RMDCP

[rogersh]

In February 2014 I received a booklet “helping you save more for retirement” RMDCP
The company’s pension proposal which outlined a new contribution levels for employee & employers.

Lowest level (of 3 Tiers) being 4% the company pays 7% to highest; employee 6% company 9%

The latest offer is to increase each level the company pays by 1% respectively to 8%, 9% & The highest most used figure by Royal Mail 10%.


The booklet gave examples and illustrations; I have edited two of these using the figures stated;


Member aged 20, salary = £20,000 with projected pension age of 65 (assuming you take no cash lump sum). (45 years service)


Your contributions…….RM contributions…….weekly take home pay…...Projected annual pension

……………4%……………………...7%……………………............£303…………........….…...£5,370 pa…

…………….6%………………….....9% ……………………...........£297…………........……...£7,330 pa…


Member aged 40, salary = £20,000 the projected pension age of 65 (assuming you take no cash lump sum). Would, using the same percentages, accrue a projected annual pension of £2,200 & £3,010 as illustrated. (25 years service)

I have worked out earning a pay rate of £413.39 (39 hours) you would need a 35 hour week to have take home pay of £300.

As at March 2017 my member account stated based on current pay & I keep paying the same (I pay 6% since 2016) when I reach 65 (2021) my lifetime savings in today’s terms could be £11,176.76 This could provide an estimated weekly income of £6.73 (£349.96 pa).This is after 7 years in the plan on a 20 hour contract.

To be honest I did not expect much for the length of service but the point is that there are many Royal Mail employees on contracts below 35 hours & as pension contributions are deducted only from basic pay it is difficult to see many realizing a pension to suffice in retirement, even with a 1% increase by Royal Mail.

Feel free to point out any discrepancies with this post as I’m no expert but think I’ve interpreted the actual figures correctly.

[RobertT]

DC pensions are just pots of money with which you can do a number of things with:

1. Buy an annuity(income for life).
2. Draw down the money over a period of time.
3. Take it all out as cash in one go with the first 25% being tax free and the rest being potentially taxable depending on any other income.

This gives more details: https://www.moneyadviceservice.org.uk/e ... on-schemes" onclick="window.open(this.href);return false;

The projections you’re given are based on SMPI figures which stands for Statutory Money Purchase Illustration. They base their figures on certain assumptions like:

1. Continuing to pay in at the same rate until chosen retirement age.
2. Buying a certain type of annuity.
3. Investment returns.
4. Investment charges.
5. Amounts shown in ‘todays terms’ allowing for inflation.

In practice they are just estimates of what you might get, so nothing is guaranteed. The closer to retirement you are, the more accurate they’re likely to be.

I agree that DC pensions are crap and require large amounts of money to provide even a fairly basic level of income in retirement. So although the maximum RM contribution of 9% currently with a proposal of 10% from April 2018, are quite healthy compared to many other companies, they won’t provide a very big pension pot for part timers in particular.

There is the option of increasing your own personal contributions above the 6% if you choose. You will benefit from tax relief and PSE just as now, so a £10 per week gross contribution will effectively only cost £6.80. But there is no option to get more contribution from RM.

[rogersh]

Robert thanks for your input, I was under no illusion that the amount I would receive could really equate to a pension. I increased my level of contributions from 4% to 6% which meant the company paid 9% instead of 7% to get the maximum I could in the time remaining as a way of saving a lump sum which I can withdraw in stages (to minimise tax loss) in retirement.

You rightly pointed out DC Pensions won't provide a very big pension for part timers in particular. I doubt if many have upped their contributions from 4% so the company are contributing 7% which will rise to 8% IF the changes are implemented. I am not advocating they do.

The main focus on the pension changes has been to the DB scheme & the "improved" offer. However they always use the example figure of someone earning £25,000 pa. .I think there should be more examples of actual pension projections covering both schemes earning a pensionable salary below £25,000 to clarify what the majority would potentially receive in retirement.

[chrisj]

It is good to see a post on here with actual figures and realism.

Robert T knows his stuff unlike some that are quick to comment and then say they leave details to the Union - we should all make the effort to be aware of everything; the info is mainly out there.

I am also in the DC scheme and have spent some time today looking for my pension projection - we all get statements but can't find it yet.

Anyway, my total Contributions + Employer's contributions is also not going to amount to much - older postie and joined not so long. No issues there!

People in the DB pension were on a promise (agreed) but that promise should never have been made - DB are unaffordable and I will repeat again here that it robs future generations and create a big wealth gap between older and younger workers.

So those in the DB pensions should actually count themselves lucky to have had an additional 10 years on the scheme. If the government had not paid for pensions liabilities before sale of RM, the whole thing will have eventually overwhelmed the company (private or not).

I shall be unto Zurich Assurance tomorrow to try to increase my contributions to the maximum 6% because it is still a very good investment compared to banks and other risky portfolios and the employer put in also helps.

My only worry about Pensions in general is that, they can surprise with you with government interventions and market volatility and unpredictability; I also do not like Admin fees!

We are all responsible for providing for our retirement! The reason why I keep banging on about making the part timer's overtime pensionable up to full time contract hours.

[deltaforce]

Ref rogersh posting. But that would expose how poor the proposed scheme is compared to what we have now.

[rogersh]

I printed off a CHOICES FORM to increase to 6%

Go to My Royal Mail
Click on; Me at work
cl; Pension
cl; Defined contribution - find out more - pension website
cl; Library - Your company retirement savings plan
Scroll down to page 2 - contents - to find CHOICES FORM & send to Zurich Royal Mail Service Team

[rogersh]

Ref rogersh posting. But that would expose how poor the proposed scheme is compared to what we have now.

Exactly. Not many on £25,000 - Pensionable - Basic pay that is

[chrisj]

Thanks rogersh. I shall call them to do the change immediately rather print out form - no printer anyway; local library job.

At least I found an old statement - needed membership number when I call.

It makes funny reading:

At the time - total combined contributions was £1280. Investment return was £116 (high compared to present) and charges was £2.46

Nowadays, the return is terrible and you can see the effect of the effect or negative impact of the charges; when the return is very low.

But it is still a good investment!

[chrisj]

Ref rogersh posting. But that would expose how poor the proposed scheme is compared to what we have now.

Do you mean the folks on Defined Benefits Pension? Those on RMDCP should not even think 100 days of strikes will bring them into a sort of Defined Benefits Pension.

The employer does not want the risk and to be honest it is also risky for the employee in some respects: the RMDCP cannot be touched by employer - it is personal investment/savings that the employer can actually manipulate and then do what you like with when you retire.

DBs depend on your employer continuing to be bouyant and with a great pension pot. If a private company fails then the employees are likely only going to get a percentage of what they have put in (don't quote me on that - Robert T can illuminate).

Whilst the DB fund is mixed, the RMDCP is individual.

[RobertT]

DBs depend on your employer continuing to be bouyant and with a great pension pot. If a private company fails then the employees are likely only going to get a percentage of what they have put in (don't quote me on that - Robert T can illuminate).

I believe the idea is when the RM DB scheme closes, is the investments will generate enough to keep the scheme ticking over and on a roughly break even position. So no surplus or deficit to speak of.

If a company fails and there’s not enough money in the pot to pay pensions out and there’s no takeover, then it will usually come under the wing of the Pension protection Fund I think. If that happens, anyone below the normal retirement age for the scheme, whether they’ve actually retired or not, will only get 90% of their pension.

[chrisj]

I googled it and found out the precise information on PPF...

In any case folks yet to retire will lose 10% of pension promised and will automatically revert to a type of DC pension or go for a private pension arrangements and other options.

Apart from the anxiety and the unknown elements, losing 10% might be better than what some are going to lose now - depending on length of service, of course.
But who wants to be in a company with pension deficit and one that goes insolvent? I

[jetblack]

DB are unaffordable..

The 15% decline in UK pension funds on account of the 2008 credit crunch and the profligacy and corruption of the banks and private equity firms (that are now our new owners BTW) that caused it might have something to do with that 'unaffordability' wouldn't you say ? It had a lot to do, apparently, with pension funds investing in seemingly safe AAA credit rated 'assets' (read 'collateralised debt obligations'). How were they rated AAA ? No-one seems to know - but what we do know is that the credit rating agencies were paid by the ones who were concocting the complex debt.
Anyhow, the credit crunch had wiped several trillion off the value of pension funds by 2009. This, combined with the ensuing 0.25% interest rate/QE, has put many schemes up against it.
You could say that we are being asked to cover the debts that were incurred by the Fred Goodwins of this world. Certainly looks that way to me. Not directly of course. Indirectly. Covertly. Behind our backs.

... I will repeat again here that it robs future generations and create a big wealth gap between older and younger workers.

Only if the younger workers are on shite pensions surely ?
I think that situation is precisely what the unions pension proposal is working toward avoiding. There will always be a wealth gap, to some extent, between the old and the young. That is what a working life behind you brings about. But it pales into insignificance next to the wealth gap between, for example, the top 5% and the rest of us. Or even disparities in wealth distribution according to ethnicity.

A decent defined benefit pension scheme for the employees of this company is affordable - and it should be one scheme for all. It might not be on a par with final salary schemes of the past but this company can certainly afford way better than the derisory savings plan lottery that is the defined contribution plan.
For anyone on that plan, you have a big stake in this current dispute - the unions proposal would see you way better off than you are at present.

[pickles10]

There is the option of increasing your own personal contributions above the 6% if you choose. You will benefit from tax relief and PSE just as now, so a £10 per week gross contribution will effectively only cost £6.80. But there is no option to get more contribution from RM.[/quote]


I spoke to zurich about the possability of raising my contributions above 6% but they said this was not possible and 6% was the maximum is this not the case?

Many thanks

[RobertT]

There is the option of increasing your own personal contributions above the 6% if you choose. You will benefit from tax relief and PSE just as now, so a £10 per week gross contribution will effectively only cost £6.80. But there is no option to get more contribution from RM.

I spoke to zurich about the possability of raising my contributions above 6% but they said this was not possible and 6% was the maximum is this not the case?

Many thanks

As a member of the DB scheme I have no personal experience of the RMDCP, but this is what it says on page 13 of the plan guide:

Can I make extra contributions to the Plan?

It is possible to pay voluntary contributions in addition to your Entry, Interim or Standard contributions. Limits apply to voluntary contributions taken through payroll where necessary, to meet other liabilities (such as the payment of National Insurance). Should you decide to pay voluntary contributions, the amount of these contributions will not change automatically if your regular contribution level increases (for example, you move from the Interim Level to the Standard Level).

What’s the maximum extra payment I can make?

You will be entitled to tax relief on contributions up to 100% of your annual earnings. However, if your contributions exceed the Annual Allowance you may be subject to a special tax charge. A tax charge also applies if your Member Account (plus the value of other pension benefits) grows by more than the Lifetime Allowance. These limits will not affect most members. If you participate in PSE (see page 9 for further details) then your voluntary contributions will also be made via PSE.

The plan guide is here: https://www.zurich.co.uk/internet/works ... 714073.pdf" onclick="window.open(this.href);return false;

[chrisj]

Is it not obvious that the present younger generation are worse financially (as a collective) in many many ways compared to the older generation? If many of them are in low paid, part time jobs with debt hanging off the necks, how exactly can they have good retirement pensions?

The only DB pension obviously affordable is that of the government - and I will not bet that might be the case forever. You really have to do some financial research on this topic! It is not about how much the CEOs are being paid or how much profit a company is currently making...

A profitable company can become less profitable and pension planning and management is not just based on a few years projections...

How can it be right that the company is making a 45% contributions on the DB pensions whilst making 16% on the DC pension - just look at the disparity and sheer amount of money going towards the DB pension...

* The worst part of it is that the markets are not doing so well and the interest rate is rock bottom - pension investments are not doing so well but then we all like to complain about shareholders for which we are all shareholders in whatever investment portfolio our pension funds are put.

The 45% and 16% is the combined contributions towards an employee's pension; afterall, they pay our wages.