CDC included in Queens Speech December 2019

[RobertT]

If any one was wondering if CDC was included in the 'new' Queens speech – yes it was!

https://assets.publishing.service.gov.u ... _notes.pdf" onclick="window.open(this.href);return false;

Pension Schemes Bill

“Measures will be brought forward...to help people save for later life.”

The purpose of the Bill is to:

● Support pension saving in the 21st century, putting protection of people’s pensions at its heart.
● Create a legislative framework for the introduction of pensions dashboards to allow people to access their information from most pensions schemes in one place online for the first time.

The main benefits of the Bill would be:

● Creating a new pension scheme to give greater choice for employers and enable people to adequately save for retirement and better predict their income in later life.
● Enhancing the Pensions Regulator’s powers so it can respond earlier when employers fail to take their pension responsibilities seriously, including putting lengthy jail terms on the table for reckless bosses who plunder people’s pension pots, thereby building greater trust for saving in pensions.
● Providing savers with a much simpler oversight of their pensions savings by paving the way for the introduction of online pensions dashboards, giving people plain information about all of their pensions in one place for the first time.

The main elements of the Bill are:

● Providing a framework for the establishment, operation and regulation of collective money purchase schemes (commonly known as collective defined contribution pensions).
● Strengthening the Pensions Regulator’s powers and the existing sanctions regime. This will include introducing new criminal offences, with the most serious carrying a maximum sentence of seven years’ imprisonment and a civil penalty of up to £1 million.
● Giving the Regulator powers to obtain the right information about a scheme and its sponsoring employer in a timely manner, ensuring that it is able to gain redress for pension schemes and members when things go wrong.
● Providing a framework to support pensions dashboards, including new powers to compel pension schemes to provide accurate information to consumers. This will include provisions for the Regulators to ensure relevant schemes comply.
● Creating regulations to set out circumstances under which a pension scheme member will have the right to transfer their pension savings to another scheme.
● Providing clearer scheme funding requirements for defined benefit schemes, and strengthening the Regulator’s scheme funding powers.
● Amending the legislation for the Pension Protection Fund compensation regime to enable the Fund to continue to apply the regime as intended, and amending the definition of administration charges.

Territorial extent and application

● The Bill's provisions would extend and apply to the whole of the UK. Pensions policy is reserved in Scotland and Wales, but devolved to Northern Ireland.

Key facts

● Automatic enrolment was introduced in October 2012 and has since boosted the pension prospects of 10 million people.
● The Pensions Regulator and Scheme Funding measures are designed to protect millions of members of private sector defined benefit schemes, as well as approximately £1.5 trillion held in them.
● The Pensions Regulator estimated there were 100,000 transfers out of defined contribution schemes in 2017-18.

[Dorset Plodder]

Thanks for the info Robert T. A VERY Important subject for all our Colleagues I would think.... although I expect some of them are still moaning about their Free Stamps being Late.

Particularly glad to see provision for Jailing The Thieving Employers who STEAL their Employees Money. Pity that's not Retrospective.

I hope the Pension Dashboard will not only make it much clearer to understand your own Pension/Pensions but perhaps stop the exorbitant Management Fees charged by some Pension Providers. It was Frightening to hear some Figures on a recent Radio Programme about how much was "Taken out of the Pension" by the management charges taken by some Unscrupulous Firms. And how much more that Pension would have paid out if had been properly managed. These people should be facing jail as well IMO.

[south London postie]

Cheers Robert. Great work!

[RobertT]

Time will tell when the legislation goes through and when the RM CDC scheme is introduced.

But the legal wheels were already whirring after Boris's first Queens Speech and should carry on turning once Parliament resumes in the new year. RM & CWU had already done a certain amount of ground work and lobbying, etc too.
I don't know much about how these things work, but I increasingly think legislation could be in place mid way through 2020.

The normal date for pension changes in RM is 1st April, and that is probably their preferred date for CDC. But I suspect 1st April 2020 will be too soon and I don't think they'll want to wait until 2021 if they don't have to.
So in my opinion, we could have a RM CDC scheme in place sometime in the second half of 2020.

We'll have to wait and see what happens.

[FAB]

I assume that once CDC does get introduced that Bonus Plan and perhaps Flexiplan will stop?

[RobertT]

I assume that once CDC does get introduced that Bonus Plan and perhaps Flexiplan will stop?

There's no literature to confirm as far as I'm aware, but you currently have to be an active employee member of the RMPP to pay into Bonusplan and Flexiplan.

As CDC will be a completely new and separate scheme, I'm assuming we'll become deferred members of the RMPP and so no longer be able to pay AVC's.

If that is the case, what you've already saved up will still be used to fund the tax free lump sum when taking your RMPP(NRA60 & NRA65) benefits, exactly as it is now.

CDC will have the Defined Benefit Lump Sum Scheme 'sitting alongside' it to provide a tax free lump sum on the commencement of your CDC benefits.
Out of the total planned 19.6% of contributions, RM will pay 11.2% into CDC and 2.4% into DBLSS. While employees will pay 4% into CDC and 2% into DBLSS.

The plan is that we will be able to increase our lump sums by paying an additional 1% of pay into the DBLSS, which would be matched by RM.

My advice would be to max out your AVC's while you've got the chance, preferably sticking within PSE limits. If the above doesn't happen, you can always reduce them again later.

[Aquarius]

I assume that once CDC does get introduced that Bonus Plan and perhaps Flexiplan will stop?

There's no literature to confirm as far as I'm aware, but you currently have to be an active employee member of the RMPP to pay into Bonusplan and Flexiplan.

As CDC will be a completely new and separate scheme, I'm assuming we'll become deferred members of the RMPP and so no longer be able to pay AVC's.

If that is the case, what you've already saved up will still be used to fund the tax free lump sum when taking your RMPP(NRA60 & NRA65) benefits, exactly as it is now.

CDC will have the Defined Benefit Lump Sum Scheme 'sitting alongside' it to provide a tax free lump sum on the commencement of your CDC benefits.
Out of the total planned 19.6% of contributions, RM will pay 11.2% into CDC and 2.4% into DBLSS. While employees will pay 4% into CDC and 2% into DBLSS.

The plan is that we will be able to increase our lump sums by paying an additional 1% of pay into the DBLSS, which would be matched by RM.

My advice would be to max out your AVC's while you've got the chance, preferably sticking within PSE limits. If the above doesn't happen, you can always reduce them again later.

Quick question - as i was wondering about the future of AVC's post CDC.

Why can't another AVC scheme be set up after CDC scheme starts ?

[RobertT]

Quick question - as i was wondering about the future of AVC's post CDC.

It might be a quick question, but my answer isn't! Sorry.

Why can't another AVC scheme be set up after CDC scheme starts ?

In theory another AVC scheme probably could be set up, but I'm not sure it's really compatible with the CDC/DBLSS model.

With the RMPP, there is a certain amount of wriggle room in terms of how much pension and lump sum you can take, depending on the section you're in and your own personal choice.
AVC's enable you to increase the value of your 'total pot value', potentially enabling a bigger pension aswell as a bigger lump sum, depending on choices made.

But with CDC you get a targetted pension and a guaranteed minimum lump sum from the DBLSS. Both of which should in theory increase with inflation each year.

There is no mention in the Anticipated CDC Design booklet of any ability to give up some pension for a bigger lump sum, or vice versa.

Another factor to consider is how our CDC pension benefits are calculated to find their 'total pot value'!
With a DB scheme it's usually a multiple of 20, as described on page 12 of your RMPP plan guide. But we don't yet know how it'll be calculated with CDC.

Because the pensions are only targetted rather than guaranteed, the multiple is likely to be lower than 20. I can remember watching the CDC presentation made to the Pension Select Committee, where Hillary Salt said a factor of 15 could be used.

The point being that the lower the CDC multiple, the higher in percentage terms, the DBLSS becomes.

If you do a bit of maths, based on basic pay, no increases or decreases in benefits, the planned accrual rates, and a multiple of 15, you'll see that the DBLSS provides a basic of 16.7% of the 'total pot value'.

Paying an additional 1% matched by RM into the DBLSS would increase that to 23.2%

So going purely by contributions going in, any AVC's over and above that total optional 2% would only be funding 1.8% of your tax free lump sum, with the rest being classed as income and taxed under PAYE principles.

Therefore I would argue that AVC's aren't necessarily needed with the CDC/DBLSS scheme?

But at the moment we can only really speculate on the finer points. I've expressed my views, others might have a different take on it?

[milly]

Quick question - as i was wondering about the future of AVC's post CDC.

It might be a quick question, but my answer isn't! Sorry.

Why can't another AVC scheme be set up after CDC scheme starts ?

In theory another AVC scheme probably could be set up, but I'm not sure it's really compatible with the CDC/DBLSS model.

With the RMPP, there is a certain amount of wriggle room in terms of how much pension and lump sum you can take, depending on the section you're in and your own personal choice.
AVC's enable you to increase the value of your 'total pot value', potentially enabling a bigger pension aswell as a bigger lump sum, depending on choices made.

But with CDC you get a targetted pension and a guaranteed minimum lump sum from the DBLSS. Both of which should in theory increase with inflation each year.

There is no mention in the Anticipated CDC Design booklet of any ability to give up some pension for a bigger lump sum, or vice versa.

Another factor to consider is how our CDC pension benefits are calculated to find their 'total pot value'!
With a DB scheme it's usually a multiple of 20, as described on page 12 of your RMPP plan guide. But we don't yet know how it'll be calculated with CDC.

Because the pensions are only targetted rather than guaranteed, the multiple is likely to be lower than 20. I can remember watching the CDC presentation made to the Pension Select Committee, where Hillary Salt said a factor of 15 could be used.

The point being that the lower the CDC multiple, the higher in percentage terms, the DBLSS becomes.

If you do a bit of maths, based on basic pay, no increases or decreases in benefits, the planned accrual rates, and a multiple of 15, you'll see that the DBLSS provides a basic of 16.7% of the 'total pot value'.

Paying an additional 1% matched by RM into the DBLSS would increase that to 23.2%

So going purely by contributions going in, any AVC's over and above that total optional 2% would only be funding 1.8% of your tax free lump sum, with the rest being classed as income and taxed under PAYE principles.

Therefore I would argue that AVC's aren't necessarily needed with the CDC/DBLSS scheme?

But at the moment we can only really speculate on the finer points. I've expressed my views, others might have a different take on it?

Surely the loss of the AVC with its tax saving through PSE is detrimental to your Pension savings as you could transfer any excess over the 25% tax free lump sum into a Sipp.
I would have much preferred to be given the choice to remain in the RMDCP.

[Aquarius]

Quick question - as i was wondering about the future of AVC's post CDC.

It might be a quick question, but my answer isn't! Sorry.

Why can't another AVC scheme be set up after CDC scheme starts ?

In theory another AVC scheme probably could be set up, but I'm not sure it's really compatible with the CDC/DBLSS model.

With the RMPP, there is a certain amount of wriggle room in terms of how much pension and lump sum you can take, depending on the section you're in and your own personal choice.
AVC's enable you to increase the value of your 'total pot value', potentially enabling a bigger pension aswell as a bigger lump sum, depending on choices made.

But with CDC you get a targetted pension and a guaranteed minimum lump sum from the DBLSS. Both of which should in theory increase with inflation each year.

There is no mention in the Anticipated CDC Design booklet of any ability to give up some pension for a bigger lump sum, or vice versa.

Another factor to consider is how our CDC pension benefits are calculated to find their 'total pot value'!
With a DB scheme it's usually a multiple of 20, as described on page 12 of your RMPP plan guide. But we don't yet know how it'll be calculated with CDC.

Because the pensions are only targetted rather than guaranteed, the multiple is likely to be lower than 20. I can remember watching the CDC presentation made to the Pension Select Committee, where Hillary Salt said a factor of 15 could be used.

The point being that the lower the CDC multiple, the higher in percentage terms, the DBLSS becomes.

If you do a bit of maths, based on basic pay, no increases or decreases in benefits, the planned accrual rates, and a multiple of 15, you'll see that the DBLSS provides a basic of 16.7% of the 'total pot value'.

Paying an additional 1% matched by RM into the DBLSS would increase that to 23.2%

So going purely by contributions going in, any AVC's over and above that total optional 2% would only be funding 1.8% of your tax free lump sum, with the rest being classed as income and taxed under PAYE principles.

Therefore I would argue that AVC's aren't necessarily needed with the CDC/DBLSS scheme?

But at the moment we can only really speculate on the finer points. I've expressed my views, others might have a different take on it?

Surely the loss of the AVC with its tax saving through PSE is detrimental to your Pension savings as you could transfer any excess over the 25% tax free lump sum into a Sipp.
I would have much preferred to be given the choice to remain in the RMDCP.

As usual RobertT - thanks for explaining (even an idiot like me just about understood your points)

I agree with the other point - shame we are not getting any choice in the matter - CDC or nothing
We are being shoehorned into the CDC scheme without any choice in the matter - like it or lump it.
I hope it works out

[RobertT]

Surely the loss of the AVC with its tax saving through PSE is detrimental to your Pension savings as you could transfer any excess over the 25% tax free lump sum into a Sipp.
I would have much preferred to be given the choice to remain in the RMDCP.

The current position with the RMSPS/RMPP and AVC's, is if you have excess AVC cash when taking your benefits, you have to either take a taxable lump sum, buy an annuity or else defer to a later date. There is no option to transfer to another pension scheme for further accumulation or drawdown.

You can however, transfer your entire Bonusplan or Flexiplan pot into a personal pension, separately any time before taking your main RMSPS/RMPP benefits. You can then continue paying AVC's from £0

We don't yet know whether there will be the option to pay AVC's with the CDC/DBLSS scheme, other than the 1% matched by RM that we've already been told about.
My above posts are just my opinion on the matter!

[RobertT]

[As usual RobertT - thanks for explaining (even an idiot like me just about understood your points)

I agree with the other point - shame we are not getting any choice in the matter - CDC or nothing
We are being shoehorned into the CDC scheme without any choice in the matter - like it or lump it.
I hope it works out

I can understand why some people would prefer to stay in or join the DC scheme and I do think that ideally we should have a choice. But as CDC is defined as a form of defined contribution scheme, the plan is that we will be able to take a cash value and transfer it into a personal pension if we want to. Which means taking advantage of the 'free money' while still having the benefits of individual DC.

The plans are in the consultation documents somewhere, links to which can be found here: https://www.royalmailgroup.com/en/respo ... -pensions/" onclick="window.open(this.href);return false;

In terms of choice, we're going back to pre 2008, when the only choice was final salary or nothing.

[NWpostie]

I'm just trying to get my head round this, bottom line is CDC likely to be better than the current scheme ? And do we still have the option of a lump sum without sacrificing the pension pot and reduced pension.

[RobertT]

I'm just trying to get my head round this, bottom line is CDC likely to be better than the current scheme ?

If it works as planned, it could be!

It aims to provide a pension of 1/80ths and a lump sum of 3/80ths of pensionable pay each year. So based on the current full time wage of £441.58 per week, that would be a pension of £287 and a lump sum of £861 for each year of 'CDC service', both of which are targetted to increase each year with at least inflation.

But there are no guarantees with the pension element, so if the investments don't perform well, our pensions may not go up and could go down.

For example:

If there's 100,000 full time posties paying into CDC, after 1 year there should be £28,700,000 in the CDC pot. If investments go down and there's only £26,000,000, then our pension would only be worth £260 per year.
Equally if investments perform well and the pot has increased to £30,000,000, our pensions would increase to £300 per year.

The lump sum will be guaranteed to be at least 3/80s of pay per year, with targetted inflationary increases, in a similar way to the current DBCBS.

And do we still have the option of a lump sum without sacrificing the pension pot and reduced pension.

Options for your current NRA60 & NRA65 benefits stay the same.

CDC is a completely separate scheme offering the targetted benefits above. As far as I know there will be no option to commute pension to more lump sum or vice versa. But there should be the choice to take a cash value and transfer into an alternative DC scheme such as a SIPP, which might be something for those that would prefer to be in the RMDCP to consider.

As the legislation hasn't gone through yet, we obviously don't know many details at the moment.

More details can be found here: https://www.myroyalmail.com/pensions" onclick="window.open(this.href);return false;
If you want more in depth info see the links here: https://www.royalmailgroup.com/en/respo ... -pensions/" onclick="window.open(this.href);return false;

[heapsy]

I assume that once CDC does get introduced that Bonus Plan and perhaps Flexiplan will stop?

There's no literature to confirm as far as I'm aware, but you currently have to be an active employee member of the RMPP to pay into Bonusplan and Flexiplan.

As CDC will be a completely new and separate scheme, I'm assuming we'll become deferred members of the RMPP and so no longer be able to pay AVC's.

If that is the case, what you've already saved up will still be used to fund the tax free lump sum when taking your RMPP(NRA60 & NRA65) benefits, exactly as it is now.

CDC will have the Defined Benefit Lump Sum Scheme 'sitting alongside' it to provide a tax free lump sum on the commencement of your CDC benefits.
Out of the total planned 19.6% of contributions, RM will pay 11.2% into CDC and 2.4% into DBLSS. While employees will pay 4% into CDC and 2% into DBLSS.

The plan is that we will be able to increase our lump sums by paying an additional 1% of pay into the DBLSS, which would be matched by RM.

My advice would be to max out your AVC's while you've got the chance, preferably sticking within PSE limits. If the above doesn't happen, you can always reduce them again later.

Quick question for you Rob. I started paying into both Bonus plan and Flexi plan quite late. I currently have around 20k combined. Assuming the AVCs are stopped, would I be able to just take the AVCs as my lump sum? I'm thinking that they may not make up the full 25% of my pension, and couldn't afford to reduce my pension further. I'm section C.