Pension Illustration Today

[RobertT]

I agree nataddick. This illustration is based on certain assumptions, which may or may not turn out to be true. To some degree that’s always the case with these things, but there’s so many variables that it can’t really be trusted to provide accurate figures, particularly for younger members.
So these are some observations I made:

1. The figures are based on our pay increasing by CPI until we reach 60 or 65, it may not!
2. The quoted rates for RPI & CPI might be higher or lower.
3. The quoted CPI+2% return on Cash Balance investments might be higher or lower. And no mention of where our money will be invested.
4. The value of AVC’s are not included, so for me it is not a ‘personalised illustration’.
5. The pension supplement(section C) is not included.
6. Any annuity purchased would be inflation proofed & a 50% spouses pension on death. In practice many probably wouldn’t buy such an annuity.
7. The lump sum at 60 figures are based on no reduction for early payment, which might not actually be the case.

But for me the biggest problem with this illustration is the lack of any information on the alternative DC option, which may well be better for many. So RM:

1. What are the proposed investment choices?
2. What are the annual charges?
3. Are the DC choices assumed to provide higher or lower returns than Cash Balance option?
4. How much will we get at 60 or 65 with a potentially larger or smaller pot?

In short this illustration is another poorly written offering that seems to ask more questions than it answers. It does its best to hide the fact that RM’s latest pension proposal is nothing short of a defined contribution scheme which offers no guarantees whatsoever, other than you’ll get back what you put in. Or possibly not if you choose to take your cash balance before 65!

Treat it as a rough guestimate of what you might get, nothing is written in stone.

[Chimps_tea_party]

I gave mine to the recycling bin.

[Rommagic]

I am 37 with 16 years service it says at 60 my lump sum would be £72,435 under the proposal also is it right plus £8,894 a year pension.i think they are telling lies take lump sum at 60 then they would give you less then £9k a year pension.

[RobertT]

I am 37 with 16 years service it says at 60 my lump sum would be £72,435 under the proposal also is it right plus £8,894 a year pension.i think they are telling lies take lump sum at 60 then they would give you less then £9k a year pension.

Without seeing exactly what your illustration says, or what your hours/wages are, it’s hard to say whether it’s correct or not. But you’re in section C so you don’t get a lump sum as standard from your RM pension up to 31st March 2018.

From then on all we’ll be doing is building up a pot of money to fund the lump sum, so with potentially 23 years of savings in front of you, taking you to 60, your pension won’t be accruing other than with inflation and you should amass a decent sized lump sum.

[heapsy]

I agree nataddick. This illustration is based on certain assumptions, which may or may not turn out to be true. To some degree that’s always the case with these things, but there’s so many variables that it can’t really be trusted to provide accurate figures, particularly for younger members.
So these are some observations I made:

1. The figures are based on our pay increasing by CPI until we reach 60 or 65, it may not!
2. The quoted rates for RPI & CPI might be higher or lower.
3. The quoted CPI+2% return on Cash Balance investments might be higher or lower. And no mention of where our money will be invested.
4. The value of AVC’s are not included, so for me it is not a ‘personalised illustration’.
5. The pension supplement(section C) is not included.
6. Any annuity purchased would be inflation proofed & a 50% spouses pension on death. In practice many probably wouldn’t buy such an annuity.
7. The lump sum at 60 figures are based on no reduction for early payment, which might not actually be the case.

But for me the biggest problem with this illustration is the lack of any information on the alternative DC option, which may well be better for many. So RM:

1. What are the proposed investment choices?
2. What are the annual charges?
3. Are the DC choices assumed to provide higher or lower returns than Cash Balance option?
4. How much will we get at 60 or 65 with a potentially larger or smaller pot?

In short this illustration is another poorly written offering that seems to ask more questions than it answers. It does its best to hide the fact that RM’s latest pension proposal is nothing short of a defined contribution scheme which offers no guarantees whatsoever, other than you’ll get back what you put in. Or possibly not if you choose to take your cash balance before 65!

Treat it as a rough guestimate of what you might get, nothing is written in stone.

For me the Cash Balance scheme seem to fit the bill for my circumstances. The thing that bothers me is the uncertainty regarding increases. A bit ad hoc. You MAY, or may NOT receive an increase? Wouldn't be so bad if it was a guaranteed sum, based on investment returns. As an amateur investor, and might I say, a reasonably good one, I'm easily beating 2% by some margin, so I don't understand why increases cannot be a bit more specific and consistent.
The DC option is little better. The choice of funds still I imaging quite restrictive, given that some of our colleagues may have some years to go before they can finish.
Am I right in thinking, except for reductions for early payment, the NRA is fixed at 65?

[fly-catchers]

Still no sign of the RMPP 2017 Benefit illustration! I wonder if RM asked the trustees to delay it?

[heapsy]

Still no sign of the RMPP 2017 Benefit illustration! I wonder if RM asked the trustees to delay it?

Some people in our office have got theirs, but I'm not sure how many. Been on leave. Mine hasn't arrived yet.

[RobertT]

For me the Cash Balance scheme seem to fit the bill for my circumstances. The thing that bothers me is the uncertainty regarding increases. A bit ad hoc. You MAY, or may NOT receive an increase? Wouldn't be so bad if it was a guaranteed sum, based on investment returns. As an amateur investor, and might I say, a reasonably good one, I'm easily beating 2% by some margin, so I don't understand why increases cannot be a bit more specific and consistent.
The DC option is little better. The choice of funds still I imaging quite restrictive, given that some of our colleagues may have some years to go before they can finish.
Am I right in thinking, except for reductions for early payment, the NRA is fixed at 65?

Going by the info we have, it seems the Cash Balance scheme will have an NRA of 65, but the details are a bit vague. See page 7 of the illustration where it says:

….It is possible that in some circumstances a reduction might be applied to the accumulated lump sum if it is taken early.

The DC option doesn’t seem to have an NRA other than the legal minimum age of 55. Although they haven’t exactly gone into detail with any of the DC proposals.

So personally when choosing which to go for, I think the first thing you need to decide, is at what age you want to take the money you’re building up.

If that’s at 65, then you have the choice of CB and its minimum guaranteed amount. Or to try your luck with whatever funds are available with DC.
But if you plan to access the money before 65, then DC would perhaps be a better option.

Also, there is the option to swap from CB to DC if you want – but not the other way round, so that could be useful if your plans change at some point!

Pensions are always very individual based on your own circumstances!
Personally I see DC as the way to go. I’ve already got AVC’s to fund my tax free lump sum and retirement from 60, so don’t really need any more money to do that. So I see this as extra money, along with a personal pension i already have, to fund my early retirement from 55.

[RobertT]

As Robert mentions above, the only meaningful illustration for me is the impending annual one prepared by the Trustees as at 31 March 2017. I understand that this will ONLY show what has been accrued, as at that date, as the basis for any scheme from 1 April 2018 is stilll to be decided. Whether it will show the CSDB block for the final year remains to be seen

Still no sign of the RMPP 2017 Benefit illustration! I wonder if RM asked the trustees to delay it?

Some people in our office have got theirs, but I'm not sure how many. Been on leave. Mine hasn't arrived yet.

For those not yet received their annual statement(myself included), you can now view what it looks like on the pensions website.

Section A/B: https://www.royalmailpensionplan.co.uk/ ... ur-pension" onclick="window.open(this.href);return false;
Section C: https://www.royalmailpensionplan.co.uk/ ... ur-pension" onclick="window.open(this.href);return false;

[heapsy]

As Robert mentions above, the only meaningful illustration for me is the impending annual one prepared by the Trustees as at 31 March 2017. I understand that this will ONLY show what has been accrued, as at that date, as the basis for any scheme from 1 April 2018 is stilll to be decided. Whether it will show the CSDB block for the final year remains to be seen

Still no sign of the RMPP 2017 Benefit illustration! I wonder if RM asked the trustees to delay it?

Some people in our office have got theirs, but I'm not sure how many. Been on leave. Mine hasn't arrived yet.

For those not yet received their annual statement(myself included), you can now view what it looks like on the pensions website.

Section A/B: https://www.royalmailpensionplan.co.uk/ ... ur-pension" onclick="window.open(this.href);return false;
Section C: https://www.royalmailpensionplan.co.uk/ ... ur-pension" onclick="window.open(this.href);return false;

Cheers for that.

[Rommagic]

I am 37 with 16 years service it says at 60 my lump sum would be £72,435 under the proposal also is it right plus £8,894 a year pension.i think they are telling lies take lump sum at 60 then they would give you less then £9k a year pension.

Without seeing exactly what your illustration says, or what your hours/wages are, it’s hard to say whether it’s correct or not. But you’re in section C so you don’t get a lump sum as standard from your RM pension up to 31st March 2018.

From then on all we’ll be doing is building up a pot of money to fund the lump sum, so with potentially 23 years of savings in front of you, taking you to 60, your pension won’t be accruing other than with inflation and you should amass a decent sized lump sum.

Thanks the lump sum is still down by £8k also annual pension down over £3k a year.So if I stayed till 65 I would be down £77k so this is why I vote to strike.

[nataddick]

Thanks Robert for the link to the 2017 Benefit Illustration - I am hoping my own will arrive sometime soon !

At least I can now read up o the detail. Cheers mate.

[BeamishStout]

Some of us may well be old enough to remember the shortfalls created in endowment mortgages due to over-optimism on future returns and an acceptance that quoted figures would be realised. That certainly happened with yours truly but I was fortunate that I had down-sized my house in the years after I had taken it out. In my case the £32 K endowment mortgage only realised £25 K at maturity but at least it covered the remaining mortgage I had at the time. It strikes me that the various schemes being touted by RM have the same kind of authenticity as these endowment illustrations of yesteryear.

Certainly true to say that these illustrations are guesstimates at best and taken with a very huge pinch of salt due to the many reasons listed by many of the posters in this thread.

[heapsy]

Some of us may well be old enough to remember the shortfalls created in endowment mortgages due to over-optimism on future returns and an acceptance that quoted figures would be realised. That certainly happened with yours truly but I was fortunate that I had down-sized my house in the years after I had taken it out. In my case the £32 K endowment mortgage only realised £25 K at maturity but at least it covered the remaining mortgage I had at the time. It strikes me that the various schemes being touted by RM have the same kind of authenticity as these endowment illustrations of yesteryear.

Certainly true to say that these illustrations are guesstimates at best and taken with a very huge pinch of salt due to the many reasons listed by many of the posters in this thread.

What gets me about this is that everyone now knows that these types of pensions are flawed. It is miss-selling on an industrial scale. I cannot understand why it is STILL being allowed, other than to force people to work longer. Also, I've mentioned how poor peoples pensions will be in work, and the apathy of some is unbelievable. I'm sure they think the government are going to bail them out like in the past.

[RobertT]

The problem with DC schemes(which the cash balance pension is) is they don’t provide any guarantees of income in retirement for the worker. While DB pensions are a noose around the necks of many companies due to having to provide those guarantees.

Personally I don’t think DC pensions are flawed, they just provide a different thing, i.e a pot money. Really it’s the way people sometimes choose to invest their pots of money that’s flawed.

When we’re building up a DC pension we get generous tax breaks and employer contributions, so the money grows quickly. We then have choices where to invest to make our money grow, and if we make the right choices, we could end up with considerable sum. It’s then the real choices need to be made!

We can either buy an annuity(which used to be compulsory) with no say over how that money is invested. Most of it will be in government bonds and we all know how bad they are due to low interest rates and QE, etc.
Or we could continue with our own choice of investments and draw an income from our pension pot for years to come, and still potentially leave some for relatives on our death.

DC pensions are generally no match for the guarantees their DB equivalents provide, unless you’re prepared and able to invest much more money. But I do believe they have their place, mainly as an addition to the guarantees a DB and the state pension provide, or to enable early retirement.

The problems arise when a majority of an individual’s pension provision is made up from DC schemes. That will increasingly be the case as more and more DB schemes close not only to new entrants into a company, but existing ones too. It’s not a pleasant thought, but its reality!

The government introduced auto-enrolment in 2012 to encourage more people to save for their own retirements and that means employers have to contribute aswell, with probably all of those schemes being DC and with low minimum contribution rates.

With life expectancy increasing drastically over the last 30-40 years and the state pension age going up too, it’s now more important for the individual to take a more proactive role in how they’re going to fund their own retirement. Sadly not enough people do.