New Pension Contributions

[freespeech]

I know we will pay 6% in the new scheme and the company 13.6% but, I understand, contributory pay will be calculated differently (and go up) so contributions will increase. Does anyone have any more detail?

[david3595]

I think it gives examples in the information booklet that we all received. I’m guessing if you earn £22000 per year then under new pension scheme you will pay 6% of £22000 ?

quote=freespeech post_id=952763 time=1632730276 user_id=1545]
I know we will pay 6% in the new scheme and the company 13.6% but, I understand, contributory pay will be calculated differently (and go up) so contributions will increase. Does anyone have any more detail?
[/quote]

[freespeech]

I think it gives examples in the information booklet that we all received. I’m guessing if you earn £22000 per year then under new pension scheme you will pay 6% of £22000 ?

Yes, that bit is clear......it's the bit about what makes up contributory pay that is changing so we will pay more with the same salary (and staying at 6%).

[RobertT]

Whether your pensionable pay goes up when you join the new scheme will depend on which scheme/section you're currently in.

RMPP section A/B members won't see any change.
RMPP section C & F members will no longer have the LED reducing their pensionable pay, meaning higher weekly/monthly contributions.
RMDCP members currently pay contributions on just basic pay, plus overtime up to full time hours. Any pensionable allowances will also be factored in for them with CDC, which they aren't at the moment.
I don't think overtime will be included in pensionable pay going forward.

Info: https://www.myroyalmail.com/collective-plan/costs

[freespeech]

Whether your pensionable pay goes up when you join the new scheme will depend on which scheme/section you're currently in.

RMPP section A/B members won't see any change.
RMPP section C & F members will no longer have the LED reducing their pensionable pay, meaning higher weekly/monthly contributions.
RMDCP members currently pay contributions on just basic pay, plus overtime up to full time hours. Any pensionable allowances will also be factored in for them with CDC, which they aren't at the moment.
I don't think overtime will be included in pensionable pay going forward.

Info: https://www.myroyalmail.com/collective-plan/costs

I am led to believe the majority of current staff are in section C so that suggests that most will see an increase. 6% of the LED is around £4 per week additional to pay.

[RobertT]

I am led to believe the majority of current staff are in section C so that suggests that most will see an increase. 6% of the LED is around £4 per week additional to pay.

Most employee members of the RMPP will be in section C, but section C of the RMPP closed to new entrants in 2008!

So anyone joining RM in the last 13.5 years will either be in the RMDCP, or those with at least 5 years in the RMDCP have the choice to join section F of the RMPP instead.

According to the RMDCP report and accounts, that scheme had nearly 53,000 employee members as of 31st March 2021.
While the RMPP had over 76,000 employee members, a majority of which will probably be section C.

Anyone in section B will currently need to have at least 34.5 years service.

Don't forget, the pension payment on your payslip is the gross amount.
That gross contribution will be reduced by tax relief and PSE, meaning you only actually pay 68% of that amount, with the taxman picking up the other 32%.

[freespeech]

Indeed....but it's still going up for most people.

[RobertT]

Indeed....but it's still going up for most people.

If you're paying more in, you'll also be earning more pension and lump sum than if you were staying at the same contribution level.

[freespeech]

Indeed....but it's still going up for most people.

If you're paying more in, you'll also be earning more pension and lump sum than if you were staying at the same contribution level.

Yes, that's true too but the increase could be an issue for some, especially combined with the impending NI increases too. Take home pay will be hit in the coming months.

[renrag40]

Whether your pensionable pay goes up when you join the new scheme will depend on which scheme/section you're currently in.

RMPP section A/B members won't see any change.
RMPP section C & F members will no longer have the LED reducing their pensionable pay, meaning higher weekly/monthly contributions.
RMDCP members currently pay contributions on just basic pay, plus overtime up to full time hours. Any pensionable allowances will also be factored in for them with CDC, which they aren't at the moment.
I don't think overtime will be included in pensionable pay going forward.

Info: https://www.myroyalmail.com/collective-plan/costs

The people in Section C will have quite a bit more going into their pension in the CDC because the LER will be pensionable both for the member and employer contributions. For example, I'm in section B, and pay £30 and RM £70 per week, £5200 per year combined into the DBCBS. Someone on the same shift in Section C pays £24 and RM £54 per week, £4100per year.

[freespeech]

Whether your pensionable pay goes up when you join the new scheme will depend on which scheme/section you're currently in.

RMPP section A/B members won't see any change.
RMPP section C & F members will no longer have the LED reducing their pensionable pay, meaning higher weekly/monthly contributions.
RMDCP members currently pay contributions on just basic pay, plus overtime up to full time hours. Any pensionable allowances will also be factored in for them with CDC, which they aren't at the moment.
I don't think overtime will be included in pensionable pay going forward.

Info: https://www.myroyalmail.com/collective-plan/costs

The people in Section C will have quite a bit more going into their pension in the CDC because the LER will be pensionable both for the member and employer contributions. For example, I'm in section B, and pay £30 and RM £70 per week, £5200 per year combined into the DBCBS. Someone on the same shift in Section C pays £24 and RM £54 per week, £4100per year.

That sounds a big difference........if we assume the LED is £3k a year and the employee/employer contributions total 20% that suggests a £600 difference but you are suggesting nearly double that?

[RobertT]

The people in Section C will have quite a bit more going into their pension in the CDC because the LER will be pensionable both for the member and employer contributions. For example, I'm in section B, and pay £30 and RM £70 per week, £5200 per year combined into the DBCBS. Someone on the same shift in Section C pays £24 and RM £54 per week, £4100per year.

But in relation to the new CDC scheme:

Going by your numbers, I make that a pension of £325 and a lump sum of £975 per year of CDC membership, for someone in section B. That would equate to £26,000 pensionable pay.

If section C contributions stayed the same, it would be £260 pension and £780 lump sum. With £20,800 pensionable pay.

But based on current basic full time pay of £458 per week, it would be £297 pension and £893 lump sum. Making £23,800 pensionable pay.

In practice, pensionable allowances will also come into it.

[renrag40]

The people in Section C will have quite a bit more going into their pension in the CDC because the LER will be pensionable both for the member and employer contributions. For example, I'm in section B, and pay £30 and RM £70 per week, £5200 per year combined into the DBCBS. Someone on the same shift in Section C pays £24 and RM £54 per week, £4100per year.

But in relation to the new CDC scheme:

Going by your numbers, I make that a pension of £325 and a lump sum of £975 per year of CDC membership, for someone in section B. That would equate to £26,000 pensionable pay.

If section C contributions stayed the same, it would be £260 pension and £780 lump sum. With £20,800 pensionable pay.

But based on current basic full time pay of £458 per week, it would be £297 pension and £893 lump sum. Making £23,800 pensionable pay.

In practice, pensionable allowances will also come into it.

Correct, my pension pay is 26k because I am on a late shift. My 1st 2 years of the cash balance fund was, if memory serves, £10, 258. By next April this will have grown to over £21,000 in 4 years. I mention this to illustrate the amounts that could quickly build up over time in contributions and also as a transfer value for those of us, like myself, who will be using the CDC scheme to hoover up as much employer contributions as possible before transferring out to a drawdown pension. I don't know how exactly they work out the transfer value but even is it was only the contributions paid in over 10 years it would, in my case, be in excess of £52,000.

[renrag40]

The RMPP 2021 benefit illustration has just made a guest appearance on the door mat. My cash balance fund has now grown to £15,592 as of 31/3/21. The point I was trying to get across in my last post was it will not take many years of contributions to build up a sizeable amount on money. Looking into how the pension funds work out the CETV it looks like the yearly pension is multiplied by 20-25 times and add on any standard lump sum payment. This multiple can be a lot higher than the standard 20-25 but it can also be lower, it depends on the pension fund.

[RobertT]

The standard way of calculating the value of a DB pension is usually to multiply by 20, but some schemes do offer a higher multiple as an incentive to get people off their books. They do that because they know how valuable DB pensions are and would rather have a one off cost, than having to pay out pensions and spouses benefits for an unknown amount of time into the future.

We don't yet know how the CDC scheme will be valued for transfer purposes. But if it's a simple multiple, it's unlikely to be as high as 20 due to the un-guaranteed nature of it.

Transferring is ultimately a matter for the individual, but you are obviously giving up an income for life, plus spouses benefits in return for a lump sum which might run out before you die.
Tax may also be an issue, depending on exactly how quickly you access the money.