MTSF estimated offer

[N1-22postman]

Hi - I would appreciate any views on my MTSF estimated offer.Management at our delivery office are making offers to 4 postmen.I am 62,done 35 years and a Section B (POSSS) member and been offered £13,500 compensation + £1,272 annual pension and £3,816 POSSS lump sum.
I assume the £13,500 is 26 weeks pay and the £1,272 is the "up to 6.66 years pension enhancement". So, how many years is £1,272 and how is the number of years that I am entitled to calculated? Finally am I being offered Termination by Mutual Agreement,Early Voluntary Redundancy or Early Voluntary Retirement? Does what it is called affect whether I pay tax on the £13.500 Lump Sum.
Many Thanks N1-22 postman

[barrowc]

Have you taken any of your pension already - i.e. the NRA60 part? I presume you must have because there's no obvious benefit in deferring it

[N1-22postman]

Hi barrowc thanks for your interest - I took my NRA60 part of my pension at 60 because (as you inferred) there was no obvious benefit in deferring it and in fact I would have been worst off if I had not taken it.I am still paying into the pension scheme.
I was hoping for the 2 years salary compensation lump sum. Why are over 60`s treated differently and not offered this?
Still,I will be very grateful to be get out with something if I get it - we started transformation last week after they had cut 9% our duties and it has been a nightmare so far.
Cheers N1-22 postman

[barrowc]

Sorry in advance for the wall of text...

The MTSF 2010 Agreement - see http://www.royalmailchat.co.uk/communit ... 67&start=0 - says the following in section 2.4.3 on page 24:

2.4.3 MEMBERS OF THE PLAN WHO HAVE TAKEN "FLEXIBLE RETIREMENT" ON OR AFTER 1 APRIL 2010

From 1 April 2010, members of the Plan have the option to take NRA 60 pension benefits (i.e. benefits earned up to 31 March 2010), to remain in service and earn more pension benefits payable at age 65 (NRA 65 benefits). Members who take flexible retirement with NRA 60 benefits will continue to have the pension and compensation options set out at 2.4.1 and 2.4.2 above. All service with the Company will count for this purpose even if members have taken pension in respect of service before 1 April 2010.

Members who take NRA 65 benefits will be deemed to have opted out of the Plan and will receive compensation only as set out in 2.1 above

As you are a section B member, the options in section 2.4.1 apply to you:

2.4 EMPLOYEES AGED 55-64 WHO ARE MEMBERS OF THE PLANS

2.4.1 MEMBERS OF SECTION A/B OF THE PLAN (FORMERLY POSSS)

Pension

Immediate payment of pension benefits accrued to date:

PLUS

An additional credit of 37.5% of the Reckonable Service (pro-rata according to the hours worked in the case of part-time employees) which could have been attained if service continued to age 65, provided that in no case shall Reckonable Service be increased to more than double its length and subject to HMRC limits and the rules of the Plan.

The additional Reckonable Service credit is calculated as 1/80th of CSDB Pensionable Salary over the last 12 months' Reckonable Service before retirement, for each year (and part year) of the additional Reckonable Service credit, plus

An additional lump sum calculated as 3 times this additional pension.

Compensation

Either: a compensation payment equivalent to 6 month's pay;

Or: Statutory Redundancy Payment;

whichever is the greater.

Here's what I think you would get based on the above information:

You've already taken your NRA 60 pension so we don't need to worry about that

Your NRA 65 pension started on 1st April 2010 so you have approx 3.5 years service in that. As you are 62, you would have somewhere between 2 and 3 years until you are 65. This will count as 3 years potential service.

37.5% of 3 years service is 1.125 years. Add that on to the 3.5 years you already have and that's 4.625 years. Therefore, your pension should be 4.625 divided by 80 then times your CSDB pay. It's hard to calculate that but if you use your current pay and knock a bit off then you won't be far away.

Working backwards, a pension of £1,272 p.a. should correspond to a pay rate of approx £22K - that is, 1272 times 80 divided by 4.625 = £22,002.16. Remember that this should be a bit less than your current pay because it's a career average salary pension and not a final salary pension.

The POSSS lump sum is just 3 times the NRA 65 pension.

For you, the compensation is likely to be Statutory Redundancy because that's usually more favourable for older staff. The maximum Statutory Redundancy payout is £13,500 (30 weeks at £450 per week) - there's a calculator at https://www.gov.uk/calculate-your-redundancy-pay. It's definitely a redundancy payment so should be tax-free for the first £30K

I think the "up to 6.66 years enhancement" you mentioned might be for ill-health retirement and not redundancy

The (up to) 2 years salary lump sum is for people who aren't in any part of the old section A/B/C schemes. So, by not having taken your NRA 65 pension, you're still in the scheme and thus get an enhanced pension with a small amount of compensation instead of no pension enhancement with a large amount of compensation

I think the union missed a trick on this part of MTSF for people with long service. For someone in your position, the MTSF enhancement to the pension is worth about £309 per year with an extra £927 on the POSSS lump sum. If you weren't in the pension scheme at all, you would get 2 years pay compensation (call it £44K) instead of the maximum statutory payment (£13.5K). This is a difference of £30.5K. Your enhanced pension will eventually pay back more than this but, assuming your pension went up by 3% a year, it could take nearly 50 years

I think that you would be well advised to consult with your union rep to confirm that this understanding is correct and to find out if you can take any action to improve this - e.g. could you take your NRA 65 benefits before accepting redundancy, I don't know if this is possible or what other implications it would have. Hopefully some other people on here might also have some experience with this

It's too big a decision to base on what someone on the internet told you so take proper advice on this one

[barrowc]

I should quickly add to the above that, if you take your NRA 65 pension early, there will be an actuarial reduction applied to it. The Pension Plan website doesn't specify how much that reduction would be. I have seen the figure of 5% per year used in other contexts but I'm not sure if it would apply here.

Here are some quick calculations:

NRA 65 - unenhanced with 0% reduction - £962.59 with lump sum of £2887.77. Years until lower amount of pension (compared to MTSF enhanced pension of £1272 and £3816 lump sum) equals £30.5K assuming 3% increase per year = 45 years

If 15% reduction applies (i.e. 5% per year): £818.20 with £2454.60 lump sum. Years to £30.5K = 36 years

25% reduction: £721.94 with £2165.82 lump sum. Years to £30.5K = 31 years

50% reduction: £481.30 with £1443.90 lump sum. Years to £30.5K = 24 years

These calculations are very simplistic. The 3% increase per year is just guesswork - a higher percentage increase per year would reduce the time needed to break even on the MTSF enhanced pension. It also ignores any return you could get on investing the higher lump sum you would get if you had already taken your NRA 65 pension.

Also, the 6.66 years increase in reckonable service is mentioned in the Section A/B Benefits on ill health, redundancy and early retirement booklet - page 7 of http://www.royalmailpensionplan.co.uk/d ... .08.12.pdf - for "Retirement on redundancy with immediate payment of benefits" but that page starts with the phrase: "Except for members in a grade represented by the CWU" because we're covered by the MTSF agreement instead

Definitely get advice on your options here

[N1-22postman]

So,the MTSF estimated offer will give me a £13,500 lump sum compensation which is probably a redundancy payment and this is tax free + an additional credit to my annual pension of 37.5% of reckonable service (2years 6months to 65 but 3 years if they use whole numbers) which is taxed (about £309) + an additional lump sum of 3 times this additional annual pension which is not taxed ( about £927). I mistakenly thought that the whole of the £1,272 annual pension in the MTSF estimated offer was in addition to my NRA65 pension which I am still paying into which makes the pension part of the offer miserly.
If, by coming out of the pension scheme immmediately and taking my NRA65 benefits early, well before my estimated last day of service (LDOS - I hate acronyms when you don`t know what they mean!) of 15/12/13, I could qualify for the MTSF offer of 2years pay (about £44,000) instead this would be much better for me. I would be very grateful if someone who has done this and it has worked would come forward and advise me.
Many thanks to you barrowc on your comprehensive reply and I hope this thread helps other postmen understand what is a very complicated process.

[barrowc]

No problem. You might want to speak to your union rep or branch to get their opinion on things. With the number of people who have left the business in the last few years, this situation must have arisen before.

There's a discussion on this same issue at http://www.royalmailchat.co.uk/communit ... 27&t=45039

I'll also post this quote from TBT on a different thread where someone had a similar issue and had been given advice by someone else on here:

Can I just add a word of caution - RobertT gives valuable advice and his input is certainly highly valued on RMC. However, if behoves me to point out that it is ALWAYS better to get advice from an Independent Financial Advisor especially if you are going to make a life changing decision as to when or whether to take a pension at a certain time.

[N1-22postman]

Got my final Voluntary Redundancy offer today and it is for £45.700 lump sum and not £13,500 + a small pension enhancement as originally offered.This is because I took the advice on this forum and came out of paying into all Royal Mail pensions.So for those over 60 who are offered voluntary redundancy while still paying into the pension this may be a better option for you - it certainly was for me.
Many thanks to those who told me what to do.

[barrowc]

Hooray!

[N1-22postman]

Thanks barrowc. It`s great to have stalwarts like you to help ordinary postmen on this forum.I found it difficult to get information from the Union initially despite it being a very important decision.

[taxi4leighton]

i think if you take everythinh when your 60 and stop paying pension subs,you would get 2 years wages for your evr

[Glenno]

Got my final Voluntary Redundancy offer today and it is for £45.700 lump sum and not £13,500 + a small pension enhancement as originally offered.This is because I took the advice on this forum and came out of paying into all Royal Mail pensions.So for those over 60 who are offered voluntary redundancy while still paying into the pension this may be a better option for you - it certainly was for me.
Many thanks to those who told me what to do.

lesson to be learnt here me thinks