No More AVCs

[Hawkey99]

Hi all,

Its been mentioned that AVCs will stop when the new CDC scheme starts and this could possibly next April.

Not sure I understand the new scheme at all, despite Roberts numerous post. i.e.is it a 2 part scheme, CDC plus DBCB.

Main question is why will the AVCs be stopped and are we likely to be able to pay into anything similar ?

Many thanks

[RobertT]

Currently, to be able to pay into Bonusplan and/or Flexiplan you have to be an active employee member of the RMPP and contributing to the DBCBS.

When the new CDC scheme is implemented we will be active employee members of that scheme instead - they will be completely separate schemes! Therefore won't be contributing to the RMPP/DBCBS any more, and so I assume, won't be able to pay into Bonusplan or Flexiplan either.

AVC's form part of the overall RMPP benefit structure and are designed mainly to fund the tax free lump sum when taking your main NRA60/NRA65 benefits.
Although they can be used in other ways, based on individual circumstances.

The CDC scheme actually consists of two parts:

1.The CDC itself which aims to provide an income for life, similar to the NRA60 and NRA65 benefits. But there's no guarantees as to how much it will pay out.

2. The Defined Benefit Lump Sum Scheme(DBLSS) which pays out a guaranteed lump sum to take with our CDC benefits and works in a similar way to the current DBCBS.
The original proposal stated there would be the option to pay an extra 1% of pay into the DBLSS, which would be matched by RM.

More CDC details can be found here: https://www.myroyalmail.com/pensions" onclick="window.open(this.href);return false;

[heapsy]

This is assuming that the CDC scheme comes in by 1st April 2021. The way things are going with CV19 it might not happen that soon.

[Hawkey99]

Thanks Robert,

So we go from being able to pay in what we want in AVCs to paying only an extra 1% in.

I understand the DBLSC will give me a lump sum but it seems that actually those of us who want to won't be able to pay in extra as we currently do except the 1%.

Is that how it is ?

Thanks for your reply Robert as always.

[RobertT]

We don't yet know exactly what will happen, but the original proposals were an additional 1% matched by RM.

Another thing we don't yet know is how they are going to work out the 'total pot value' of the CDC pension.
When the scheme was first announced, Hillary Salt, the CWU's pension guru, said to the pensions select committee that it could be worked out as a 15x multiple. Although it could be a completely different method.

If 15x that turns out to be the case, then the basic contributions(not including any growth) into the DBLSS work out as 16.5% of the total pot value. And the additional 2% of pensionable pay, would make that up to about 23%.

As the limit for tax free cash is 25% of the total pot value, will there actually be any need to pay drastically more?

For example:

CDC pension will build up at the rate of 1/80th of pensionable pay and the DBLSS at 3/80ths.

Basic full time pay = £441.58 per week / £22,962 per annum, meaning each year we accrue a pension of £287 and a lump sum of £861.

287 x 15 = 4,305 + 861 = 5,266
861 is 16.5% of 5,266
Add on another 2% of pensionable pay(459) into DBLSS = total pot value of 5,725
1,320(861+459) is 23% of 5,725

*Those figures are just the amounts going in and don't include any increases or decreases.

*It's still all conjecture at the moment and the above is just some of my musings.

*The pensions bill hasn't made it's way through Parliament yet and that should iron out some of the finer details.

[Hawkey99]

Thank Robert,

So when all this settle downs we will have......

NRA 60
NRA 65

And 2 new schemes........

Administered of course by Capita (Aaaagh)

Im not sure anybody (except you) will ever know if they get the rightvamount or what is the best course of action for them..........

Crazy......

[Thailand1]

We don't yet know exactly what will happen, but the original proposals were an additional 1% matched by RM.

Another thing we don't yet know is how they are going to work out the 'total pot value' of the CDC pension.
When the scheme was first announced, Hillary Salt, the CWU's pension guru, said to the pensions select committee that it could be worked out as a 15x multiple. Although it could be a completely different method.

If 15x that turns out to be the case, then the basic contributions(not including any growth) into the DBLSS work out as 16.5% of the total pot value. And the additional 2% of pensionable pay, would make that up to about 23%.

As the limit for tax free cash is 25% of the total pot value, will there actually be any need to pay drastically more?

For example:

CDC pension will build up at the rate of 1/80th of pensionable pay and the DBLSS at 3/80ths.

Basic full time pay = £441.58 per week / £22,962 per annum, meaning each year we accrue a pension of £287 and a lump sum of £861.

287 x 15 = 4,305 + 861 = 5,266
861 is 16.5% of 5,266
Add on another 2% of pensionable pay(459) into DBLSS = total pot value of 5,725
1,320(861+459) is 23% of 5,725

*Those figures are just the amounts going in and don't include any increases or decreases.

*It's still all conjecture at the moment and the above is just some of my musings.

*The pensions bill hasn't made it's way through Parliament yet and that should iron out some of the finer details.

Hi Robert

Please if possible could you break down that example in more simplistic terms. Is this a possible example over 15 years or am I nort reading it correctly.

Many thanks for your continued good work.

[RobertT]

Thank Robert,

So when all this settle downs we will have......

NRA 60
NRA 65

And 2 new schemes........

Administered of course by Capita (Aaaagh)

Im not sure anybody (except you) will ever know if they get the rightvamount or what is the best course of action for them..........

Crazy......

Capita administer the RMSPS. I don't see any reason why they might also be administering the CDC/DBLSS.

[RobertT]

Hi Robert

Please if possible could you break down that example in more simplistic terms. Is this a possible example over 15 years or am I nort reading it correctly.

Many thanks for your continued good work.

It's an example of how much CDC pension and DBLSS tax free lump sum a full time postie could accrue for each year they're a member.

The 15x multiple is also an example of how the 'total pot value' of our CDC/DBLSS benefits could be worked out and therefore how much the DBLSS lump sum will pay out as a percentage of that total value.

Our benefits via the current DB scheme(NRA60/NRA65/DBCBS/AVC's) uses a multiple of 20x pension, which is the usual industry method(see page 12 of your RMPP plan guide). But as the CDC scheme doesn't make any guarantees as to how much it will pay out and could actually go down, then that multiple is likely to be lower.

In practice a different multiple might be used, or maybe a much more convoluted method of working out 'total pot value'?

Hawkey99 asked whether we will be able to pay in more, and my example suggests that by paying in the proposed additional 1%, which would be matched by RM, we would build up a lump sum of around the maximum tax free limit anyway.