Redundancy & pensions faq's

[RobertT]

For those of you who haven't seen the faq's on how redundancy might affect your pension, I've copied and pasted them below:

Will my pension be enhanced?

No. Since 1 April 2018, there is no enhancement to pension on redundancy under the Royal Mail Pension Plan. If you are over age 55, you are able to draw your RMPP pension benefits at any time up to age 60/65, less early retirement reductions.
If you are a member of the RM Defined Contribution Plan (RMDCP), you can access your pension pot at any time from age 55. There is no enhancement.

Why haven't I received a pension estimate?

 you are a member of the RM Pension Plan (RMPP) / RM Statutory Pension Scheme (RMSPS)
Pension benefits can only be taken from age 55 onwards. Pension benefits do not come into payment immediately on leaving service (unless you are 60/65) and so you can choose when to take them to suit your personal circumstances. For example, you may want to leave taking your pension benefits until the following tax year after you leave service.
If you are at or over age 55 at the time of your leaving AND your request for Voluntary Redundancy has been accepted by Royal Mail, you will be provided with your full RMPP pension options (this will include your Defined Benefit Cash Balance Scheme benefits (DBCBS) and any AVC’s if applicable. You do not need to request one. These may not be available until after you leave Royal Mail. 
The Pensions Service Centre will let the RMSPS administrator (Capita) know and they will send you details of your RMSPS benefits.
Please note that you do not have to take your pension immediately unless you are aged over 60/65
If you are a member of RM Defined Contribution Plan (RMDCP) You can access your pension pot at any time from age 55.

Can I pay a lump sum into my pension if I take VR?

You may be able to put a lump sum payment into your pension fund as a defined contribution amount. If you are unsure about the impact of making a lump sum AVC on your personal tax liability, we suggest that you take independent financial advice.

You can find an adviser at: https://directory.moneyadviceservice.org.uk/en

Note: Pay in Lieu of Notice (PILON) cannot be made as an AVC.

If you are considering making a significant lump payment (excluding Pay In Lieu Of Notice) or you have been paying significant AVCs in the last 4 years then you may be impacted by the Pensions Annual Allowance. A link to information from HMRC is shown below.
https://www.gov.uk/tax-on-your-private- ... -allowance

Royal Mail Pension Plan members:

If you are a contributing member of the Royal Mail Pension Plan (RMPP), it will be to the "Flexiplan" Additional Voluntary Contribution (AVC) scheme. You will need to email the AVC team on pensions.additional.benefits@royalmail.com at the Pensions Service Centre (PSC) or call the Pensions Helpline on 0345 603 0043 to advise them that you would like to pay in a lump sum from your Compensation payment. You will then be sent an options form. Please note that your completed options form must be returned before the relevant deadline date for your last day of service as shown in the table below. This is to enable the deduction to be made from your Compensation payment before your final payroll run. If you do not send the options form back in time, your application will not be processed.

Royal Mail Defined Contribution Plan members:

If you are a member of the Royal Mail Defined Contribution Plan you should contact the Plan administrators, Scottish Widows on 0800 092 8263 to request a "Choices form", which should then be completed and signed and sent to RMG payroll in good time before the payroll cut-off date for your last pay period before leaving. Alternatively, a Choices form can be found here:
https://adviser.scottishwidows.co.uk/as ... 0869sw.pdf
Note: The Choices form can be completed on your computer by clicking the “fill and sign” icon to the top right-hand side of the document (once opened). An “X” can be used instead of a tick and you can type your name or add a digital signature.

Alternatively, you can print out, complete and email a scanned or photographed form or send the printed form by post. The last page of the form gives the RMG payroll postal and email addresses.
Please note that your completed Choices form must be returned before the relevant deadline date for your last day of service as shown in the table below. This is to enable the deduction to be made from your Compensation payment before your final payroll run. If you do not send the options form back in time, your application will not be processed.

I am close to retirement age and would like to express an interest in VR – will this impact my pension?

Yes, you will stop building up pension benefits with Royal Mail. If you take RMPP / RMSPS benefits before normal retirement age (60/65), they will be reduced by about 5% for each year that they are paid
If you are in RMDCP, your pension pot won’t be reduced but it will not have had as much time to build up investment returns and it will need to last longer.

What happens if I decide not to take my pension?

If you are a member of RMPP / RMSPS, your pension will come into payment at normal retirement age (60/65) unless you request early payment after you have left Royal Mail.  The value of your pension will increase each year until you take your pension.
If you are a member of RMDCP, your pension pot will remain invested until you choose to take it.

Why are my pension benefits now different to the amounts shown on my RMPP/RMSPS illustrations?

This could be because there have been fluctuations in your pensionable pay since the benefit illustration as at 31 March 2022, or your benefits have been reduced for early payment.  Benefits paid before normal retirement age (60/65) are reduced by 5% for each year that they are paid.

When will my RMPP/RMSPS benefits be paid?

If you choose to put your pension into payment, your benefits will be set up for payment as soon as is practically possible and backdated to the day following  your last day of service with Royal Mail.

Can I buy added years in the RMPP with my compensation?

No. It is not possible to direct any of your voluntary redundancy termination payment to purchase extra years’ service. You can only direct part or all of your voluntary redundancy termination payment as an AVC payment if you are a member of the RMPP scheme.

[cartero707]

Hi Robert

Thanks for the information, it was something that I hadn't thought about and definitely an option I would consider.

My question would be if I paid my full redundancy payment amount of approx. £24k into my AVC, would this be treated as an employee pension contribution rather than an employer contribution with Scottish Widows then claiming the tax relief directly from HMRC.

If this is the case this would seem to be an absolute no brainer, as I have recently start taking my NRA60 benefits and don't actually need the cash.

Thanks for alerting me to this possibility.

[RobertT]

The Moneyhelper website says this about paying redundancy pay into a DC pension(which Flexiplan is):

You can only contribute parts of your redundancy payment that qualify as relevant earnings.
Generally, the first £30,000 is tax-free and doesn’t qualify as earnings for Income Tax or tax-relief purposes.
Any money above this usually qualifies as earnings, and therefore qualifies for Income Tax and tax relief.

My take on that is you won't be able to pay any of your redundancy money into your AVC. And even if you could, you wouldn't be getting any tax relief(and potentially salary sacrifice/PSE) on the money, rendering it a bit pointless in my opinion.

An alternative would be to pay the redundancy money into a personal pension, and you would gain tax relief on that. In simple terms, for every £1 you put in, you'll get 25p added on.
So a deposit of £24k, will give you an extra £6k.

Bear in mind the rules regarding the annual allowance!
To gain tax relief, you're only allowed to put into a pension an amount equal to what you earn in any financial year, up to a maximum of £40k.
You can put in more than you earn if you want, but you won't get the tax relief. So spreading it over a 2 or more years might be a better option.

Pensions are the best way to save due to the tax breaks(free money) on the way in, but are treated as earned income on the way out, apart from the tax free element. So you might have to consider the amount of tax you would pay, if any, when you access it.

[cartero707]

Thanks Robert I thought it seemed to good to be true.

[NorthernBoy]

Out of interest who on here will take redundancy if it’s offered at your office?

There seems to a lot of people in their 50s quitting the workforce at the moment.

[grchpo]

If you leave RM employment before your state pension age do you get the supplement with your pension

[Sputters]

If you take redundancy what will happen to your money in the new cdc pension .

[SeanMc]

First 30k of redundancy is tax free anything over this can be put into an AVC which is tax free. I did it 2 years ago.

[RobertT]

If you leave RM employment before your state pension age do you get the supplement with your pension

Yes!

The supplement is only paid when you've left RM employment and stops when you reach state pension age.

[RobertT]

If you take redundancy what will happen to your money in the new cdc pension .

Taken from here: https://www.myroyalmail.com/collective- ... nefits-age

Frequently asked questions

What happens if I leave Royal Mail before I’ve been in the Collective Plan for 1 year?

If you are working for Royal Mail when the plan launches, you can either:

- take your benefits, if you’ve reached Minimum Pension Age. This is set by the government and is currently 55. In 2028, it will go up to 57 and then go up as the State Pension Age goes up
- transfer your benefits to a different pension arrangement
- leave your benefits in the Plan and take them later

If you join Royal Mail after the Plan launches, you can either:

- get a refund of the money you’ve paid into the Plan, minus tax and National Insurance contributions
- transfer your benefits to a different pension arrangement, if you’ve been in the Plan for at least 3 months
- If you have been making AVCs (Additional Voluntary Contributions), you would also get the value of your AVC account

To receive an income and lump sum from the Plan, you would need to build up benefits for at least 1 year.

[RobertT]

Out of interest who on here will take redundancy if it’s offered at your office?

There seems to a lot of people in their 50s quitting the workforce at the moment.

I've put my name down and plan to take it if it's offered.

[posted]

The Moneyhelper website says this about paying redundancy pay into a DC pension(which Flexiplan is):

You can only contribute parts of your redundancy payment that qualify as relevant earnings.
Generally, the first £30,000 is tax-free and doesn’t qualify as earnings for Income Tax or tax-relief purposes.
Any money above this usually qualifies as earnings, and therefore qualifies for Income Tax and tax relief.

My take on that is you won't be able to pay any of your redundancy money into your AVC. And even if you could, you wouldn't be getting any tax relief(and potentially salary sacrifice/PSE) on the money, rendering it a bit pointless in my opinion.

An alternative would be to pay the redundancy money into a personal pension, and you would gain tax relief on that. In simple terms, for every £1 you put in, you'll get 25p added on.
So a deposit of £24k, will give you an extra £6k.

Bear in mind the rules regarding the annual allowance!
To gain tax relief, you're only allowed to put into a pension an amount equal to what you earn in any financial year, up to a maximum of £40k.
You can put in more than you earn if you want, but you won't get the tax relief. So spreading it over a 2 or more years might be a better option.

Pensions are the best way to save due to the tax breaks(free money) on the way in, but are treated as earned income on the way out, apart from the tax free element. So you might have to consider the amount of tax you would pay, if any, when you access it.

Thanks you, again, @robertT. Absolutely valuable advice.
I always thought VR as AVC would be a tax efficient way.
Also didn’t know about being allowed to use 3 years unused allowance.
Didn’t know it’s not counted as earned income.

Makes sense to put into private pension, but why over 2 years? You’d still be putting in less than £40k allowance, or does it have something to do with personal allowance ?

[SeanMc]

30k Tax Free . Anything above put into AVC tax free.

[RobertT]

30k Tax Free . Anything above put into AVC tax free.

Yes, you've posted that twice now. But as the max VR pay out is going to be 39 weeks plus £6k, many people won't hit £30k, let alone be over it.

[RobertT]

The Moneyhelper website says this about paying redundancy pay into a DC pension(which Flexiplan is):

You can only contribute parts of your redundancy payment that qualify as relevant earnings.
Generally, the first £30,000 is tax-free and doesn’t qualify as earnings for Income Tax or tax-relief purposes.
Any money above this usually qualifies as earnings, and therefore qualifies for Income Tax and tax relief.

My take on that is you won't be able to pay any of your redundancy money into your AVC. And even if you could, you wouldn't be getting any tax relief(and potentially salary sacrifice/PSE) on the money, rendering it a bit pointless in my opinion.

An alternative would be to pay the redundancy money into a personal pension, and you would gain tax relief on that. In simple terms, for every £1 you put in, you'll get 25p added on.
So a deposit of £24k, will give you an extra £6k.

Bear in mind the rules regarding the annual allowance!
To gain tax relief, you're only allowed to put into a pension an amount equal to what you earn in any financial year, up to a maximum of £40k.
You can put in more than you earn if you want, but you won't get the tax relief. So spreading it over a 2 or more years might be a better option.

Pensions are the best way to save due to the tax breaks(free money) on the way in, but are treated as earned income on the way out, apart from the tax free element. So you might have to consider the amount of tax you would pay, if any, when you access it.

Thanks you, again, @robertT. Absolutely valuable advice.
I always thought VR as AVC would be a tax efficient way.
Also didn’t know about being allowed to use 3 years unused allowance.
Didn’t know it’s not counted as earned income.

Makes sense to put into private pension, but why over 2 years? You’d still be putting in less than £40k allowance, or does it have something to do with personal allowance ?

You can put in as much as you earn into pensions each year and gain tax relief, up to a max of £40k. So if you earn £20k that's how much you can contribute and gain the top up. But there is the option to carry over the previous 3 years allowance.

You have to take other pensions into account too, such as your current RM one. Plus if you have other DB schemes from previous employers, the increase on those will need to be included.

There's also the possibility that you've flexibly accessed a DC scheme, which would reduce your allowance.

Hence why contributing over 2+ years might be the better route. But as always it'll depend on circumstances, etc.

https://www.moneyhelper.org.uk/en/pensi ... -allowance