Difference between the current scheme and Possible new scheme

[RobertT]

Cheers guys.

I don't claim to know everything, but I do my best to help and if I've helped a few of you along the way, that's great.

[Hawkey99]

Me again, LOL

So as an example, I hope to retirement about 57ish. I plan to take my NRA 60 & 65. I understand the % loss of both the NRA 60 & NRA 65 but still feel for me its the correct financial decision.

If the amount you have in your AVC/DBCBS is over 25% of your total pension you said you can put this into an SIPP and then draw it down.

However if your Royal Mail pension takes you over your the tax threshold surely you would also pay tax on 25% of any money you draw down from your SIPP.

My question is, is there any way to avoid tax on this SIPP.

If not is there any difference in paying tax when you take your AVC or paying tax when you draw down your SIPP.

Examples with completely made up numbers

Combined RMPP pensions £200,000
AVC/DBCBS £80,000

Tax free amount £70,000

So you would pay the remaining £10,000 (£80,000-£70,000) into a SIPP and then pay 25% when you draw this money down.Tax paid £2,500

If you just took it all out when you cashed in your pensions would you still just pay 25% of the excess £10,000 meaning £2,500.

Just trying to work put the SIPP logic.

I expect I have just confused myself even more but if you have any thoughts they would be appreciated.

[foxyjarvis]

Fully endorse the love being shown to Robert. On my London wage I' m putting £230 PW into my AVC. The max is circa £234, and with a 32% return it's a no brainer, if you can afford it.

[RobertT]

Me again, LOL

So as an example, I hope to retirement about 57ish. I plan to take my NRA 60 & 65. I understand the % loss of both the NRA 60 & NRA 65 but still feel for me its the correct financial decision.

If the amount you have in your AVC/DBCBS is over 25% of your total pension you said you can put this into an SIPP and then draw it down.

However if your Royal Mail pension takes you over your the tax threshold surely you would also pay tax on 25% of any money you draw down from your SIPP.

My question is, is there any way to avoid tax on this SIPP.

If not is there any difference in paying tax when you take your AVC or paying tax when you draw down your SIPP.

Examples with completely made up numbers

Combined RMPP pensions £200,000
AVC/DBCBS £80,000

Tax free amount £70,000

So you would pay the remaining £10,000 (£80,000-£70,000) into a SIPP and then pay 25% when you draw this money down.Tax paid £2,500

If you just took it all out when you cashed in your pensions would you still just pay 25% of the excess £10,000 meaning £2,500.

Just trying to work put the SIPP logic.

I expect I have just confused myself even more but if you have any thoughts they would be appreciated.

You are right to say the Personal Tax Allowance(currently £11,850) will come into the equation either way. It's just that tax is less likely to be an issue if you have a lower income, which most people do in retirement, especially before their state pension kicks in.

But the timing of when you take your pension/s can also be determine how much tax you pay!

For example: if at 57 your NRA60 pays out £9,000 per year & your NRA65 pays out £4,000, then you'll be paying tax on everything over the PTA including any other income from your SIPP, etc.

But if you only take your NRA60, then you'll have £2,850 spare allowance which you can use up by drawing down your excess AVC/SIPP.

You then take your NRA65 when you've used up some or all of your drawdown cash.

Overall the result will be that you pay less tax on the money in your SIPP.

Plus, by not taking your NRA65 so early you're effectively increasing its value(smaller %age reduction) enabling yourself to link more excess AVC cash to that instead.

Obviously that's just an example and won't necessarily fit in with your figures, but it should give you an idea of how you might be able to avoid some tax.

*The rate of income tax is currently 20%!

[Celgar]

Just wondered if someone could explain what the difference is between the current new scheme which started in April and the proposed scheme which the company and CWU are discussing with the government.

Thank you

The proposed scheme leaves little to no responsibility on RM if there are unfavourable returns. There are no guarantees on pension returns and payouts will be reliant on contributions from deceased pension scheme members similar to how the UK state pension is funded.

[heapsy]

RobertT, you seem to be really clued up and knowledgeable regarding pensions. And also quite financially savvy! Are you sure your only a postman opg... Lol.

I hope to be a good position as you I hope one day! We can always dream! But I do not wish to prolong such a stressful career that I have personal experienced and have found royal mail to be, what would you suggest contribution wise into avcs? I don't mean to ask how longs a piece of string but I am relatively young and I just dread the thought if working into my 60's. How did you manage to get yourself in such a good financial position? Are you a big on overtime and working extra hours it any other tips for us poor posties To Help achieve that pipedream of early retirement.....

If I may, I'll add something for you to consider. If you can find the money, try to diversify away from the conventional pension. That will give you more options to mix and match as and when you need / want it. A regular pension is great for a regular pension. However, as we found out in 2008, then again in 2018, if the pension scheme closes, then that moves the goal posts, so to speak. (NRA60, then NRA65) I have both pensions, plus a private scheme payable at 60. (possibly being moved to draw down) A private pension at 65, no longer receiving payments. A S & S ISA, which I can either draw down an income, or sell to provide a lump sum of cash. I am also paying AVCs through Flexi plan and Bonus plan. I also have so shares in a standard share account, I can sell these tax free, as long as I stay under the Capital Gains Tax Limit. I have adapted my plan as I have learned new things regarding the whole pension issue. (rule changes, law changes). I decided that a S & S ISA would, so to speak, cut through the s**t, that is the pension landscape. It can be taken at any age, in any amount, TAX FREE, which provides flexibility. Something a regular pension cannot really do. As anyone in delivery will know, the job isn't getting any easier, and we are not getting any younger. Many will not make it to this magical new NRA of 67! I intend to take my pensions at their correct NRA. Use my S & S ISA and shares to fill the gaps etc. Hope this gives you some ideas. Get back to me if you have any questions. PS. Sorry if the post is a bit long.

[RobertT]

Heapsy and myself have had this discussion before and I'm not disagreeing with his opinion that ISA'a have their place – I have them myself! But I would disagree that pensions are inflexible as long as you understand the rules, keep your eye on the tax treatment of your money and make the most of the flexibility regulations introduced in 2015.

The requirement to buy an annuity was removed in 2015, and rightly so considering the abysmal rates available. We can now access money saved in DC pensions anytime we want after age 55, either drawing it down or just taking it all out as cash(1st 25% tax free). So enabling us to use that cash to supplement our main NRA60 & 65 pensions until the state pension kicks in, or to perhaps fund early retirement from a much earlier age – something an annuity is much less likely to do!

There are serious tax issues to take into account with your choice of savings vehicle. If you want to save £100 gross per month into a pension for example, you only need to put in £80 of your own money, with the government putting in the other £20. If you save via RM AVC's, DBCBS or RMDCP you only need to save £68 when factoring in PSE, to get £100 gross. Plus employer contributions!

But if you want to save £100 into an ISA, then all of that comes out of your net pay.

So on the way in, saving into a pension is a much better use of your money!

When you're withdrawing money from an ISA, you can access it at any age without any tax penalties, etc, which does make them slightly more flexible than pensions. But you would have had to put in a much larger amount of your own money to get the same amount out as in a pension, assuming the same investment returns.

When withdrawing money from a pension, particularly using drawdown, if you stick within certain limits and manage your finances accordingly, it's also possible to withdraw all of your pension money tax free!

It's always an individual decision based on your own circumstances, but my personal advice would be to prioritise pensions first because of the generous tax breaks, but don't just pile everything into them without thinking longer term and how you plan to access that money tax efficiently. Afterall there's no point in getting the 'free money' on the way in, if you're just going to give back on the way out!

Saving into a pension is the easy part. It's withdrawing it tax efficiently and making the most of the money you've accumulated that requires the thought and planning.

In practice it will get easier to work these things out the closer to retirement you get.

I would agree wholeheartedly with Heapsy that the job is getting tougher and tougher and the older you are, the more you're likely to struggle, and with over 30 years service my body is definitely beginning to feel the strain!
So unless you want to work until 67 or even later(not necessarily for RM), I would suggest everyone takes their retirement seriously from as younger age as possible and save as much as they can, wherever they decide to put it.

[linntroika]

Hi Robert thanks for the valuable advice as usual . Is it possible to take all the money invested in DC ,DBCBS + your AVCs as a tax free lump sum(without incurring any financial penalties - presuming this equates to 25% max of your total pot ) after the age of 55 and use your NRA 60 + NRA65 as pure pension( i realise there will be financial penalties depending on when you decide to take them ) ? Thanks in advance

[RobertT]

Hi Robert thanks for the valuable advice as usual . Is it possible to take all the money invested in DC ,DBCBS + your AVCs as a tax free lump sum(without incurring any financial penalties - presuming this equates to 25% max of your total pot ) after the age of 55 and use your NRA 60 + NRA65 as pure pension( i realise there will be financial penalties depending on when you decide to take them ) ? Thanks in advance

DC pensions, whether held via RM or another company are totally separate from the RMPP and so only the first 25% is guaranteed to be tax free with the rest being treated as income, which you can take out a a lump sum or drawdown over a period of time. But that will only be taxed if your total income is more than the personal tax allowance.

The CDC pension if it happens, will not be part of the RMPP and will be treated totally separately. The exact details on how it will work in terms of how we can access it are not yet known.

The DBCBS is designed to fund the tax free lump sum when taking your NRA60 or NRA65 pensions, but will be reduced if taken before those ages. It can't be taken separately.

AVC's are usually used to fund the tax free lump sum when taking your NRA60 and/or NRA65 pensions, but can be transferred out and accessed separately. In which case the DC rules apply as above.

Here's a section C example:

You take your NRA60 and NRA65 at 60 giving you a pension of £10,000 per year(allowing for the 25% reduction for taking the NRA65 early). As a rough guide that equates to a pot value of £200,000(£10k x 20).

You also have £30,000 in AVC's and £10,000 in the DBCBS, making a total pot value of £240,000.

The maximum tax free lump sum you can take is £60,000(25%), which would mean commuting some pension – probably around £1,000 per year.
But if you only want to take the £40,000 in AVC's and the DBCBS and keep the maximum pension, that's fine as you're just taking a smaller percentage of the overall value.

If £10,000 is your only income, you will still have unused personal tax allowance(currently £11,850), so you could drawdown another £1,850 per year tax free from any money you have in a DC pension. Or perhaps get yourself a short term job.

Anything over the PTA, whether from pensions or from paid employment will be taxed!

I hope that helps.

[linntroika]

Hi Robert thanks for the valuable advice as usual . Is it possible to take all the money invested in DC ,DBCBS + your AVCs as a tax free lump sum(without incurring any financial penalties - presuming this equates to 25% max of your total pot ) after the age of 55 and use your NRA 60 + NRA65 as pure pension( i realise there will be financial penalties depending on when you decide to take them ) ? Thanks in advance

DC pensions, whether held via RM or another company are totally separate from the RMPP and so only the first 25% is guaranteed to be tax free with the rest being treated as income, which you can take out a a lump sum or drawdown over a period of time. But that will only be taxed if your total income is more than the personal tax allowance.

The CDC pension if it happens, will not be part of the RMPP and will be treated totally separately. The exact details on how it will work in terms of how we can access it are not yet known.

The DBCBS is designed to fund the tax free lump sum when taking your NRA60 or NRA65 pensions, but will be reduced if taken before those ages. It can't be taken separately.

AVC's are usually used to fund the tax free lump sum when taking your NRA60 and/or NRA65 pensions, but can be transferred out and accessed separately. In which case the DC rules apply as above.

Here's a section C example:

You take your NRA60 and NRA65 at 60 giving you a pension of £10,000 per year(allowing for the 25% reduction for taking the NRA65 early). As a rough guide that equates to a pot value of £200,000(£10k x 20).

You also have £30,000 in AVC's and £10,000 in the DBCBS, making a total pot value of £240,000.

The maximum tax free lump sum you can take is £60,000(25%), which would mean commuting some pension – probably around £1,000 per year.
But if you only want to take the £40,000 in AVC's and the DBCBS and keep the maximum pension, that's fine as you're just taking a smaller percentage of the overall value.

If £10,000 is your only income, you will still have unused personal tax allowance(currently £11,850), so you could drawdown another £1,850 per year tax free from any money you have in a DC pension. Or perhaps get yourself a short term job.

Anything over the PTA, whether from pensions or from paid employment will be taxed!

I hope that helps.

Many Thanks Robert , you really are the ultimate guru regarding pensions , im so glad i joined this forum for all the valuable information that you have given , best