Royal Mail pension news and discussion.Please note the advise given in this forum is unofficial, please use the links we have for a more detailed response or see an independent financial adviser.
RobertT wrote:The Defined Benefit Lump Sum Scheme would be used to provide the lump sum element of the CDC scheme. Therefore, for the new scheme to fit in with current UK pension rules and so we can still benefit from the usual 25% tax free element, the two schemes will need to be ‘joined together’ legally to enable that.
No it won't.
There is no lump sum element of the CDC scheme, the whole point of a CDC scheme is to keep the assets inside, if you allow members to take out lump sums it collapses very quickly.
The DBLSS is instead of a lump sum in the CDC but unless new legislation allows tax free lump sums in one pension scheme to be offset against another (and that would lead to chaos) it will not be linked to the CDC in any way. The agreement makes it clear and I don't know how many times I can type the words "stand alone".
The problem with this arrangement is that at present tax rules say that you can only take 25% of your lump sum tax free out of a stand alone cash balance scheme, not 25% of the plan value as with the transition DBCBS which is linked to the RMPP.
RobertT wrote:The Defined Benefit Lump Sum Scheme would be used to provide the lump sum element of the CDC scheme. Therefore, for the new scheme to fit in with current UK pension rules and so we can still benefit from the usual 25% tax free element, the two schemes will need to be ‘joined together’ legally to enable that.
I have enough money in my avc to fund my 25% lump some and not reduce my pension. So would it be a good idea to stop paying into avc fund and investing in something else?
The maximum you could take from the pension pot tax free is 25%. If your AVCs are more than that then some would be taxed. I started late with AVCs, so am hoping they continue until I can achieve the maximum amount permitted. I also pay into a stocks and shares ISA. Pros and cons with both. The ISA route is more expensive, as you need a minimum of £50 per month, per fund, in most cases. However, in my case, section C member of the scheme, I intend to top up my monthly income with cash from the ISA tax free. for me, I consider it worthwhile. I will also have a private pension I am currently paying into. I will be leaving the NRA65 until I reach 65. I should be able to avoid tax completely until then, assuming I actually retire at 60. Hopefully
I have posted the above reply for a reason. I hope people might realise there are other ways to bridge the pension gap and cut through the mess created by poor planning and negotiating by our union over the years. They have avoided educating people about pensions, using the excuse that they cannot give advice. That is wrong. Advice is when someone tells you that one fund is better than another. THAT would be wrong. The above route would enable people to smooth things over and perhaps allow for part time work elsewhere from 60, if they need / wish to. A long winded post I know, but sometimes it is the only way to get your point across and explain something in words, people who perhaps are not as clued up, can actually understand. I hope whoever reads this will find it useful. Anyone who needs some more info can pm me.
heapsy wrote:
The maximum you could take from the pension pot tax free is 25%. If your AVCs are more than that then some would be taxed.
Heapsy, you will only pay tax on the excess if you take it at the same time as your tax free cash.
You can actually transfer that excess cash out and into another pension arrangement at the time and draw it down without paying tax on it, assuming your total income is less than the personal tax allowance.
jetblack wrote:Well, I spose we are all learning toomuchcoke, this is, after all, a ridiculously complex and convoluted way around the houses - but it was my understanding that the DC scheme will indeed still be an option - albeit with a reduced level of employer contribution.
Of course, as Nat has already stated upthread, the idea is to encourage us to all throw our hat in with the new CDC scheme. This much we know.
Given the difference in contributions levels between the current DC scheme and the CDC scheme, it would take a courageous person (in the Yes Prime Minister sense of the word) to decide that they could somehow manage to overcome that difference through improved investment performance. Especially given that the DC scheme isn't a SIPP and in fact has a rather limited fund choice[1].
jetblack wrote:Two different levels of employer contribution cannot be justified when the employer is not defining a benefit on retirement for either scheme.
Well there's three different levels of employer contributions in the current DC scheme.
[1] Though to be fair said limited choice is probably more of a feature than a bug as far as most people are concerned.
heapsy wrote:
The maximum you could take from the pension pot tax free is 25%. If your AVCs are more than that then some would be taxed.
Heapsy, you will only pay tax on the excess if you take it at the same time as your tax free cash.
You can actually transfer that excess cash out and into another pension arrangement at the time and draw it down without paying tax on it, assuming your total income is less than the personal tax allowance.
True, there is also that option. I suppose it depends on amounts and if it is worth it. Aren't there tax implications when you take lump sums, due to the tax man thinking that it will be a continuous practice each year?
RobertT wrote:The Defined Benefit Lump Sum Scheme would be used to provide the lump sum element of the CDC scheme. Therefore, for the new scheme to fit in with current UK pension rules and so we can still benefit from the usual 25% tax free element, the two schemes will need to be ‘joined together’ legally to enable that.
I have enough money in my avc to fund my 25% lump some and not reduce my pension. So would it be a good idea to stop paying into avc fund and investing in something else?
I have posted the above reply for a reason. I hope people might realise there are other ways to bridge the pension gap and cut through the mess created by poor planning and negotiating by our union over the years.
Spot on I remember when I joined at 16 they told me I had a job for life and a great pension!
Luckily I have made a few decisions in my life investing in other markets and assets.
Not all have gone well but I did not take all the union told me for granted and made my own decisions which I take all responsibility for.
If it goes wrong I have to deal with it and act accordingly to support my family
fishtank wrote:The DBLSS is instead of a lump sum in the CDC but unless new legislation allows tax free lump sums in one pension scheme to be offset against another (and that would lead to chaos) it will not be linked to the CDC in any way. The agreement makes it clear and I don't know how many times I can type the words "stand alone".
I don't believe any new legislation is actually required on this point. (Though obviously some on the whole CDC side of things is required.) There would be the "New Royal Mail Pension Scheme" which from our POV is just an administrative wrapper within which there is the DBLSS and CDC schemes, no difference in principle from a Section C member also paying into a Bonus Plan AVC or someone in a defined contribution who had both a "protected rights" and a "non protected rights" funding within their pension (when protected rights was still a thing).
The alternative is to believe that the Royal Mail's board, their pension advisors, the CWU and their pension advisors are all collectively either completely incompetent and/or attempting to deliberately defraud us for the benefit of HM Treasury?
The alternative is to believe that the Royal Mail's board, their pension advisors, the CWU and their pension advisors are all collectively either completely incompetent and/or attempting to deliberately defraud us for the benefit of HM Treasury?
It's neither of the two if you think about it clearly.
The interim Cash Balance Scheme had to be inside the RMPP so that members could take a tax free element of their lump sum equal to 25% of the value of their RMPP pension 2012-2018. This is fact and stated in the literature.
As this would have little value Royal Mail also wanted to link the interim Cash Balance Scheme to the pre-2012 RMSPS scheme where the bulk of members pension value lies. This is fact and stated in the literature. This would have allowed members to offset 25% of the full value of their pension as a tax free lump sum. This would mean pretty much anything built up in the Cash Balance scheme over the next 5-10 years would have been available at retirement tax free. At roughly £5k per year that's anywhere from £25-50k
The new DBLSS scheme is not linked to the RMPP or the RMSPS. It is a stand alone cash balance scheme and as such it will follow the tax regulations for a stand alone scheme. 25% of the lump sum is tax free not 25% of your pension plan value. At roughly £750 per year for 10 years that's about £1,800 tax free.
Fishtank: You keep saying that the DBLSS is a standalone scheme and it’s in the agreement. I cannot find where it says that, so can you point me in the right direction please?
Is it not the case that bonus plan and flexi plan are standalone schemes but can also be linked to your RMPP & RMSPS benefits to provide the tax free lump sum at retirement?
So why can’t the DBLSS also be linked to the CDC to provide a tax free lump sum?
The literature says the DBLSS will sit alongside the CDC. Do AVC’s not sit alongside the RMPP & RMSPS, and will the DBCBS not also sit alongside the RMPP & RMSPS?
So why can’t the DBLSS also be linked to the CDC to provide a tax free lump sum?
Because you can only commutate a DB pension.
You can take 25% tax free out of a DC scheme but that's because a DC scheme is basically a lump sum.
This CDC is neither a DB scheme with a guaranteed value that could be reduced by a tax free lump sum nor is it a true DC scheme where you could take part of your pot tax free because technically you don't even have a pot.
It falls between the two and at the moment the only part that would qualify for tax free status would be 25% of the DBLSS which isn't a lot. It's difficult to imagine how to square that circle.
Maybe the CDC scheme will actually be essentially the same set up as the RMPP!
The RMPP is invested in different asset classes, with many different fund managers – around 30 I believe, all aimed at funding the liabilities of the scheme and paying out our pensions and lump sums when we take our benefits. There is not a separate scheme to fund our pensions and another one to fund our lump sums. In effect it’s all one big pot of assets/cash to fund the lot!
So why shouldn’t the CDC scheme be the same?
All 19.6% of contributions go into the pot and invested in a similar way as above – various smaller pots joined together to make one CDC fund.
Our benefits will accrue as stated – 1/80ths for the pension and 3/80th for the lump sum, and they are then paid out of the pot when they become due. It works for the current DB scheme. So as the CDC aims to provide similar benefits, why would it be any different? It’s still basically a big pot of money aiming to fund the schemes liabilities!
The lump sum element will equate to around 10-15% of the total value of your total benefits, depending on how the actuaries work things out. So as UK pension law enables us to take 25% of our benefits tax free, I would imagine we could then commute some pension to get a larger lump sum if we choose, in a similar way to how section C members can with their RMPP benefits now.
But I doubt if they’ll be the option to do give up some lump sum for a higher pension!
Our own slice of the CDC cake will have a value based on what we’ve accrued in a similar way to the DB scheme currently. But how the unguaranteed nature of the scheme will affect that value will be decided by the actuaries, and is I suspect part of the secondary legislation.
Any decision to take your benefits before the NRA of 67 would mean a reduction.
And presumably there will also be the ability to get a CETV and transfer out into a normal DC arrangement if desired.
The main difference between DB and CDC is the way the money is paid out. i.e DB is guaranteed and index linked, while CDC is variable depending on investment performance with in our case also a guaranteed lump sum.
In my opinion there will be no standalone DBLSS! There is no mention of anything being standalone in the agreement, just that the DBLSS will ‘sit alongside the CDC’, which I admit is a bit vague(as is most of the agreement).
Obviously Fishtank is entitled to his opinion, as we all are, and without any firm information so far, we can only really guess what’s going to happen. But I am also entitled to my opinion and I don’t think what Fishy has been peddling on these threads will bear much resemblance to reality.
Hopefully the impending booklet coming through our letterboxes will clear everything up.
What happens to my current Dc put once I move across to the transition scheme? Does it stay as it is and stay in it's own pot and a new pension starts,or does it transfer over into the new collective pot?
