Lump sum calculation

[RobertT]

If you're leaving Royal Mail employment after receiving your Age 60 benefits , and they know you're leaving , will they automatically add the supplement when you do leave ?

In theory the supplement should be added automatically once you've left the company, but it's probably best to inform both RMPP and RMSPS to be sure.

[tractorboy2]

If you're leaving Royal Mail employment after receiving your Age 60 benefits , and they know you're leaving , will they automatically add the supplement when you do leave ?

In theory the supplement should be added automatically once you've left the company, but it's probably best to inform both RMPP and RMSPS to be sure.

Thanks RobertT

[billyliar1966]

The majority of the Cash Balance(DBCBS) is payable with NRA65 benefits, so you need to work out NRA60 and NRA65 separately.

The best way is to assume your pension equals 75% of your pot, therefore the maximum tax free lump sum is the other 25%.

For example:

NRA60 = £9,000 x 20 = £180,000. Max tax free lump sum = £60,000.
NRA65 = £3,000 x 20 = £60,000. Max tax free lump sum = £20,000.

Any excess cash, once the tax free lump sum has been paid by AVC's and DBCBS, can be taken as a Uncrystalised Pension Funds Lump Sum. Which means the first 25% of that is also tax free, with the remainder being classed as income and coming under normal PAYE income tax rules.

So if my pension is £10,000 with supplement included I could be looking at £66,666 max lump sum? I have left RM by the way. I'm sure previous calculations on here suggest that £10,000 pension x 20 ÷ 4 is the way to do it. This would give a max lump sum of £50,000. Which is correct, as it's a big difference? Thankyou for all you do on here its much appreciated.

[renrag40]

Surely the maximum Lump sums in RobertTs example should be £45,000 and £15,000 respectively shouldn't they?

[RobertT]

I think you both misunderstand what I wrote?

To enable the tax free lump sums I quoted, you obviously need AVC'S/DBCBS to that value.

[renrag40]

How can the cash balance fund be both added to the pension pot and fund the RMPP nra 65 maximum tax free Lump sum? That feels like double counting to me.

[RobertT]

How can the cash balance fund be both added to the pension pot and fund the RMPP nra 65 maximum tax free Lump sum? That feels like double counting to me.

My examples don't do that. They tell you the maximum tax free cash you can generate via AVC's and DBCBS, when factoring in the value of your pension, when using the usual 20x multiple.

Like I said, consider the pension to be 75% of your pot, meaning the other 25% comes from AVC's and DBCBS.

[wolfman]

Is there any advantage/disadvantage in taking your max 25% tax free lump sum from your NRA 60 pension? Or is taking the 25% always the best option? I take it you get 2 options, the other one being a lesser lump sum for a higher monthly amount?

[RobertT]

Is there any advantage/disadvantage in taking your max 25% tax free lump sum from your NRA 60 pension? Or is taking the 25% always the best option? I take it you get 2 options, the other one being a lesser lump sum for a higher monthly amount?

The options vary slightly due to which section you're in. Those in A/B get a lump sum as standard, whereas C don't.

From from you say, it sounds like you're in C?

Some people prefer the bigger income because that's paid for life and is index linked, but more income tax may well be payable over time as a result.
While some prefer the max tax free lump sum because it's money upfront and less tax may be due.

In practice there isn't really a definitive yes or no answer, as it'll come down to personal choice/circumstances, etc.

It's possible to take the max 25% tax free lump sum, no lump sum at all, or somewhere in between.

[wolfman]

Thank you Robert. I am actually in section A/B. I assume I get 2 choices then 25% and somewhere in-between 0 & 25%?

[RobertT]

Thank you Robert. I am actually in section A/B. I assume I get 2 choices then 25% and somewhere in-between 0 & 25%?

You can:

Take the standard pension and lump sum.
Reduce the pension for a bigger lump sum, upto a max of 25% of pot value.
Reduce the lump sum for a bigger pension.

Bearing in mind you'll also have the DBCBS which might negate the need to give up any pension.

[wolfman]

Thank you Robert that's cleared everything up for me. Appreciate you replying to my questions

[sweepster70]

The majority of the Cash Balance(DBCBS) is payable with NRA65 benefits, so you need to work out NRA60 and NRA65 separately.

The best way is to assume your pension equals 75% of your pot, therefore the maximum tax free lump sum is the other 25%.

For example:

NRA60 = £9,000 x 20 = £180,000. Max tax free lump sum = £60,000.
NRA65 = £3,000 x 20 = £60,000. Max tax free lump sum = £20,000.

Any excess cash, once the tax free lump sum has been paid by AVC's and DBCBS, can be taken as a Uncrystalised Pension Funds Lump Sum. Which means the first 25% of that is also tax free, with the remainder being classed as income and coming under normal PAYE income tax rules.

RobertT, am I doing something wrong as 25% of £180,000 is £45,000.
My NRA60 at the moment is as good as £10,000. What would my lump sum be?

[RobertT]

The majority of the Cash Balance(DBCBS) is payable with NRA65 benefits, so you need to work out NRA60 and NRA65 separately.

The best way is to assume your pension equals 75% of your pot, therefore the maximum tax free lump sum is the other 25%.

For example:

NRA60 = £9,000 x 20 = £180,000. Max tax free lump sum = £60,000.
NRA65 = £3,000 x 20 = £60,000. Max tax free lump sum = £20,000.

Any excess cash, once the tax free lump sum has been paid by AVC's and DBCBS, can be taken as a Uncrystalised Pension Funds Lump Sum. Which means the first 25% of that is also tax free, with the remainder being classed as income and coming under normal PAYE income tax rules.

RobertT, am I doing something wrong as 25% of £180,000 is £45,000.
My NRA60 at the moment is as good as £10,000. What would my lump sum be?

As I said upthread, the figures show the maximum tax free lump sum that can be funded by AVC's and the DBCBS.

So the pension element(NRA60/NRA65) makes up 75% of your pot value and your AVC's and the DBCBS make up the other 25%.

If you haven't got AVC's, it's obviously irrelevant.
The DBCBS is predominantly to be used with NRA65.

[heapsy]

wolfman wrote: ↑Wed May 31, 2023 4:51,pm
Is there any advantage/disadvantage in taking your max 25% tax free lump sum from your NRA 60 pension? Or is taking the 25% always the best option? I take it you get 2 options, the other one being a lesser lump sum for a higher monthly amount?


Section B members have got the best of both worlds. Higher pension payments with higher increases, and a lump sum on top.
Up until recently, with higher interest rates for savers now available, section C members may well have been better off taking the larger pension and forgoing the lump sum. Perhaps investing elsewhere to provide the lump sum, with cash to spare if they did well.
The problem with DB schemes is that we only get one chance to take the lump sum. This lead to some people taking risks with their savings as they had little to no experience of investing. It takes around 18 to 19 years to get back through higher pension payments, the lump sum you could have up front instead. And then it will be most likely taxed as Bob says. Factor in interest on those savings, yes I know, very low returns for around 13 years, you have the perfect conditions for someone messing up their retirement.

I went through a divorce, and so didn't start paying AVCs until 2015. I'm section C, and am roughly around Bobs age and service profile. I cannot work out my Cash Balance figures, and I know I almost certainly wont get the full lump sum from my AVCs. I'm going to take the maximum lump sum I can from the NRA60 pension, which I think will leave me around £9,000 short. I invest in a S&S ISA. One of the funds I invest in will be used to make up the lump sum. Vanguard Lifestrategy 100. I will continue to pay into this until I retire and hope to have around £25,000 in this alone. (I will use the AVC payments to fund this) hopefully in just over 4 years, as the AVCs to the current pension will stop when the scheme closes. I will most likely use the AVCs as a supplement to the NRA60 up until my state pension and not take the NRA65 until 65.

Hope this helps someone reading this thread. It's a minefield trying to work out whats best and any thoughts and ideas are best shared.
Sorry for the long post.