Stephens Post...Best Option 2A

[Hawkey99]

I know there was a post which you submitted recently which gave an example of in your opinion the best option to take.

I think you said Option 2A

Can you repost please or can someone advise where I can find it.

Many thanks

[RobertT]

I won't comment on which option is the best, because that's obviously down to individual circumstances, etc.

But have you used the search function to try and find what you're looking for:

search.php?keywords=option+2A&terms=all ... mit=Search

[Hawkey99]

Thank you.....

[stephen500]

I know there was a post which you submitted recently which gave an example of in your opinion the best option to take.

I think you said Option 2A

Can you repost please or can someone advise where I can find it.

Many thanks

That was for NRA 65 and that was in my opinion and the one I took.
But for NRA 60 I took option 2.
For NRA 65 to me it made the most sense and max use of my 25% tax free allowance with the cash balance scheme.
However if you have avcs, you will find you have more options and that if you want to include your avcs, they may be a different numbered option.
It all depends on what you want?
Personally to me, it makes more sense to tax the max lump sum as to get the lump sum gradually as a bigger pension for most will take around 20 years.
That's a long time to wait to get the equilvant of your lump sum in monthly dribs and drabs as a monthly increased pension.
Although you can choose to take any thing from 1% to 25% of your lump sum and vary your monthly pension by reducing your lump sum and increasing your monthly pension. In other words you could take 12.5% as a tax free lump sum and a bigger pension.
The good thing about NRA 65, is that normally to get the max lump sum, you as a section B member had to give up around 15% of your pension to get the max lump sum.
Now with the excess cash balance scheme, you can take, if you like option 2A (or it may be a different one for you, if you have avcs) which would be the min lump sum and a sum from your cash balance, which if you have enough in your cash balance, will take you to around what your max lump sum would have been, with no reduction in pension.
I personally did not take the options, where you get the max pension and give up your lump sum.
I think it would take you around 30 years to get your money back, if you did that.
This is just my opinion and may not be right for you.
Remember if you have avcs, you will have more options.
Take some time to think about it, but this is what I have done.
Below is my NRA 65, I chose option 2A . Remember if you have avcs you may have more options and if you are section C your options may be different.

RMPP pension with DBCBS 4.jpg

Below is my NRA 60, I chose option 2. Remember if you have avcs you may have more options and if you are section C your options may be different.

pen 3.jpg

pen 4.jpg

RMPP pension with DBCBS 1.jpg

RMPP pension with DBCBS 2.jpg

Remember you can consult a financial advisor and nobody on this forum is one.
It is only our opinion and don't make life changing decisions just based on what we say.

[NWpostie]

Doesn't seem a lot, how many years have you been with Royal Mail Stephen500 ?

[stephen500]

Doesn't seem a lot, how many years have you been with Royal Mail Stephen500 ?

Joined RM 1977 as a postal cadet. Left in 1980 for vol work, returned to RM in Jan 81.
So pension scheme from Jan 1981. (I decided not to reinstate the 1 year from 1979 to 1980, which was offered)
So for my 2nd lot of service, almost 40 years, till I retired in Dec 2021.
That was my NRA 60 and NRA 65 without the revised Excess Cash balance scheme.
Remember I decided to give up 25% of my NRA 65 to take it 5 years early, but I still ended up with for:
27 year, something months final salary.
10 years CSDB
2 years, 7 months of the cash balance.
NRA 60 pension, option 2 (15% reduction for tax max 25% lump sum and around 1% reduction for 2 months early)
£10,096.87 per annum
£1751.82 NRA 65 per annum(Option 2A, approx 25% reduction for taking 5 years and 2 months early)
£11848.69 total annual pension (under tax allowance - new tax year = tax free)
-------------------
Lump sums.
NRA 60 and 65 from RMSPS = £67,312.46
NRA 65 from RMPP £5767.35 min LS, tax free.
£5911.44 cash bal scheme tax free
£9578.22 Excess cash balance scheme (£15489.66 total fund value of DBCBS, 2 years, 7 months)
Total lump sums = £88,569.47
Tax free (of above total) = £81,385.81
Tax on £7183.66 (excess cash balance 25% was tax free, 75% taxable at my tax rate, which should be 20% for me) = £1436.73
Total lump sums after tax £87,132.74
So that is £14,569 more in lump sums then what I was expecting and my annual pension was around what I thought it would be.
-----------
Personally I have kept £57,000 aside and have divided that by 7 to give me an extra £8000 per year income till my state pension arrives in 2027.
Added to my pension, I have now a yearly income of £20,000. (I could have spent £57,000 of that lump sum on a fancy car and other things!, but I wanted to leave early at almost 60)
We are fortunate to own our home and that means I have no rent to pay out of our income and after bills I am left with about £8000 to spend on what I like each year, with £30,000 spare out of my lump sum.
It works out that calculating working nights, with no overtime, I am at about the same level of income by using some of my lump sum to supplement it, by not working (although yes, If i had carried on working I would have had more income after my taxable RM pension)
But With £20,000 income, I am at the same standard of income and living as if I had stayed on (not taking into account my pension)
I have a budget to keep too and have placed all my bill money in one account, leaving me with what is left to spend as I wish over the year.
Although I have divided this up weekly to maintain control of my money.
So far all is ok, 2 months in!
What could hurt me is excessive inflation. I am protected up to about 5%, but if it got out of hand, who knows I might eventully have to get a part time job. But in the present conditions, I can't see inflation rocketing.
My dad died at 51 from cancer.
My thoughts are, the longer you put off leaving work, the more chance you have of less retirement and the danger of Covid.
The lump sum of £87,132.74 will do me and the pension I think is very good.
It is a lot better than a lot of my colleagues in Royal Mail, but not as much as some managers I know.
One of which, gets double what I got, but then again, he paid in double contributions.
-------------
So to answer your question: The slides I provided did not fully include the revised excess cash balance scheme, so the amount I got was more than shown on the slides.
As for the tax on my excess cash balance scheme, I will confirm the tax rate I actually paid, when I get it soon.

[Hawkey99]

Thanks Stephen.

Greatly appreciated

[stephen500]

Thanks Stephen.

Greatly appreciated

Also until you get your revised cash balance scheme at around 12 weeks after your intitial lump sums, you won't know what your final lump sums will be in total.

[NorthernBoy]

Stephen, I like the way you have kept your pension just below the personal allowance and used part of your lump sum to even out your cash flow until state pension age.

Having a net income of 20k a year is in effect the same as having a job paying 24k gross. In the current climate were wages are low I would argue that’s not a bad income at all.

Enjoy your retirement.

[onejontwo]

Stephen 500, although it is probably obvious to you but not to me, can I ask why you chose option 2A and not 3B? The 3B option has a higher Basic annual pension and higher Total tax free cash, so at first glance , without going into all the finer details of your quote (a lot of which is hard to fathom out), I personally and sure many others alike, would have been drawn to option 3B. This somewhat scares me as I thought that option 3B was the most obvious choice and as I'm expecting my figures soon I would have accepted option 3B straight away if I hadn't seen your post!

[stephen500]

Stephen 500, although it is probably obvious to you but not to me, can I ask why you chose option 2A and not 3B? The 3B option has a higher Basic annual pension and higher Total tax free cash, so at first glance , without going into all the finer details of your quote (a lot of which is hard to fathom out), I personally and sure many others alike, would have been drawn to option 3B. This somewhat scares me as I thought that option 3B was the most obvious choice and as I'm expecting my figures soon I would have accepted option 3B straight away if I hadn't seen your post!

I will give 2 examples as to why I choose option 2A, the one shown on the slide RMPP (NRA65)
and my revised RMPP (NRA 65, not shown as a slide, but with an improved excess cash balance scheme payment.)
With option 3B I would have got an annual pension of £1898.01 against 2A or £1751.82, an annual difference of £146.19.
With option 2A (Slide shown)
Pension £1751.82
Pension £1898.01 option 3B
meaning loss of annual pension of £146.19.
Option 2A lump sums..Min tax free main benefit LS £5767.35
Tax free DBCBS £5911.44 (from provisional £13776.81 DBCBS fund)
total tax free cash £11678.79
excess DBCBS £7865.37 (of which £1966.34 is 25% tax free & £4719.22 is what is left of the 75% after tax deducted at 20%)
Total NRA 65 lump sum = £18,364.35

Now option 3B
Total tax free DBCBS = £12653.39
excess cash balance after tax paid on 75% £954.91
Total lump sums after tax =£13,608.30
So option 2B lump sums after tax =£18364.35
So option 3B lump sums after tax =£13 ,608.30
So taking option 3B I lose £4756.05 lump sum set against 2A
I gain, per annum a pension of £146.19
Divide £4756.05 by £146.19 and you will see it would take you 32 years to gain your lost lump sum from the additional £146.19 per year.
My provisional DBCBS fund value was £13776.81
-----------------------
In reality I just received my revised excess DBCBS notice.
Using that I will give you the same illustration with the improved DBCBS excess monies.
DBCBS fund value (revised) =£ 15489.66
Option 2B pension per annum £1751.82
Option 3B pension per annum £1898.01

Option 3B lump sum £12653.39 DBCBS tax free
option 3B lump sum £709.06 excess DBCBS 25% tax free amount
Option 3B lump sum £1701.76 excess DBCBS 75% after tax deducted at 20%
Total lump sums after tax £15,064.21

Option 2A lump sum £5767.35 min main tax free cash
Option 2A lump sum £5911.44 from DBCBS fund - tax free
Option 2A lump sum £2394.56 25% tax free excess DBCBS
Option 2A lump sum £5746.92 after tax deducted on (£7183.66 which is 75% of excess DBCBS)
Total lump sums after tax £19820.27

So option 2A lump sum £19820.27
option 3B lump sum £15,064.21
Means taking option 3B deprives me of £4756.06 lump sum.
If I divide the loss of £4756.06 by the improved pension of £146.19 by taking option 3B, I calculate it would take me 32 years to make up for the loss of that lump sum.
So if you retired at 65, you would have to live till 97 to make your money back.
The only other thing is that my wife loses out on £73 of pension per annum, when I die.
So that is why I did choose option 2A.
Btw options may not be the same if you have avcs.
I do write things a little complicated, so if there is any thing you have not understood, please ask and I will go through any thing you are unsure about.
Basically 3B provides a reduced lump sum, but slightly improved pension, but that reduced lump sum, to be made up, would mean you having to live 32 years with your RM pension if option 3b is chosen.
Remember you cannot just look at the main benefits, you also have to look at the excess DBCBS and include that, as I have done.
And for the excess DBCBS 25% of that is tax free (using options 2A or 3B) and 75% is taxable at your tax rate.
The lump sum figure I have included for 2A and 3B are the lump sums after tax has been paid on the 75% of the excess cash balance scheme (DBCBS)
Above is all section B (RMPP).
All of the above only deals with my NRA 65 (RMPP)

RMPP pension with DBCBS 4.jpg

final DBCBS RMPP 13 1 2021.jpg

[SeanMc]

Stephen, based on your provisional DBCBS fund of £13,776 i would have chosen option 2. With DBCBS taken as a UFPLS (25% TAX FREE/75% TAXED) your lump sum would have been £21,918. So by choosing 2A over 2 you are giving up £3554 in LS for £220 per year extra pension which would take 16 years to recoup. If i am missing anything please let me know as i am trying to get my head around all of this as it is coming to me soon. Thanks.

[stephen500]

Stephen, based on your provisional DBCBS fund of £13,776 i would have chosen option 2. With DBCBS taken as a UFPLS (25% TAX FREE/75% TAXED) your lump sum would have been £21,918. So by choosing 2A over 2 you are giving up £3554 in LS for £220 per year extra pension which would take 16 years to recoup. If i am missing anything please let me know as i am trying to get my head around all of this as it is coming to me soon. Thanks.

From what I have just worked out, your figures are not right, but the premise of your argument is. All below are after tax.
(btw since I wrote this I have discovered you are right, but you have mixed up my provisional DBCBS with my revised one, and if I use my revised DBCBS of £15489.66 then your figures come out as correct)
Below is on my Provisional DBCBS of £13776, after that I show the difference as you say with the revised DBCBS)
Option 2A Pension £1751.82
Option 2 pension £1531.32
Option 2 lump sum £10,208.82
Option 2 DBCBS taken as an UFPLS £3444.20 25% tax free
Option2 DBCBS UFPLS £8266.08 75% after 20% tax
Total LS (after tax) £21,919.10
----------------
Option 2A lump sums £5767.35 Main
£5911.44 DBCBS tax free
£2394.56 excess DBCBS 25% tax free
£5746.92 excess DBCBS 75% after 20% tax deduction
Total lump sums after tax £19,820.27
-----------
So option 2 lump sums £21,919.10
Option 2A lump sums £19,820.27
By taking option 2A I have lost £2098.83, but gained £220.50 per year annual pension.
Dividing £2098.83 by £220.50 means I will have to draw my pension for 9.58 years to get back my lost lump sum.
So yes you are right, but I don't think your figure of £3554 is correct. (correction see below)
Actually it is right, but you are mixing up my DBCBS amounts.
Your figures work if you go with my REVISED DBCBS fund total of £15,489.66
Then the difference between option 2 and 2A is £3554.75 and with the annual pensions staying the same, the difference is £220.50 a year. Divide £3554.75 by £220.50 means I have to wait 16 years to get my money back on what I have lost from my lump sum, as you say.
I cannot change the choices I have made. But others may learn from both of us!
But I certainly would not go for option 3B.
At the end of the day, I am still happy with the choice I had made.
But it goes to show, that all of us have to study our options very carefully and get our calculators out, checking one option against another.
Btw, it would have been impossible for me to know it would have been £3554.75 less lump sum, because no one gets their revised DBCBS fund figure until up to 12 weeks after the intitial lump sum is paid. However I could have know it would, for me have been at least £2098.87.
So it goes to show work out all these options with a fine tooth comb.
Plus I say this and I hope I don't come across as boastful, that I consider myself a reasonably intelligent person and not too bad with RM pensions as least as far as section B is concerned, but there are many postmen and women out there, who for them all of this is very hard to understand and Rm constantly changing and adding to the schemes are not helping.
Thanks for that.
I hope OneJonTwo reads this, as well as others.
It's may get even more complicated for those with Avcs as they have more options!
There should be a simple calculator, where postman/women can enter all their details and choices and it comes up with the comparsions for them.

[onejontwo]

Thanks and yes I am reading this, and now I'll have to go for yet another lie down! In contrast to RM I have a small frozen pension and having studied the numbers for retirement they are MUCH easier to understand whilst still having three choices. I think the thing that confuses me is terms like "excess DBCBS" and others that are not mentioned in my quote, although I suspect that they will be now that I have applied for my NRA 65. I think now that I have plenty of spare time I'll have to swot up on RM pensions from the beginning. (Who knows in a few years time I might be as good as you! Although from your replies it seems to be in your blood)

[stephen500]

Thanks and yes I am reading this, and now I'll have to go for yet another lie down! In contrast to RM I have a small frozen pension and having studied the numbers for retirement they are MUCH easier to understand whilst still having three choices. I think the thing that confuses me is terms like "excess DBCBS" and others that are not mentioned in my quote, although I suspect that they will be now that I have applied for my NRA 65. I think now that I have plenty of spare time I'll have to swot up on RM pensions from the beginning. (Who knows in a few years time I might be as good as you! Although from your replies it seems to be in your blood)

Because they don't include the DBCBS monies in the quote, until you decide to go ahead.
You can, though get a good idea of your DBCBS, by looking at your wage slip and at the top right hand corner, your weekly pensionable pay.
Times that by 52 and find 19.6% and you will have your cash balance for the year.
You need to have that for each year since 2018 and include part year till your planned pension commencement date.
Or you can look at your 2019 RMPP statement and your 2018 cash balance should be on there and times it by years since 2018 up till when you take your pension.
Mine was between £5700 and £5900 a year.
I started off with a provisional cash balance of £13777 and that was revised upwards, just before 12 weeks after taking my pension to £15,800.
As for the excess.
First if you chose option 2A (you may also want to look at option 2, as we discovered this afternoon, that that actually for me would have paid a little better than 2A)
But I will use the example of 2A to help explain Cash balance and excess cash balance.
So lump sums. (NRA65)
Below I will use my provisonal cash balance fund amount.
My main lump sum was £5767.35 (this the min LS)
next £5911.44 was taken from my DBCBS (cash balance) and was tax free.
Total tax free cash for NRA 65 (so far) £11678.79.
Now they gave me as I said £5911.44 from my cash balance, which was less than half of it. However they could only give me that, as that took me up to my max tax free amount of 25% of my pot.
So what is left of my cash balance, is known as an excess Cash balance (DBCBS) and in techincal speak is known as an (UFPLS) uncrystallised funds pension lump sum. That amount cannot as a whole be given tax free, as I have already used up all my 25% tax free amount for my pot. However 25% of my UFPLS is tax free. So I am getting another £1966.34 tax free (25%) of £7865.37 and another £4719.22, which is what is left after taking tax (at 20% for me and at your tax rate for you) of the 75% of the UFPLS.
So basically an excess cash balance, is what you have left after you have used up all of your tax free allowance of your pension pot.
25% as said is tax free and 75% taxable at your tax rate.
I hope that helps.
Any other questions?