How many pension scheme?

[renrag40]

Lionel Sampson told Stephen500 that he didn’t expect the CDC pension to be in operation before the latter part of 2021..... if memory serves....... Hopefully Stephen can confirm this?

[TheStrangler]

I'm awaiting final figures from the RMPP but having spoken to them recently I was told that the cash balance scheme we currently pay into (since April 2018) is not reduced the same as the other pensions. I was told the reduction rate was around 0.5% (per year taken early I assume).
Based on that if you took it at age 57 you'd only lose 4% as it's attached to NRA65 benefits.
Think in other respects it's the same as the other pensions, you can take 25% of it lump sum or none at all, the remainder added to your monthly pension.
I'll clarify here whether any of tthe above is accurate as and when I receive paperwork.

[RobertT]

I'm awaiting final figures from the RMPP but having spoken to them recently I was told that the cash balance scheme we currently pay into (since April 2018) is not reduced the same as the other pensions. I was told the reduction rate was around 0.5% (per year taken early I assume).
Based on that if you took it at age 57 you'd only lose 4% as it's attached to NRA65 benefits.
Think in other respects it's the same as the other pensions, you can take 25% of it lump sum or none at all, the remainder added to your monthly pension.
I'll clarify here whether any of tthe above is accurate as and when I receive paperwork.

The DBCBS is specifically designed to fund the tax free cash, with anything over 25% of the pot value being paid out as a taxable lump sum.
As most people want to take the maximum lump sum, that is now largely being funded by the DBCBS for NRA65 benefits, therefore there is no need to take a reduced pension to get that lump sum.

There is no option to convert any of your DBCBS cash into more pension.

[TheStrangler]

Thanks Robert, so just to clarify I have this right (probably not!)
1 if the cash balance scheme pot was for example 8k, you could take 2k tax free and the other 6k would be subject to tax at say 20% so you would get £6,800?
2 Am I right then in assuming that as a separate scheme/pot, any lump sums from the other schemes have no bearing on this?
They are all pots with 25% max lump sum so remainder is used for annual pension purposes.
3 The cash balance scheme is exactly that, no bearing on the annual/monthly pension figures?

Thanks as always.

[RobertT]

The DBCBS is part of the RMPP and therefore forms part of your NRA60 & NRA65 benefits.

It will be used to fund some or possibly all of your tax free lump sum when taking those benefits, depending on amounts involved. It works in basically the same way as AVC's.

But it's particularly attached to those benefits we accrued from 2012-2018.

For example:

You have a NRA65 pension worth £2,500 per year. Using the usual 20x multiple, that gives a NRA65 pot value of £50k. Add on £10k DBCBS giving you £60k.

The maximum tax free cash you can take is £15k(25%).

The first £10k comes from the DBCBS, the other £5k is funded by commuting some pension(assuming you want the maximum).

If the DBCBS pot is worth more than 25%, then the excess would be paid out as a taxable lump sum and treated as income and taxed under PAYE rules, just as your wages are now.

[TheStrangler]

Thanks Robert, I think it's finally sunk in!
For me I can't see the cash balance coming to more than 25% of the NRA65 pot so not quite so complicated.
In simple terms I just work on 25% of that sum being added to the lump sum figures I was originally given.
So maybe around 42k instead of 40k.
For the NRA65 annual pension I think if i look at the un reduced amount it shouldn't be too much short of that because as you say, the cash balance scheme effectively negates most of the reduction for taking that particular lump sum.

[freespeech]

The DBCBS is part of the RMPP and therefore forms part of your NRA60 & NRA65 benefits.

It will be used to fund some or possibly all of your tax free lump sum when taking those benefits, depending on amounts involved. It works in basically the same way as AVC's.

But it's particularly attached to those benefits we accrued from 2012-2018.

For example:

You have a NRA65 pension worth £2,500 per year. Using the usual 20x multiple, that gives a NRA65 pot value of £50k. Add on £10k DBCBS giving you £60k.

The maximum tax free cash you can take is £15k(25%).

The first £10k comes from the DBCBS, the other £5k is funded by commuting some pension(assuming you want the maximum).

If the DBCBS pot is worth more than 25%, then the excess would be paid out as a taxable lump sum and treated as income and taxed under PAYE rules, just as your wages are now.

My cash balance fund is currently higher than the max lump sum for NRA65 (section C). Does that leave me liable to tax or can I use the surplus to fund the tax free lump sum for NRA60 with it?

[stephen500]

Are you sitting comfortably? Then I'll begin!

Anyone who joined RM before 31st March 1987 would have joined the Post Office Superannuation Scheme(POSSS) – that was later renamed section A/B of the Royal Mail Pension Plan(RMPP). Those who joined before 1 December 1971 being in section A and those between then and 31st March 1987, being in section B.

Anyone joining RM between 1st April 1987 and 31st March 2008 would have gone into the Post Office Pension Plan(POPS) – that was later renamed section C the RMPP.

I can't remember when the renaming took place, but I think it was in the late 90's or early 00's.

When RM was privatised, part of the deal was that the government took over the pension liabilities up to 31st March 2012 – that is called the Royal Mail Statutory Pension Scheme(RMSPS).

Everything accrued from 1st April 2012 to the present day is via the RMPP. Although we stopped building up any pension on 31st March 2018, since then we've just been building up a lump sum via the Defined Benefit Cash Balance Scheme(DBCBS) to take predominantly with our NRA65 benefits.

The benefits have accrued on a final salary basis up to 31st March 2008 and a Career Salary Defined Benefit(CSDB) basis from 1st April 2008 to 31st March 2018.

However benefits are paid out on a NRA60 & NRA65 basis, with NRA60 relating to service up to 31st March 2010 and therefore including all final salary benefits and the first two years of CSDB benefits.

NRA65 benefits are from 1st April 2010 to 31st March 2018 and relate to the other 8 years of CSDB. Plus the DBCBS.

Section A & B members have the choice to pay Additional Voluntary Contributions(AVC's) via Flexiplan, while section C and F(see below) members can pay into both Flexiplan and Bonusplan. AVC's are administered by Scottish Widows and are usually used to boost your tax free lump sum.

If you are in either sections A, B or C then you'll probably currently be paying into the DBCBS, unless you opted out, in which case you might be paying into the Royal Mail Defined Contribution Plan via Scottish Widows(formerly Zurich).

If you joined RM sometime after 1st April 2008, the chances are you'll have joined the RMDCP, unless you opted out. And for anyone reaching 5 years in the RMDCP, you will be given the opportunity to pay into the DBCBS via section F of the RMPP.

I bet you wish you'd never asked.

Hi Robert, I was wondering if you have come across anything in writing that states that the DBCBS will be reduced i f you took your nras early. I know that we are all assuming it will be reduced in line with the reduction to the pensions for early redemption but I have not actually found anything in print that confirms it. I know Stephen500 has had an email and telephone conversation with one of the trustees and he only thought that it would be reduced but was unable to say by how much.......... it might just be me but I would have thought a trustee would be able to answer that but he couldn’t. I know the clue may be in the title of the fund..... Defined Benefit Cash Balance Scheme......emphasis on the Defined Benefit..... but effectively it is a pot of money similar to a Defined Contribution scheme....... as far as I am aware people do not have their pots reduced when taking their DC pensions early...... or do they? I don’t know because I’ve never had one. At the moment it doesn’t make much difference because it has only been running for just over 2 years but as time goes by it is going to mount up how much each person has in it. The chap Stephen was in correspondence with was pretty sure that the CDC pension would not be in operation before late 2021 at the earliest by which time some members (I’m thinking mainly of people in Section B on late or night shift) will have getting on for 18,000 to 20,000 in there pots..... it’s only just occurred to me as I am writing this that is the DBCBS not just another form of AVCs?..... it appears to be there to cover the same function, namely to fund the lump sums. I will be interested in your opinion Rob..... and anybody else if they have any thoughts on the matter.

I can't be certain yet, as my pension benefits may be adjusted just before payment, but my almost final benefit options, I think saw a reduction of about 8% for my DBCBS, taking it five years and 2 months early, or around 1.4% per year, which if it turns out correct is a lot less than I thought.
My DBCBS scheme £5750 2018, £5750 2019, £5900 2020 to 2021 (reduced to 7 months as I am taking my pension on 1st Nov) So £3441. DBCBS total £14941
This is my benefit "provisional fund value" I just received £13776.81 which is a reduction of just under 8%, whether this includes any increases I have been due, or will be due, I have no idea.My opinion is that the most tax efficent way to use the DBCBS is option 2A. It appears to be the way to make up your lump sum to beyond the maximum and keep your yearly pension unreduced, the excess DBCBS is treated as unfunded and 25% of that is tax free, with the remaining 75% taxable at your tax rate. I think mine will be 20% and will cost me on the excess DBCBS (shown) around £1177 tax.

RMPP pension with DBCBS 4.jpg

[RobertT]

The DBCBS is part of the RMPP and therefore forms part of your NRA60 & NRA65 benefits.

It will be used to fund some or possibly all of your tax free lump sum when taking those benefits, depending on amounts involved. It works in basically the same way as AVC's.

But it's particularly attached to those benefits we accrued from 2012-2018.

For example:

You have a NRA65 pension worth £2,500 per year. Using the usual 20x multiple, that gives a NRA65 pot value of £50k. Add on £10k DBCBS giving you £60k.

The maximum tax free cash you can take is £15k(25%).

The first £10k comes from the DBCBS, the other £5k is funded by commuting some pension(assuming you want the maximum).

If the DBCBS pot is worth more than 25%, then the excess would be paid out as a taxable lump sum and treated as income and taxed under PAYE rules, just as your wages are now.

My cash balance fund is currently higher than the max lump sum for NRA65 (section C). Does that leave me liable to tax or can I use the surplus to fund the tax free lump sum for NRA60 with it?

The DBCBS is used specifically to fund the lump sum associated with RMPP(2012-2018) benefits. Most of that will be your accrued CSDB pension between those years.

But the RMPP are also responsible for paying some of the increases associated with your RMSPS(pre 2012) benefits, so some of your DBCBS pot will be used to fund the NRA60 lump sum anyway. But you can't use it to fund anymore of the NRA60 lump sum.

So yes, any excess will be liable to tax at your marginal rate.

[freespeech]

The DBCBS is part of the RMPP and therefore forms part of your NRA60 & NRA65 benefits.

It will be used to fund some or possibly all of your tax free lump sum when taking those benefits, depending on amounts involved. It works in basically the same way as AVC's.

But it's particularly attached to those benefits we accrued from 2012-2018.

For example:

You have a NRA65 pension worth £2,500 per year. Using the usual 20x multiple, that gives a NRA65 pot value of £50k. Add on £10k DBCBS giving you £60k.

The maximum tax free cash you can take is £15k(25%).

The first £10k comes from the DBCBS, the other £5k is funded by commuting some pension(assuming you want the maximum).

If the DBCBS pot is worth more than 25%, then the excess would be paid out as a taxable lump sum and treated as income and taxed under PAYE rules, just as your wages are now.

My cash balance fund is currently higher than the max lump sum for NRA65 (section C). Does that leave me liable to tax or can I use the surplus to fund the tax free lump sum for NRA60 with it?

The DBCBS is used specifically to fund the lump sum associated with RMPP(2012-2018) benefits. Most of that will be your accrued CSDB pension between those years.

But the RMPP are also responsible for paying some of the increases associated with your RMSPS(pre 2012) benefits, so some of your DBCBS pot will be used to fund the NRA60 lump sum anyway. But you can't use it to fund anymore of the NRA60 lump sum.

So yes, any excess will be liable to tax at your marginal rate.

Thankyou.....helpful as ever. Do you have a rough idea of how much can be used to fund NRA60 lump sum?

[stephen500]

The DBCBS is part of the RMPP and therefore forms part of your NRA60 & NRA65 benefits.

It will be used to fund some or possibly all of your tax free lump sum when taking those benefits, depending on amounts involved. It works in basically the same way as AVC's.

But it's particularly attached to those benefits we accrued from 2012-2018.

For example:

You have a NRA65 pension worth £2,500 per year. Using the usual 20x multiple, that gives a NRA65 pot value of £50k. Add on £10k DBCBS giving you £60k.

The maximum tax free cash you can take is £15k(25%).

The first £10k comes from the DBCBS, the other £5k is funded by commuting some pension(assuming you want the maximum).

If the DBCBS pot is worth more than 25%, then the excess would be paid out as a taxable lump sum and treated as income and taxed under PAYE rules, just as your wages are now.

My cash balance fund is currently higher than the max lump sum for NRA65 (section C). Does that leave me liable to tax or can I use the surplus to fund the tax free lump sum for NRA60 with it?

The DBCBS is used specifically to fund the lump sum associated with RMPP(2012-2018) benefits. Most of that will be your accrued CSDB pension between those years.

But the RMPP are also responsible for paying some of the increases associated with your RMSPS(pre 2012) benefits, so some of your DBCBS pot will be used to fund the NRA60 lump sum anyway. But you can't use it to fund anymore of the NRA60 lump sum.

So yes, any excess will be liable to tax at your marginal rate.

Robert T, I have been told that 75% of the excess DBCBS is taxable and 25% is tax free as an Uncrystallised funds pension lump sum (UFPLS)

[RobertT]

Thankyou.....helpful as ever. Do you have a rough idea of how much can be used to fund NRA60 lump sum?

Based on posts on this forum, for section B members it's around £300-400 and for section C about £1,500-1,600. But it's obviously going to vary from person to person.

Robert T, I have been told that 75% of the excess DBCBS is taxable and 25% is tax free as an unfunded scheme.

If that's true then you'll keep a bit more for yourself. So if your excess is £1,000 for example, that would mean £850 in your pocket instead of £800.

Nothing to get too excited about, but it all adds up.

[stephen500]

Thankyou.....helpful as ever. Do you have a rough idea of how much can be used to fund NRA60 lump sum?

Based on posts on this forum, for section B members it's around £300-400 and for section C about £1,500-1,600. But it's obviously going to vary from person to person.

Robert T, I have been told that 75% of the excess DBCBS is taxable and 25% is tax free as an unfunded scheme.

If that's true then you'll keep a bit more for yourself. So if your excess is £1,000 for example, that would mean £850 in your pocket instead of £800.

Nothing to get too excited about, but it all adds up.

My excess DBCBS was/is £7865.37, so my tax bill should be £1179. (75% of £7865.37 =£5899 and 20% of that is £1179 or more if your tax rate is 40%.)
The first slide below is from my benefits letter from RMPP and the 2nd is from google.

unfunded 1.jpg

unfunded 2.jpg

[Steve_claret]

Thankyou.....helpful as ever. Do you have a rough idea of how much can be used to fund NRA60 lump sum?

I took my NRA60 in March this year and for my RMPP lump sum the DBCBS part was about £400. After 2 years of contributions my total DBCBS fund would have been somewhere in the region of £11k. That £400 was what I was offered in my options pack by the RMPP so I took it at 60 so that I would pay less tax on it at 65 when you take the remainder of the DBCBS as a lump sum. My initial understanding was that all of this fund was payable at 65 so I wasn't expecting any at 60 but as it was offered I decided to take it. Hope that helps.

[david3595]

Thankyou.....helpful as ever. Do you have a rough idea of how much can be used to fund NRA60 lump sum?

I took my NRA60 in March this year and for my RMPP lump sum the DBCBS part was about £400. After 2 years of contributions my total DBCBS fund would have been somewhere in the region of £11k. That £400 was what I was offered in my options pack by the RMPP so I took it at 60 so that I would pay less tax on it at 65 when you take the remainder of the DBCBS as a lump sum. My initial understanding was that all of this fund was payable at 65 so I wasn't expecting any at 60 but as it was offered I decided to take it. Hope that helps.

I took my NRA60 @55 in January, I wasn’t expecting any DBCBS money but took max tax free lump sum of £1545 and a small pension of £250 per annum. My first year DBCBS pot was £4567 at end March 2019 but I don’t know if I used all my DBCBS pot when NRA60 was paid ?