Pension Bill receives Royal Assent 11th February 2021

[renrag40]

By “second half of the next financial year” read 1st of April 2022...... at the earliest I’d of thought.
Irrespective of when the CDC scheme eventually starts I will be viewing it as an another form of DBCBS. There is no way I will want a 5% reduction in my pension year on year...... which no matter how unlikely they say it is to happen, it could happen. That is not “security in retirement” as that pompous windbag Pullinger keeps on opining....... it is uncertainty and insecurity in retirement. I will be transferring out of CDC scheme to a draw down pension before I retire. At least then I will have the final say on what I will receive each year.
If we assume it will start in April 2022 then I will be 57.5 years old so will only have at most 9.5 years in the CDC scheme. Roughly £50,000 will have been paid in by myself and RM in that time given my current basic pay and allowances. Under the CDC I would probably get £3,000 pension with a £9,000 lump sum...... given that you are not getting the pension until you are 67 I think I will take my chances on having control of the pension pot.

[RobertT]

On the subject of transferring out....

What we don't know is how such transfers will be calculated!

DB schemes normally use a multiple of 20 to work out the value of benefits and can give transfer values of much higher than that, as an incentive to get members off their books. But as there is no guarantee to what benefits CDC will provide, that multiple is likely to be lower, and there might be a much more convoluted method of working out the value anyway!

Personally I plan to leave RM mid way through 2023, so expect to get somewhere between 12-20 months worth of CDC pension depending on exact dates of scheme implementation and me leaving. I expect to have accrued a maximum of around £500 pension & £1,500 lump sum(not including any increases or decreases) in that time.

Part of me would quite like to be an active member until 67 and beyond and have first hand knowledge of how CDC pans out, but also recognise that an earlier transfer might be a good option too.

But I'm certainly not going to make any decisions until I know more detail of how transfer values will be worked out!

[garnery]

I think hilary salt once suggested a multiplier of 15 x. In any case i too am inclined to transfer out. I expect to have 3 or 4 years of benefits in cdc. Wont wait until 67 either. Would rather put the money in my personal DC pension where i can choose how its invested. I (like many on here) am fortunate to have long service & a good DB pension to fall back on so i can take some risks. I am no pension expert but it seems the young members of cdc will be paying for the retirement of old ones like me

[RobertT]

Not long after the CDC agreement in 2018, there was a Pension Select Committee which Hillary Sault attended, and I do seem to remember her saying the multiple could be 15 or 16.

I too have a decent DB pension from 30 odd years at RM, plus AVC's and a personal pension which will be enough for me, so CDC is a bonus to some degree. A nice transfer value to bolster my personal pension for drawdown is quite appealing compared to a very small pension for life from 67.

But many younger members will be relying solely on CDC to give them a decent retirement.
The modelling that was done a few months back suggested it could produce a better outcome than both DC and DB, and I'd like it to achieve that. But am not convinced it will.

[mr hil.]

I too saw the modelling based on how the CDC would have performed using data going back years and was encouraged that it never once went into deficit even during the years of the big stock market crashes. My main question would be how much of a reduction will be applied for taking it before the NRA67, Very few delivery posties will make it to that age in Royal Mail with the workloads we have now.

[Woody Guthrie]

It'll likely be the same reduction rates as now but with a minimum age of 57 but that's just a guess.
Nothing is really written in stone yet despite the various "models" being out about.

[mr hil.]

If it is the same 5% as now then we all stand to lose an extra 10% of our final yearly cdc pension compared with the old NRA65 scheme. The new lump sum scheme may not be as badly affected as long as we all sign up to the extra percentage we can pay in that is then matched by RM.

[RobertT]

Current NRA60 & NRA65 pensions have a 5% per year early payment reduction, but many other company schemes use a different percentage, that can typically range from 2% to as much as 8% per year.

The rate for CDC will be something for the scheme actuaries to work out, but 5% is probably as good a guess as any.

There may be some pension schemes with 'grandfather rights' which enable access before age 55, I think an earlier version of the Police pension is one. But in the vast majority of cases, 55 is the current legal minimum, unless for ill health reasons.

The age for pension access is due to increase to 57 by 2028, but could be earlier if this article is anything to go by, but initially it will be 55 for CDC because that is the current law!

[Woody Guthrie]

I think the combination of 5% and 55 are incompatible with an NRA of 67.

I'm expecting either something in the secondary legislation around the minimum access age, perhaps rather than a fixed age a formula like NRA-10 years or the reduction may be set at 4% pa keeping the maximum reduction below 50%.

I am just guessing though.

[RobertT]

Considering the un-guaranteed nature of CDC I agree that a lower percentage reduction than 5% would suit better.

But the current legal minimum age of 55 to access a pension is not going to be changed specifically for CDC. Although it will be changed to 57 by 2028 by law.

I'm no legal expert, but the change in minimum access age increased from 50 to 55 in 2010, and the legislation to enable that was featured in the Finance Act of 2004.
I'm as sure as I can be that was primary legislation.
I very much doubt if secondary legislation can trump primary!

[renrag40]

I think hilary salt once suggested a multiplier of 15 x. In any case i too am inclined to transfer out. I expect to have 3 or 4 years of benefits in cdc. Wont wait until 67 either. Would rather put the money in my personal DC pension where i can choose how its invested. I (like many on here) am fortunate to have long service & a good DB pension to fall back on so i can take some risks. I am no pension expert but it seems the young members of cdc will be paying for the retirement of old ones like me

There is no planned cross subsidy in the proposed RM CDC scheme. No buffer will be built up. Any shortfall or surplus will be dealt with there and then. Hence the possibility of up to 5% cuts in pensions year on year until any shortfall is remedied. Therefore, I fail to see how younger members will be paying for the retirement of the older ones. By the very nature of being older will mean you will have built up precious little benefits by the time you come to receive them.
Plus of course the pushing out of the nra by 2 years effectively robbers every member of 2 years pension benefits. The average life expectancy of a male aged 57 in the UK is 84 according to the ONS life expectancy calculator. He will have a 1 in 4 chance of making it to 92 and a 1 in 10 chance of staggering on to 97. So using the average of 84 will mean a reduction of 10.5% in total pension benefits received during retirement compared to an nra of 65. Not much certainty and security in that unless it’s the certainty of knowing you have been sold a pup.

[heapsy]

Has it been decided / announced who is to administer the new scheme? I'm asking because I wonder just how diverse the investments could be, which will in part depend on who this would be. Tia.

[renrag40]

Has it been decided / announced who is to administer the new scheme? I'm asking because I wonder just how diverse the investments could be, which will in part depend on who this would be. Tia.

It’s not official but I’ve heard a whisper that a fella named Blind Pugh is going to pick out the investments by throwing darts at a copy of the Financial Times pinned to a dart board. Pullinger is going to compère and shout out the Selections live on Facebook.

[RobertT]

Has it been decided / announced who is to administer the new scheme? I'm asking because I wonder just how diverse the investments could be, which will in part depend on who this would be. Tia.

CDC will be run on a trustee basis, similar to the RMPP. It'll be up to the trustees to appoint fund managers to invest the contributions and an actuary to decide on annual increases/decreases, transfer valuations and early payment percentages, etc.

There will presumably be a point of contact for members, similar to the current PSC in Sheffield.

RM will be responsible for the DBLSS as they are with the current DBCBS.

The RMPP currently has around 40 different investment managers, a list of which is in the report and accounts on the RMPP website.
I expect CDC to be similar over the course of time, with the numbers increasing as the amount of money in the pot increases.

[heapsy]

Thanks for the replies. From what I've read, it's my belief that transferring out into a SIPP would probably best done at NRA. For example, I'm hoping to retire at 60. If I went into Draw Down at 60, I'd leave the CDC where it was until 67, or whatever age NRA is. I wouldn't be worrying too much about how much I'd drawn down from the SIPP as a result. I'm single, so no bothered if the money runs out mid 70s. I've got a S&S ISA which I could convert to cash eventually. I don't intend to take any of the RM pensions before their NRA. Can't see myself going on many pub crawls when I'm nearly 80!