Another pension plan

[Cascade]

I'm confused by the pension plans already and now they're proposing a new collective pension

[RobertT]

Yep it's been on the cards since February 2018, but it's taken this long to get the legislation in place.

[renrag40]

Consultation document just arrived on the door mat . Now we know what you will get if you don't enrol in the proposed CDC plan...... you will be automatically enrolled in the government's NEST plan..... you pay 5%, RM pays 3%.... basically you would be taking a 10.6% remunerations cut...... so, you have no realistic financial option but to join the CDC plan........ this document reinforces the fact that the proposed scheme is a career average scheme without the guarantees to pension income that come with a career average scheme.

[Duran]

The proposed new pension plan looks good. Better than i had expected. I won't be in it for long as i have done 37years. There is hope for those starting post NRA60.

A New starter on £25000 pensionable pay per year. With 40 years service will be looking at an Annual pension of £12500 and a lump sum payment of £37520. Based on pay now. This will obviously increase, when yearly pensionable pay increases.

Having said all that. When i started i was expecting a final salary pension paid when i reach 58(40 years service). So all could change again,before then.

Doesn't state how much you lose if you take pension before 67.

[renrag40]

What a surprise that it doesn't say what the reductions will be if you take it the pension before 67......... nor does it state what the maximum reductions to your pension income could be.... nor does it state for how many years reductions could be imposed on your pension income...... I wonder why that is? Could it be that this document is not a "warts and all" document that it should be?..... if they wanted prospective members to have a balanced view of the proposed scheme?
Maybe they just wanted to gloss over the downside?

[RobertT]

The proposed new pension plan looks good. Better than i had expected. I won't be in it for long as i have done 37years. There is hope for those starting post NRA60.

A New starter on £25000 pensionable pay per year. With 40 years service will be looking at an Annual pension of £12500 and a lump sum payment of £37520. Based on pay now. This will obviously increase, when yearly pensionable pay increases.

The caveat being with CDC/RMCPP is that pensions could and probably will, go down in some years.

Having said all that. When i started i was expecting a final salary pension paid when i reach 58(40 years service). So all could change again, before then.

POSSS & POPS as section A, B & C used to be known, used to have a maximum of 40 years worth of pensionable membership which for section A/B gave a max pension of half final pensionable salary plus a lump sum of 3x pension.
While 40 years in Section C gave a max pension of 2/3rds pensionable salary, with the option to commute some for a lump sum.

Anyone with 40 years of pension years had to stop paying in, but they couldn't just take their pension unreduced at that point. They still had to wait until 60 to get a 'full' pension.

Doesn't state how much you lose if you take pension before 67.

I'm not sure the RMPP/RMSPS literature states the 5% reduction either, although I could be wrong?
in practice the early payment reductions will be determined by the scheme actuary.

[RobertT]

What a surprise that it doesn't say what the reductions will be if you take it the pension before 67......... nor does it state what the maximum reductions to your pension income could be.... nor does it state for how many years reductions could be imposed on your pension income...... I wonder why that is? Could it be that this document is not a "warts and all" document that it should be?..... if they wanted prospective members to have a balanced view of the proposed scheme?
Maybe they just wanted to gloss over the downside?

The anticipated CDC design booklet says this about reductions in pensions due to lower than expected investment performance:

If the Section is below Parity, there is no funding for increases, and a pension cut is required to bring the Section back to Parity.

A cut of 5% or less would be applied as a single action. A cut of over 5% would be applied over a “Parity Programme”, which would run for a period of up to three years as required, as follows:

Cuts of up to 5% would be applied as early as possible. Cuts of over 5% pa would only apply if required to return the Plan to Parity within three years of the funding loss that led to required cuts.

If there is subsequent positive experience before the Parity Programme has been completed, the Programme is then revised to reduce the cuts to what is necessary (if anything), in accordance with the original principles for its determination.

If there is subsequent negative experience before the Parity Programme has been completed, this subsequent experience will require additional cuts. These cuts would be determined by reference to the same principles, over and above the cuts budgeted for in the existing Parity Programme. Existing cut amounts would, however, never be re-spread. This means that negative experience is always addressed within three years of it occurring.

As for increases, cuts are applied to all pensions earned up to the valuation date before the cut’s application (i.e. the valuation on which the increases or cuts are based). This includes pensions which are earned during the Parity Programme.

During a Parity Programme, there are planned cuts that have not yet been applied. For the purpose of valuation calculations (whether for the annual valuation, transfer values, or allocation of funds on wind up), the Plan Actuary will assume that the remaining planned cuts (where still required) will be applied. On this basis, the funding level remains at 100%.

Personally I can't see the actual scheme being drastically different.

[david3595]

I’m pleased to see a mention of AVC’s and Lump Sum Booster. Hopefully 7 years maximum for me to work but I will make the most of this short period

[RobertT]

Yes it's good news for those wanting to make the most of things.

It's always best to take the maximum employer contributions, so the Lump Sum Booster is a no brainer.

I don't really plan to be in the new scheme very long, but will definitely sign up for that.

[mr hil.]

A quick calculation suggests to me the new lump sum with the lump sum booster would give about 50% of the maximum 25% tax free lump sum unless any reduction for taking your pension early is above the 5% per year as is currently the case.

This would leave the option of building up a new AVC amount, hoping it would be PSE as it is now, that could also be taken tax free if calculated carefully ( just less than 50% of the lump sum that you would be building up through the new scheme) Any more than 50% would mean there would be an excess lump sum that would be taxable under current regulations.

[freespeech]

A quick calculation suggests to me the new lump sum with the lump sum booster would give about 50% of the maximum 25% tax free lump sum unless any reduction for taking your pension early is above the 5% per year as is currently the case.

This would leave the option of building up a new AVC amount, hoping it would be PSE as it is now, that could also be taken tax free if calculated carefully ( just less than 50% of the lump sum that you would be building up through the new scheme) Any more than 50% would mean there would be an excess lump sum that would be taxable under current regulations.

Should the current cash balance fund be factored in too as we will have three years of that I suspect or is that entirely fenced off from the NRA67 new scheme?

[RobertT]

A quick calculation suggests to me the new lump sum with the lump sum booster would give about 50% of the maximum 25% tax free lump sum unless any reduction for taking your pension early is above the 5% per year as is currently the case.

This would leave the option of building up a new AVC amount, hoping it would be PSE as it is now, that could also be taken tax free if calculated carefully ( just less than 50% of the lump sum that you would be building up through the new scheme) Any more than 50% would mean there would be an excess lump sum that would be taxable under current regulations.

We currently don't know how the 25% tax free cash from the RMCPP will be worked out!

For the current scheme, it's done by multiplying the pension by 20, but that may not be the same with RMCPP.

When it was first announced that we'd be going this route, it was suggested that a multiple of 15 or 16 may be used, to account for the targetted rather than guaranteed nature of RMCPP.

So using those figures, and going purely by contributions going in, my maths suggests the basic lump sum element would make up around 16-17% of the max tax free amount. But add on an additional 2% contribution and that brings it up to around 23%.

So a lot will hinge on:

a. the multiple used to work these things out, assuming its as simple as that, it may be totally different.
b. the actual values of the pension and lump sum.

I see no reason why PSE scheme wouldn't apply to the new scheme and any AVC's, assuming you stay within the limits.

If you do end up with an excess amount from the current AVC's or the DBCBS, it will be paid out as a UFPLS, meaning the first 25% of that excess is also tax free.
In practice as long as your income is within the 20% tax band, you'll still keep 85% of that excess amount.

I'm guessing that will also apply to the new scheme, but I don't know for sure.

[RobertT]

Should the current cash balance fund be factored in too as we will have three years of that I suspect or is that entirely fenced off from the NRA67 new scheme?

The Cash Balance(DBCBS) is part of the RMPP and is predominantly used to fund the lump sum when taking NRA65 benefits. It's got nothing to do with the new CDC/ RMCPP scheme.

By the time the new scheme starts we will probably have 4 years worth of DBCBS.

[vmaxv4]

Should the current cash balance fund be factored in too as we will have three years of that I suspect or is that entirely fenced off from the NRA67 new scheme?

The Cash Balance(DBCBS) is part of the RMPP and is predominantly used to fund the lump sum when taking NRA65 benefits. It's got nothing to do with the new CDC/ RMCPP scheme.

By the time the new scheme starts we will probably have 4 years worth of DBCBS.

[hogwash00]

Stark choice; Collective-plan 19.6% (6+13.6%) or Nest 8% (5+3%)

I was always under the impression that we had a choice, this doesn't sound like a choice, we're more or less being forced into this Collective-plan

I like my RMDCP and wish I continue with it but alas