Pension Bill receives Royal Assent 11th February 2021

[RobertT]

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!

Obviously nothing is confirmed yet, but the Anticipated Design booklet says on transfers, etc:

Subject to employer policy from time to time, members would have the following options.

Retire early on an actuarially equivalent reduced pension.

For members still in RMG service beyond 67, continue to build up pension (and receive the same increases / cuts over that period as other members) beyond 67 until they leave RMG.

Take a transfer value to another HMRC registered pension plan. The transfer value amount would be determined as the member’s share of the Section’s total assets. This share would be determined on a basis consistent with that used to determine the annual increases/decreases, but updated to allow for Section asset return and other experience to the date of transfer.

Full commutation (on cost neutral terms) for small lump sums or on serious ill-health would be allowed on transfer value (ie share of fund) terms.

For any member options above which require an actuarially equivalent conversion of the default CDC pension, the terms (‘factors’) will be determined by the Plan Actuary. They would be cost neutral on the “central” (or “best”) estimate valuation basis, with allowance if appropriate for any differences in expected demographics for the members taking the option.

My reading of that is any transfers will be based on an individuals proportional slice of the CDC cake at the time, and based on benefits accrued, average life expectancy, etc.

Therefore you might have a bigger pension entitlement, in money terms, at 67 but only because you've been in the scheme for longer and (hopefully) benefited from another 7 years of inflationary increases. But you wouldn't get less on a proportional basis, if you transferred it at 60.

[renrag40]

I agree. The transfer value is likely to be contributions paid in with the yearly bonuses added..... whether they be positive or negative..... given that there will deliberately be no buffer built up it can at best only be the above. This will be no sweetener to get rid of you because there will be nothing there to pay the sweetener with. As I have said before I will be using it purely as a DC type pension to build up a pot of money (which over about 10 years will have about 50k put into it in contributions) to move then to a draw down pension. At least then I can determine how much I will receive each year and not find out that due to some nameless fund managers poor performance I am staring down the barrel of a pension cut.

[RobertT]

That wasn't what I said or believe will be the case!
It'll be your share of the overall pot in relation to the pension you might receive, rather than amounts going in. Also factoring in increases/decreases, life expectancy, investment returns, etc.

If 15.2% of pay goes into CDC for 5 years, at current basic full time rate of £441, that's a total of £17,450.

But as CDC aims to provide benefits similar to a DB scheme, it will provide pension of 1/80th of pay per year, which for 5 years of membership would be a pension of £1,435.

The unknown factor is how they're going to work out the overall value of that pension.
DB schemes use a multiple of 20, but CDC is likely to be lower and may use a completely different method?

It was suggested early in the parliamentary process that a multiple of 15 or 16 could be used. Therefore using 15, the transfer value could be £21,525.

*figures are only based on current full time basic pay.
*no increases or decreases have been factored in.
*total contributions will be 19.6% of pay, with the other 4.4% going in the Defined Benefit Lump Sum Scheme.

When you transfer to your DC drawdown pension, you will have to choose investments for your money. Which may also go down in value.

[renrag40]

That wasn't what I said or believe will be the case!
It'll be your share of the overall pot in relation to the pension you might receive, rather than amounts going in. Also factoring in increases/decreases, life expectancy, investment returns, etc.

If 15.2% of pay goes into CDC for 5 years, at current basic full time rate of £441, that's a total of £17,450.

But as CDC aims to provide benefits similar to a DB scheme, it will provide pension of 1/80th of pay per year, which for 5 years of membership would be a pension of £1,435.

The unknown factor is how they're going to work out the overall value of that pension.
DB schemes use a multiple of 20, but CDC is likely to be lower and may use a completely different method?

It was suggested early in the parliamentary process that a multiple of 15 or 16 could be used. Therefore using 15, the transfer value could be £21,525.

*figures are only based on current full time basic pay.
*no increases or decreases have been factored in.
*total contributions will be 19.6% of pay, with the other 4.4% going in the Defined Benefit Lump Sum Scheme.

When you transfer to your DC drawdown pension, you will have to choose investments for your money. Which may also go down in value.

You haven’t included a transfer value for the DBLS scheme. I would have thought that you would have to transfer that out at the same time as you transfer out of the CDC scheme.
The example I gave were my own figures....... present pensionable pay £26,000 with 10 years of contributions (assuming the CDC starts in April 2022) and they include the full 19.6% of the contributions.
£26,000*0.196= £5096 per year in contributions.
5096*10= £50960 paid into the scheme over the 10 years.
Assuming that the scheme achieves its target each year of 1/80th of pensionable pay for that year and 3/80ths for the DBLS.
£26,000/80= £325
£325*10= £3250 per year pension plus £9750.
Using the multiple of 15
£3250*15= £48,750 + £9750= £57,500 transfer value.
That I would be quite happy with.
It is quite ironic to note that given RM trumpeting in the past that the CDC scheme will be inter generationally fairer because there will be no buffer built up. Any surplus will be distributed each year and any deficit will be remedied that year. Contributions over the 10 years to my DBLS will have been £11,440 yet I will receive a tax free lump sum of £9,750.

[RobertT]

The figures aren't really important, its the way those figures are worked that is, which is something we dont know yet.

As the DBLSS will be kept separate from the CDC scheme itself, there is the possibility that could be transferred separately, but again we don't know about that yet either.

[renrag40]

The figures aren't really important, its the way those figures are worked that is, which is something we dont know yet.

As the DBLSS will be kept separate from the CDC scheme itself, there is the possibility that could be transferred separately, but again we don't know about that yet either.

I doubt whether HMRC would allow that to happen. Given that the DBLS will be tax free I can't see them then allowing 25% of the CDC funds that have been transferred out and put in a draw down pension to be taken as a tax free lump sum. The overall tax free proportion would then be around 40%. I just can't see our beloved tax inspectors allowing that somehow.
This will be one of many wrinkles that would have to be ironed out before RMs scheme would be allowed to start. Individually these issues will all take their own bit of time to sort out. Which is why I would be very surprised if the scheme started this year...... April 2022 onwards would be more likely.
That and the fact that RM will/should give people who are paying into AVCs in the present pension schemes an official notice period to get their affairs in order.

[RobertT]

It is quite ironic to note that given RM trumpeting in the past that the CDC scheme will be inter generationally fairer because there will be no buffer built up. Any surplus will be distributed each year and any deficit will be remedied that year. Contributions over the 10 years to my DBLS will have been £11,440 yet I will receive a tax free lump sum of £9,750.

The important thing to remember is that the CDC scheme and the DBLSS will be managed separately.

So if there's any surplus in CDC that will be mirrored by an increase in annual pension entitlement, with the reverse also being true!

But the DBLSS will be similar to the current DBCBS with the amount going in(4.4% of pay) being guaranteed, with the addition of annual bonuses.

It's also worth noting that the Anticipated Design booklet says that death benefits will be paid by the DBLSS. Which perhaps answers the question of why total payments into it may be less than it pays out?

Also don't forget that what you put in yourself, compared to what you take out, is important.

In your case your 10 years of contributions(based on £26k) into CDC, when factoring in tax relief and PSE, will only have cost you £7,072. While contributions into the DBLSS will only be £3,536.

£10,600 going in that potentially has a value of £57,500 sounds pretty good to me!

I doubt whether HMRC would allow that to happen. Given that the DBLS will be tax free I can't see them then allowing 25% of the CDC funds that have been transferred out and put in a draw down pension to be taken as a tax free lump sum. The overall tax free proportion would then be around 40%. I just can't see our beloved tax inspectors allowing that somehow.
This will be one of many wrinkles that would have to be ironed out before RMs scheme would be allowed to start. Individually these issues will all take their own bit of time to sort out. Which is why I would be very surprised if the scheme started this year...... April 2022 onwards would be more likely.
That and the fact that RM will/should give people who are paying into AVCs in the present pension schemes an official notice period to get their affairs in order.

You may well be right, but the way I see things is that the DBLSS will be similar to AVC's, just as the DBCBS is.
AVC's are designed to fund the lump sum when taking your NRA60 & NRA65 benefits and will often be completely tax free, depending on amounts involved.
But they can also be transferred out into a DC scheme where subsequently only 25% will be guaranteed to be tax free.

Plus the DBLSS will presumably only be completely tax free, when taking it with CDC, if it's value is equal to or less than 25% of the total CDC/DBLSS pot. so some of it might turn out to be taxable, as is the case with the DBCBS(particularly section B).

Yes, still things to be ironed out!

[Woody Guthrie]

All of the contributions going into an occupational pension whether employees of employers are part of your employment package and simply deferred wages.
There is no "free money" involved.

The real way to look at occupational pensions is that if you opt out your employer keeps a percentage of your employment package that you're entitled to. A little more socially unpalatable but far more honest than propagating the lie that employers are handing out free money like a benevolent charity.

[renrag40]

Like I said Bob ...... I would be quite happy with that transfer value
It shows the importance of RMs contributions to the pension schemes.
It never fails to amaze me that people are so keen to get their pensions as quickly as they can and throw away all the money that RM is putting in. As I pointed out to a Section B colleague recently.... "why are you so keen to take a £69 per week pay cut"..... he had no idea how much RM puts into the pension schemes.
I know everyone has different circumstances and that there is no definite rights and wrongs but the ignorance of the vast majority of people towards their pension is amazing.
Having said that once you reach 55 the pension becomes low hanging fruit and when you get to 56 hangs lower and becomes more tantalising.

[renrag40]

All of the contributions going into an occupational pension whether employees of employers are part of your employment package and simply deferred wages.
There is no "free money" involved.

The real way to look at occupational pensions is that if you opt out your employer keeps a percentage of your employment package that you're entitled to. A little more socially unpalatable but far more honest than propagating the lie that employers are handing out free money like a benevolent charity.

I hear the sound of a hammer hitting a nail firmly on the head Woody.

[garnery]

If anyone is interested there is an online lecture on 23rd at 15:00 by john ralfe. Independent pension consultant who writes for the times. Just google imperial business school lecture by john ralfe & register

[vmaxv4]

If anyone is interested there is an online lecture on 23rd at 15:00 by john ralfe. Independent pension consultant who writes for the times. Just google imperial business school lecture by john ralfe & register

Lecture in full which also includes recording.
Imperial College Business School has kindly shared the recording of the talk

Your password is !!3Q=a!6

https://henrytapper.com/2021/02/24/john ... c-lecture/

[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 not 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!

Obviously nothing is confirmed yet, but the Anticipated Design booklet says on transfers, etc:

Subject to employer policy from time to time, members would have the following options.

Retire early on an actuarially equivalent reduced pension.

For members still in RMG service beyond 67, continue to build up pension (and receive the same increases / cuts over that period as other members) beyond 67 until they leave RMG.

Take a transfer value to another HMRC registered pension plan. The transfer value amount would be determined as the member’s share of the Section’s total assets. This share would be determined on a basis consistent with that used to determine the annual increases/decreases, but updated to allow for Section asset return and other experience to the date of transfer.

Full commutation (on cost neutral terms) for small lump sums or on serious ill-health would be allowed on transfer value (ie share of fund) terms.

For any member options above which require an actuarially equivalent conversion of the default CDC pension, the terms (‘factors’) will be determined by the Plan Actuary. They would be cost neutral on the “central” (or “best”) estimate valuation basis, with allowance if appropriate for any differences in expected demographics for the members taking the option.

My reading of that is any transfers will be based on an individuals proportional slice of the CDC cake at the time, and based on benefits accrued, average life expectancy, etc.

Therefore you might have a bigger pension entitlement, in money terms, at 67 but only because you've been in the scheme for longer and (hopefully) benefited from another 7 years of inflationary increases. But you wouldn't get less on a proportional basis, if you transferred it at 60.

[Schiff]

My reading of that is any transfers will be based on an individuals proportional slice of the CDC cake at the time, and based on benefits accrued, average life expectancy, etc.

I must say, that would be my expectation.

As it is a collective defined contribution scheme without any defined benefit then transfer value should surely be based upon each individuals share of the collective pot. Any attempt to give a lower value will be open to legal challenge.

[Woody Guthrie]

There may of course be exit penalties to deter transferring out.