Pension Bill receives Royal Assent 11th February 2021

[Woody Guthrie]

Pension Bill receives Royal Assent 11th February 2021

The Communications Workers Union and Royal Mail Group are delighted that the pensions bill which will enable the introduction of our new ‘first of its kind Wage in Retirement pension scheme’ for all Royal Mail employees, received Royal Assent today. Royal assent means that the Queen has formally approved an act of legislature which will introduce the regulations which will now permit a CDC type scheme to be introduced. We have been pressing for this historical moment since 2018, and this is a massive step in enabling the introduction of our new scheme under UK law.

Terry Pullinger, Deputy General Secretary Postal of the CWU said “We are keen to launch Royal Mail’s Collective Pension Plan in the second half of the next financial year and the next steps towards that are working with Government on the passage of the necessary secondary legislation and securing authorisation from The Pensions Regulator on our new scheme. The CWU would like to thank our members and everyone else who have supported, believed and helped us reach this historical point. In excess of 140,000 people will go immediately into this new scheme and will enjoy dignity and security in retirement as a consequence, and we hope others will follow because current provision of working people outside of a Defined Benefit schemes is either inadequate or non-existent”.

[RobertT]

And here's RM's version.

https://www.myroyalmail.com/news/2021/0 ... dc-pension

Update on CDC pension
Pension Schemes Bill granted Royal Assent, putting Collective Defined Contribution (CDC) pension schemes a step closer

We are committed to keeping colleagues informed on the progress towards the implementation of the new Royal Mail Collective Pension Plan, writes Laura Scott.

We’ve been working closely with CWU to get the appropriate legislation passed in the UK Parliament and we’re pleased to let you know that the Pension Schemes Bill received Royal Assent on 11 February 2021.

This means that the Bill is now law. We are therefore one step closer towards allowing CDC pension schemes in the UK for the first time, and towards making the new Royal Mail Collective Pension Plan a reality for our people. We are grateful to the UK Government and the Opposition in both Houses for ensuring smooth passage of the Bill through Parliament.

We are keen to launch our proposed Plan in the second half of the next financial year, but there is still a lot to be done before that can happen. We will work with UK Government and Parliament on the passage of the necessary secondary legislation and tax changes which will allow our Plan to begin accepting contributions. Our proposed Plan will also require authorisation from The Pensions Regulator and we await details of their process for approving CDC schemes.

The new Royal Mail Collective Pension Plan would meet RMG and our unions’ shared objectives of providing sustainable and affordable future retirement arrangements for our people and the company. We will therefore continue to work closely with CWU as well as Unite CMA.

The proposed Royal Mail Collective Pension Plan will provide members with a tax-free lump sum at retirement and a monthly income during retirement (so members don’t have to buy an insurance product – known as an annuity – or invest their money in another way).

Both the company and members’ contributions into the Plan are pooled, and this collective pot is then invested. While there is an expected level of benefit that the employee will receive in retirement, this is not guaranteed. The actual benefit payable will depend on the Plan’s investment performance and other factors such as average life expectancy of members – which means that benefits could go up or down both while members are paying into the Plan and also when they are in retirement.

In the proposed Royal Mail Collective Pension Plan, the same annual increase/reduction will apply to all members, whether they are still saving for retirement, have left the Plan or are receiving their pension payments.

We will continue to update employees on progress as we move towards implementation of our new Plan and will share more Plan details in due course.

[stephen500]

I have no idea how well this new scheme will do and I won't be the only one. But it has to be better than a pure cash balance scheme that many Rm employees are currently in. Cash is nice and I was glad to have the cash boost of the DBCBS, but long term it is not good. When cash is gone from a lump sum, it is gone. Whereas as with a pension, at least this I am guessing will perhaps increase with inflation rises? Whilst still maintaining a lump sum.
It looks to me, like that Rm may seek to set up this new plan, with out involving the current RM pension plan or it's trustees.
I think this would be a mistake, they have expertise in investment. The plan sounds good and if it delivers, it should see a return comparable to the block scheme that replaced our final salary schemes. And I am guessing with the low level of current returns, the only way is up.
Good luck. I hope every thing turns out well. Personally at my age, I am happy not to be involved in any more schemes. It was hard enough getting my head around 3 schemes.

[Woody Guthrie]

But it has to be better than a pure cash balance scheme that many Rm employees are currently in

You can't really compare it to the cash balance scheme, nobody would probably choose a CBS even though it is defined benefit because it's not a flexible enough pension solution.

It was forced upon us as a temporary measure and was only supposed to provide part or all of any lump sum you would take along side a pension.

It will be compared to individual DC plans, that will be the only real way to judge performance.

Will the economies of scale offset the individual freedoms and flexibility of a DC scheme?

I have to admit I'm sceptical, I think its biggest problem might be that investments will be overly cautious.

[RobertT]

I have no idea how well this new scheme will do and I won't be the only one. But it has to be better than a pure cash balance scheme that many Rm employees are currently in. Cash is nice and I was glad to have the cash boost of the DBCBS, but long term it is not good. When cash is gone from a lump sum, it is gone. Whereas as with a pension, at least this I am guessing will perhaps increase with inflation rises? Whilst still maintaining a lump sum.

The pension is expected to accrue at a rate of 1/80th of pensionable pay each year and the plan is it will increase by inflation each year too. But what we actually get will depend on the value of the overall fund as we will all get a proportional amount based on our length of service and pensionable pay.

The lump sum(via the Defined Benefit Lump Sum Scheme) will be 3/80ths and is guaranteed to be at least as much as the sum total going in, with the additional of annual bonuses if investment returns allow. So very similar to the current DBCBS.

CDC is classed a defined contribution pension, but aims to provide benefits similar to defined benefit and if it all works as it should, will provide benefits similar to section B of the CARE/CSDB scheme.

It looks to me, like that Rm may seek to set up this new plan, with out involving the current RM pension plan or it's trustees.

It will be a totally different set up, not a bad thing in my opinion.

I think this would be a mistake, they have expertise in investment.

But they haven't made a particularly good job of it over the years.

[Schiff]

The huge problem with this proposed scheme is the retirement age linked to State Pension Age (so going to be at least 68 for many members and likely to rise beyond that) in a physically demanding job.

Those who want/need to retire early won't have the flexibility that they need in the way that they take their pension without first transferring that out to an alternative pension scheme. If too many people do that then this negates any expected benefits of having a very large number of people within the scheme allowing a greater investment risk profile.

[RobertT]

The huge problem with this proposed scheme is the retirement age linked to State Pension Age (so going to be at least 68 for many members and likely to rise beyond that) in a physically demanding job.

The CWU's original pension proposal was called WinRS and that had an NRA of state pension age, but CDC has a set NRA of 67.

Those who want/need to retire early won't have the flexibility that they need in the way that they take their pension without first transferring that out to an alternative pension scheme.

There will be the ability to take your CDC pension before NRA, but with a reduction, in a similar way to current NRA60 & NRA65 benefits.
Or you can transfer to an individual DC scheme if you wish.

If too many people do that then this negates any expected benefits of having a very large number of people within the scheme allowing a greater investment risk profile.

It's going to be a big scheme with about 140,000 members when it starts, which will increase over time. So I think a lot of people will need to withdraw their cash to make a huge dent in the effectiveness of the scheme. But it is a possibility.

[stephen500]

The huge problem with this proposed scheme is the retirement age linked to State Pension Age (so going to be at least 68 for many members and likely to rise beyond that) in a physically demanding job.

Those who want/need to retire early won't have the flexibility that they need in the way that they take their pension without first transferring that out to an alternative pension scheme. If too many people do that then this negates any expected benefits of having a very large number of people within the scheme allowing a greater investment risk profile.

From what I read, you can still take the CDC pension from 55 onwards subject to acturial reduction.

[Woody Guthrie]

The problem with the scheme is that it really is new territory, there are similar schemes in other countries but even those are not exactly the same, state pension provision and pension regulations are different in each country.

It's a bigger risk than some people think or are letting on but the overriding issue I think will be psychological. Never again will a Royal Mail pensioner retire knowing exactly how much income they will have to live on because even after you've done your bit and paid in for 40 years your income could decrease through poor investment choices or increases in life expectancy of those coming after you.

It may have been inevitable, that's up for debate but it's certainly not a cause for celebration that this is the best we can offer those that have given their entire working life to a company.

As a trade unionist I'm pretty disgusted at the low bar the union sets for success.

[Schiff]

The huge problem with this proposed scheme is the retirement age linked to State Pension Age (so going to be at least 68 for many members and likely to rise beyond that) in a physically demanding job.

Those who want/need to retire early won't have the flexibility that they need in the way that they take their pension without first transferring that out to an alternative pension scheme. If too many people do that then this negates any expected benefits of having a very large number of people within the scheme allowing a greater investment risk profile.

From what I read, you can still take the CDC pension from 55 onwards subject to acturial reduction.

Well the 55 is definitely going to increase, and even so that is going to give you the same amount every year, whether or not you are receiving your state pension in addition to the new RM pension. Potentially a long period of famine followed by relative feast.

If people transfer their share of the CDC out to an alternative pension then they can have far more flexibility and take more from their pot in, say, the 10 years before they receive their state pension and less thereafter. The pension flexibility rules were designed to reflect the differing needs of modern pensioners, but the CDC proposals are a backward step in that respect.

I won't miss out on the free money from RM by not taking part in the scheme, but I have absolutely no intention of actually drawing a pension from the CDC scheme. I will transfer out shortly before I retire. This will also allow me to control whether I should take more or less from my pot each year, rather than wait in fear that I will be told that my pension is going to be cut for the next year at a time when I need it.

[stephen500]

The problem with the scheme is that it really is new territory, there are similar schemes in other countries but even those are not exactly the same, state pension provision and pension regulations are different in each country.

It's a bigger risk than some people think or are letting on but the overriding issue I think will be psychological. Never again will a Royal Mail pensioner retire knowing exactly how much income they will have to live on because even after you've done your bit and paid in for 40 years your income could decrease through poor investment choices or increases in life expectancy of those coming after you.

It may have been inevitable, that's up for debate but it's certainly not a cause for celebration that this is the best we can offer those that have given their entire working life to a company.

As a trade unionist I'm pretty disgusted at the low bar the union sets for success.

On a personal note, I am glad I got out, retired and took my pension in Nov 2020.
Only waiting for the pension advice money to come at the end of this month.

[Woody Guthrie]

So I think a lot of people will need to withdraw their cash to make a huge dent in the effectiveness of the scheme

It's not just a pure numbers game.
Another potential problem if you allow transferring out is risk bias.

People who transfer out tend to have the shortest life expectancy, they bias towards transfer because they know their lifestyle means they are unlikely to hit the 20-25 years it takes to break even. They are the smokers and drinkers, the obese and those with pre-existing medical conditions that a pension relies on dying early to balance the guys who make it to 100.

When a pension starts losing those members it starts circling the drain very rapidly.

[Schiff]

So I think a lot of people will need to withdraw their cash to make a huge dent in the effectiveness of the scheme

It's not just a pure numbers game.
Another potential problem if you allow transferring out is risk bias.

People who transfer out tend to have the shortest life expectancy, they bias towards transfer because they know their lifestyle means they are unlikely to hit the 20-25 years it takes to break even. They are the smokers and drinkers, the obese and those with pre-existing medical conditions that a pension relies on dying early to balance the guys who make it to 100.

When a pension starts losing those members it starts circling the drain very rapidly.

Exactly. I do fear that this will become the equivalent of a ponzi scheme. There will be a sweet spot early on where retirees will do reasonably well and the scheme appears to be hitting its targeted pensions. As more and more people realise that they, personally, are likely to do better by taking their current share out of the CDC then the cracks in the dam will get ever larger.

[robking]

Royal Mail Group's financial year ends on 31st March (or just before depending if it falls at a weekend or at Easter).

Every time they make changes to the pension schemes, the applicable date always seems to be 1st of April. Our pay is always reviewed or backdated to 1st of April and pension increases start from that date.

Therefore it seems reasonable to assume that the new CDC pension scheme will start on that date. But we are only seven weeks away from 1/4/2021 and it seems implausible that this brand new type of scheme can be launched by that date. Unless RMG have a draft scheme already in place to launch as soon as the legislation is approved. Such forward thinking hasn't been evident before now.

So that leaves two other possibilities, either we are stuck in the RMDCP or the cash balance scheme for another year until 1/4/2022 or the company will start the new scheme on a different date.

[heapsy]

But it has to be better than a pure cash balance scheme that many Rm employees are currently in

You can't really compare it to the cash balance scheme, nobody would probably choose a CBS even though it is defined benefit because it's not a flexible enough pension solution.

It was forced upon us as a temporary measure and was only supposed to provide part or all of any lump sum you would take along side a pension.

It will be compared to individual DC plans, that will be the only real way to judge performance.

Will the economies of scale offset the individual freedoms and flexibility of a DC scheme?

I have to admit I'm sceptical, I think its biggest problem might be that investments will be overly cautious.

I agree entirely with you Woody. Too many variables for me. No guarantee of level of income due to poor investment strategy, something RM are good at. Fluctuations in returns due to market conditions that would be out of RMs control. COVID comes to mind here. The effect of varying numbers of people joining, leaving and drawing their pension, coupled with contributions going into the scheme as RM move to a predominantly part time work force. I'm wondering, if they do reduce pensions due to reduced returns, how long would it be before they are increased again? If ever. For somebody with a significant portion of their pension in this scheme, my last point could be a disaster.