Lump sum calculation

[RobertT]

Section B members have got the best of both worlds. Higher pension payments with higher increases,

This year has been the only one I remember where sections A/B got a higher increase in their pensions than section C. Which is because C pension increases are based on RPI and capped at 5% and A/B are CPI with no cap.

Based on historical data, both RPI and CPI are usually below 5%, while CPI is usually lower than RPI.
Only time will tell how long the current high rates of inflation will continue.

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.

Many people don't even think about investing their lump sum to make it last into retirement!
A mate of mine took his NRA60 at 60 with max lump sum(no AVC's), with the intention of semi retiring and working very low part time hours until SPA. But he spent most of his money on a new car he didn't need, and a few luxury cruises.
He's now back working full time(not at RM)!

I cannot work out my Cash Balance figures,

In what way?

I've found that working out how much Cash Balance(DBCBS) you can take with NRA60 compared to NRA65 is virtually impossible, as there doesn't seem to be a formula we can use. Although the PSC will presumably have one!
Plus income tax will be payable on it with NRA65 benefits, for most people.

If you just want to know how much it's currently worth, that's fairly easy based on the info we have at our disposal:
Latest valuation, last %age increase and wage slips to show contributions.

[heapsy]

Section B increases are not limited to 5%, unlike section C. Yes, CPI is slightly lower but section C increases will never beat section B in terms of monetary value due to the LEL. Payiong 6% of pensionable pay makes a hell of a difference when there was a reduction in real terms because of the LEL AND no lump sum.

[RobertT]

The accrual rate for section C is higher at 1/60ths of pensionable pay, compared to 1/80ths for section B.

Even accounting for the LEL, Section C will get higher pensions than B, assuming pay and allowances are the same. Based on previous years, they will also get higher inflationary increases each April.

The fact that C don't get a standard lump sum and the cost of commuting pension to get the same level of lump sum than B, means that overall C provides lower benefits. Although section B members pay more(due to no LEL), so it's not too unreasonable that they're also going to get more.

Section C members have the option to get more employer contributions via Bonusplan to help make up for having no standard lump sum.

The sections are different, they always have been and they always will be!

[renrag40]

The simple truth about pensions is that the more that gets put in the pot the higher the pension at the end.
The people employed by Royal Mail in 1985 didn't sell out their future work colleagues any more that the people employed in 2008 did. They weren't given the choice at the time. It was effectively imposed by the employer after some "fig leaf" negotiations with the union.
Pretty much the same way Royal Mail will back out of their commitment to the prospective CDC scheme....... we will not get a say in the matter....... they will find the cost to onerous ......... and we will be moved into a Defined Contribution scheme with less employer contributions than the present 10% that Royal Mail pay into the RMDC scheme.
Royal Mail couldn't care less about you. If the last year has proved anything it is that.

[RobertT]

The simple truth about pensions is that the more that gets put in the pot the higher the pension at the end.
The people employed by Royal Mail in 1985 didn't sell out their future work colleagues any more that the people employed in 2008 did. They weren't given the choice at the time. It was effectively imposed by the employer after some "fig leaf" negotiations with the union.

Yep!
Employers have a legal obligation to have a consultation period, when members and unions have the opportunity to raise their concerns about changes. From memory that happened regarding alterations to RM pensions in 2008, 2014 and 2018. I can't comment about before 1987 as I wasn't with the company then.

Ultimately the company can do what they want, as long as they meet basic minimum contributions.

Pretty much the same way Royal Mail will back out of their commitment to the prospective CDC scheme....... we will not get a say in the matter....... they will find the cost to onerous ......... and we will be moved into a Defined Contribution scheme with less employer contributions than the present 10% that Royal Mail pay into the RMDC scheme.
Royal Mail couldn't care less about you. If the last year has proved anything it is that.

Officially they're still going ahead with it, but I wouldn't be surprised if it gets kicked into touch.

The costs of CDC are broadly similar to the costs of the current schemes, and putting everyone in a DC scheme with legal minimum contributions will save around £300 million per year.

I hope CDC does start and is a success well into the future, but pensions are potentially a prime target for savings!

[renrag40]

I don't think Royal Mail will go for the minimum contribution option. After all even though they are destroying our Ts & Cs they still have the bare-faced cheek to crow about how they are still offering industry leading Ts & Cs. Personally I think they will settle at a 6% employer contribution level....... so they can crow about how they are matching the employee contribution level...... while at the same time robbing future employees of benefits presently enjoyed by employees in Sections A, B, C and F.
Again this will not be a case of the present employees looking after themselves at the expense of future employees.just as it wasn't in 1971, 1985, 2008, 2010, 2014 and 2018. It will be a case of Royal Mail continuing a trend it started over 50 years ago of washing its hands of the their social responsibility to provide a decent retirement for people who have given them decades of loyal service.

[renrag40]

Correction: that should be 1987 not 1985.
1985 was when I sold myself down the river by joining Royal Mail.
1987 was when Royal Mail closed Section B to new entrants.

[RobertT]

'87 is when I started and I missed out on section B by a matter of weeks.

I've never moaned about it because it's always been out of my control. Instead, I've concentrated on making the most of what I have got.

[wolfman]

With the pension increase this year for section A/B members being 10.1%, what would be the financial difference if I took my pension now compared to leaving it another year? I know about the 5% reduction for each year taken early but if I could leave it another year, and I'm guessing it's going to increase close to 10% next year with inflation, does that have any impact on taking it early?
In short is it even more reason to leave your pension with interest rates being so high or is there little difference apart from the 5% loss?

[fly-catchers]

If you took your pension any increase would be pro rata so you wouldn't get the full increase necessarily. That depends on how far your birthday is from April when the increase is added. Plus if you took your pension early the amount being increased would of course be smaller as well.

[fly-catchers]

If you took your pension any increase would be pro rata so you wouldn't get the full increase necessarily. That depends on how far your birthday is from April when the increase is added. Plus if you took your pension early the amount being increased would of course be smaller as well.

[wolfman]

Thanks for the reply fly. So if I was on £800 a month it would be £880 now but if I had chose a bigger lump sum and £600 a month it would be £660? If inflation stays fairly higher for a few years that extra amount each month could soon add up to quite a bit more.

[RobertT]

The effect of inflation tends to be something many people don't think about too much. But over the course of time, it can have a big impact on your income.

Ultimately, the higher your starting pension figure, the higher your annual increases are going to be, and they will be compounded over time.

For example:

An income of £800 per month today and a 5% inflation rate would steadily increase to £2,122 per month after 20 years.

But an income of £600 would only increase to £1,591 over the same period.
You might have a lump sum up front instead, but they tend to get spent relatively quickly.

Both of those 20 year figures sound quite a lot, but your costs will increase over time aswell!

The Bank of England thinks inflation will drop sharply over the second half of 2023, with their aim being to bring it down to 2%: https://www.bankofengland.co.uk/explain ... eep-rising

We'll have to wait and see if they're correct!
The latest figures are due out on 21st June.

[wolfman]

Thanks Robert. That is leaning me towards a lesser lump sum and a larger monthly amount when I do decide to take it. Just another quick qestion if you dont mind. Earlier in this thread you advised me that... "Bearing in mind you'll also have the DBCBS which might negate the need to give up any pension." I'm not sure how that works and what you mean by that? My position is my mortgage rate is up at 1.69% in about 5 months and that is going to go up to around 5% or more. I would like to pay some of this off so im not stung with the extra interest rate, but then leaving your pension until as late as possible is financialy a better chioice. Was your advice a way of taking a lump sum without the need to give up any pension? Im in section A/B.

[RobertT]

As you're in section A/B, you get a lump sum as standard when you take your NRA60/65 benefits. But you have the choice to give up some or all of your lump sum, to provide more pension if you want to.

The DBCBS is a separate lump sum, which you've been building up since 2018. That is predominantly attached to your NRA65 benefits and can be used to fund a bigger lump sum alongside your main benefits. But you likely pay tax on some of that, as you can only take 25% of your 'pot' tax free. Or else, replace the lump sum you've given up for more pension.

It can also be transferred out to a personal pension and accessed from there. Although by doing that only 25% of it will be guaranteed to be tax free, with the remainder being classed as income under normal PAYE rules. Plus you'll also have to leave the RMPP.