Add Years AVC question

[fly-catchers]

I know that with the Added Years AVC you are buying extra years for the NRA 60 Final Salary Pension until they change it next year. But I am a bit confused by this statement from RM- Under the Company’s proposal, you would not build up any further Addplan pension after 31 March 2018. 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.

I thought only the Career Average pension was revalued in line with the RPI while your contributing to it. Or does the Final Salary part also get revalued up to the time you receive it. And them the years that go to the Final Salary part of them based on your current Pensionable salary of 2017/18.

No matter how much I read and re-read the pension information it is still so darn complicated!!

[RobertT]

The way I read it is, as of 31st March you will have built up a certain amount of extra years via Addplan, and that will equate to an x amount of pension. Lets say that’s £1,000. From then on you will not be able to accrue anymore, so that amount will just increase with inflation until you take it.
So if inflation (RPI) is a constant 3% for example, it would increase like so:

2019 - £1,030
2020 - £1,060.90
2021 - £1,092.72

The proposals also state that if you’re in Section C your final salary(pre 2008) pension would increase with RPI, but Section B pensions would still be linked with pay.

[fly-catchers]

Thanks Robert. I have had my Added Years since 1994 and have been buying 8 years ever since. This contract is completed in January next year when I hit 60. So the 8 years will be added to my 20 years I had completed up till March 2008 and a further 2 years I got by transfering a pension from another job I had. Giving me roughly 30 years of Final Salary pension and two years career average.
But still puzzled when RM say that it will be revalued by RPI as it currently is for active plan members while you remain employed by Royal Mail or until you take your benefits. . Because if they use the 8 years I have purchased wouldn't they just give me 8 years of the 1/60 of my current pensionable salary. As I thought only the Career average part was revalued. As any further changes to the NRA 60 will thankfully not affect me.

Also when they reduce any pension by 5% for each year its taken early why does the RMPP calculator reduce the NRA 65 supplement by far more than 5% per year. I worked out the supplement for 8 years should be about £440. Which if I took 5 years early would go to about £330. Yet the calculator gives the value at about £78! However the reduction for the actual pension part looks correct!

[RobertT]

Thanks Robert. I have had my Added Years since 1994 and have been buying 8 years ever since. This contract is completed in January next year when I hit 60. So the 8 years will be added to my 20 years I had completed up till March 2008 and a further 2 years I got by transfering a pension from another job I had. Giving me roughly 30 years of Final Salary pension and two years career average.
But still puzzled when RM say that it will be revalued by RPI as it currently is for active plan members while you remain employed by Royal Mail or until you take your benefits. . Because if they use the 8 years I have purchased wouldn't they just give me 8 years of the 1/60 of my current pensionable salary. As I thought only the Career average part was revalued. As any further changes to the NRA 60 will thankfully not affect me.

Both the final salary and average salary schemes are effectively revalued each year at the moment. The FS is revalued in line with earnings and the CARE/CSDB in line with RPI inflation.
From April 2018 the proposal is that FS section C pensions will be increased by RPI each year, so if that is actually implemented then all of your pension will increase each year by RPI until you draw it.

However, taking into account that you’re 60 in January and assuming you take your NRA60 pension at the time, then you will be receiving those 32 years that you’ve accrued/bought/transferred in. Hence the yearly revaluation of your added years is irrelevant!

You will of course still get an annual increase in the total pension you receive, assuming a positive inflation figure.

Also when they reduce any pension by 5% for each year its taken early why does the RMPP calculator reduce the NRA 65 supplement by far more than 5% per year. I worked out the supplement for 8 years should be about £440. Which if I took 5 years early would go to about £330. Yet the calculator gives the value at about £78! However the reduction for the actual pension part looks correct!

I’m too young to use the calculator with my actual figures, but I have played around with it a bit. I have also noticed the Section C NRA65 supplement is a lot lower than it should be. In my case my calculations say the unreduced supplement at 1st April 2018 should be about £600 and assuming a 25% reduction to about £450 for taking it 5 years early at 60. But the calculator says only £90! There’s also a higher than expected reduction in the supplement for taking my NRA60 at age 55.

To be honest I’m not sure if there’s actually a bigger reduction in the supplement than we previously thought for taking it early, or if there’s a mistake in the programming of the calculator.

Fly-catchers: the PSC should be contacting you fairly soon telling you how much you’ll get at 60, so please update us.

Or perhaps someone who’s recently got a quote or retired early can clarify?

[fly-catchers]

Thanks again Robert. Your advice and common sense over the last few years have taught me all I know about pensions. That is why I notice these odd misleading or confusing statements from RM or indeed the Pension trustees. I am really looking forward to hearing from the PSC in the next couple of months or so and shall keep you informed. Its like I will be interested to see how the 60 pension index linking is broken down when you are receipt of the pension. With the GMP pension (for me from 1988 to 1997) goes up by a max of 3% and is I guess linked to the CPI. And the rest of the pension is linked (at the moment) to RPI.

Did anyone get the Pension letter today from RM? Saying on the envelope something to the affect that the future is almost here!! I only saw one which I delivered to a postie from another office. And I have found someone in my office who had got one but had torn it up without reading it!! Such is the importance of pensions to my fellow work colleages!! See if any more crop up tomorrow!

[RobertT]

I'm glad I've been some help.

I delivered one of those letters too, I think it was an annual statement for DC members.