing and spouses pension on your death, then dividing your pot by 40 would give you roughly the starting pension you’d get.

True, but I was trying to keep it simple for someone who clearly doesn't understand the basics. In my office, I heard one person say "you've got to get as much as you can out of your pension." They are under the impression that the pot you have built up is just a simple pot of money, say £120,000. so they then have only have to draw £90 of pension, assuming they took the £30k lump sum. They are looking at it in those simple terms. Reading the many posts you have answered, it is obvious to me at least, that people still cannot get their heads around the idea that if they took 25%, then their pension is reduced. Also, that the pension pays infinitely, and therefore if they took the lump sum, the impact could be quite substantial over time, if say, they lived mort than 20 years after retirement. I know of two blokes who have done just that, who live on my walk.

[RobertT]

I agree that lots of people don’t seem to know the basics, although from his posts on here I don’t think mark.cup is one of them.

I would have thought a simple read of their annual statement would educate many of the way their pension works.

I too know quite a few people who are living a long retirement, my dad being one. He’s 87 this year and retired when he was 56.

[mark.cup]

I agree that lots of people don’t seem to know the basics, although from his posts on here I don’t think mark.cup is one of them.

I would have thought a simple read of their annual statement would educate many of the way their pension works.

I too know quite a few people who are living a long retirement, my dad being one. He’s 87 this year and retired when he was 56.

Thanks RobertT was just a general question as like yourself you plan around the current scheme then they try and change it and put out hardly any info on how we will all be affected especially the few of us who want to give ourselves the best possible chance of a decent retirement income!

I do think it's very likely a cash balance scheme will reduce the benefits of AVC's re maximising the 25% lump sum and a bigger pension as the new scheme is trying to mimic what we have been doing already without building extra monthly income?