When will CDC actually start?

[Jefferson Starfish]

As per the title. When will this new CDC scheme start for Royal Mail workers?

Thanks.

[yellowbelly]

Some info in this thread, possibly August 2022 - viewtopic.php?p=963851#p963851

[RobertT]

My understanding is that August 2022 will be when all the legislation and regulation will be in place to enable single employer CDC schemes to be set up.
It's only then that companies will be able to apply to start their own scheme.
As far as I'm aware, RM are the only company actively planning on doing so!

I'm assuming that application process will take a certain amount of time and therefore August 2022 is probably too soon for the RM scheme to start. Although I could be wrong.

Later in the year, or maybe into 2023 are perhaps more likely?

We'll have to wait and see.

[Shirtbuttons]

How many pensions will we have to sort out now then? Can someone explain the basics of this new pension? I assume there are no guarantees it will benefit us more.

[RobertT]

How many pensions will we have to sort out now then?

I've lost count to be honest, and with some people having more than one stint at RM, it's possible some might be in more schemes than you think.

Can someone explain the basics of this new pension?

All members will be paying 6% of pensionable pay, while RM will be contributing 13.6%.

Pensionable pay will be all basic pay plus any pensionable allowances you receive.

Each year we will build up a pension of 1/80th and a lump sum of 3/80th of pensionable pay.
Based on basic full time wages of £458 per week, that's a pension of just under £300 and a lump sum of just under £900 each year.

The lump sum is 'defined benefit' and is guaranteed, plus there'll be discretionary bonuses added each year. There's no 100% guarantee any bonuses will be added, but if they are they are also guaranteed.
It's very similar to the current Cash Balance scheme(DBCBS).

The pension itself is not guaranteed. The aim is that it will increase with inflation each year, but that's dependant on investment returns. In simple terms, if the value of the investments go up our pensions increase. If they go down, our pensions decrease.

Those increases and decreases will affect all members, whether they're employed, deferred or pensioners.

CDC will be completely separate from all existing RM pension schemes.

More info: https://www.myroyalmail.com/collective-plan

I assume there are no guarantees it will benefit us more.

In theory it should provide similar benefits to section B of the CARE/CSDB scheme(pension & lump sum), the one that ran from 2008-2018. But as explained there are no guarantees with the pension.

The current DBCBS is basically just a savings account to provide a lump sum with existing NRA65 benefits. In practice, the longer it's open the less tax efficient it becomes, particularly for section A/B members.

The RMDCP is also basically just a savings account, but that has options to either buy an annuity(income for life), or drawdown over a period of time to suit.

RMDCP members with more than 4 years membership have the option to join the DBCBS, but for them it's still basically a DC scheme.

CDC has got the potential to be at least as good as the CARE scheme, and some pension experts think it could be better, as this article explains: https://www.professionalpensions.com/ne ... -dc-db-wtw

Only time will tell what happens, and as pensions are long term things, we might not find out for a few decades yet.

[Jefferson Starfish]

Thanks for the info.
Very in depth stuff Robert. Brilliant.

[renrag40]

Each year we will build up a pension of 1/80th and a lump sum of 3/80th of pensionable pay.
It cannot be over stressed that you will build up the above benefits on that years pensionable pay and not your final years pensionable pay. For members in their 20s, 30s and 40s this will be a significant difference in the benefits accrued. This is the reason that it will never provide the benefits of Section B membership. At best it will provide the same benefits as the CARE scheme without the all important words..... guaranteed benefits.
For people who say, you don't know that, you can't be sure. Correct, I can't.
But I look back to what my pensionable pay was when I started in RM 36 years ago ...... Roughly £100...... and what my pensionable pay is today....... £510........ and I can't help but think that the investments would have to grow at a healthy rate each year and every year (about 4.6%) to provide the same benefits.
Again time will tell.

[RobertT]

Each year we will build up a pension of 1/80th and a lump sum of 3/80th of pensionable pay.
It cannot be over stressed that you will build up the above benefits on that years pensionable pay and not your final years pensionable pay. For members in their 20s, 30s and 40s this will be a significant difference in the benefits accrued. This is the reason that it will never provide the benefits of Section B membership. At best it will provide the same benefits as the CARE scheme without the all important words..... guaranteed benefits.

I did say 'similar benefits to section B of the CARE scheme', which ran from 2008-2018, as it also did for section C!
I'm not sure anyone seriously expects the RM to go back 14 years and provide a final salary CDC scheme.

For people who say, you don't know that, you can't be sure. Correct, I can't.
But I look back to what my pensionable pay was when I started in RM 36 years ago ...... Roughly £100...... and what my pensionable pay is today....... £510........ and I can't help but think that the investments would have to grow at a healthy rate each year and every year (about 4.6%) to provide the same benefits.
Again time will tell.

Your wages have obviously increased over those 36 years and so your pensionable pay has increased alongside it, allowing for the 2014 changes.
Hopefully wages will continue to grow at a decent rate into the future.

The aim is to increase our CDC pensions by inflation each year, so as long as the investments keep pace with that, benefits 'should' grow as planned.
But in practice stock market investments can be volatile and yearly increases, and decreases, in pensions probably won't stick religiously to inflation, so it might be more of a case of them averaging out over time.

Anyone with experience of stock market investment will know that a drop and seeing their money go down in value is quite scary. But that also represents a good buying opportunity, and as long as markets recover, is a good thing over the longer term.

Then there's life expectancy, which also has the potential to have both a positive and negative effect on our CDC pensions.

[renrag40]

Happy New Year Robert.
The yearly increases on the DBCBS have not been higher than 3.7% so far. This does not inspire confidence that the new scheme will have consistent yearly increases of nearly 5% and that would be year upon year with no years were it falls below that .
My point when it is all boiled down is that the new scheme will never be and by design, could never be as good as Section B and to mention it in the same breathe as the likes of Pullinger et al keep on doing is at best disingenuous and at worse downright deceitful. They know full well that the only way to increase returns is to increase risk....... they have no magic formula........ they haven't suddenly reinvented investing with the design of this new scheme......... and the risk falls solely on the benefits on the members of the scheme.......... which we know are not guaranteed and in certain scenarios could be reduced......... unlike Section B.

[RobertT]

Happy 2022 to you too and everyone else on this forum.

Going by the RMPP report and accounts, the DBCBS hasn't got a huge percentage in equities, whereas CDC is expected to have much more, therefore it's potential for growth is theoretically higher.

I'm not sure where you're getting your 'nearly 5%' from?

The aim is for the CDC and DBLSS to increase benefits with inflation each year.
Inflation is currently very high and may well increase further, and the longer that stays that way the harder the investments will have to work. Which will probably mean lower than inflation annual increases.

The lower inflation is, in theory the more likely CDC is to hit or preferably exceed it's targets.

As long as inflation doesn't stay high for too long, personally I think CDC stands a decent chance of providing the benefits it aims to, although it's always going to be on an average basis over time. Otherwise we're playing catch up straight away.
We all know those benefits are only targetted, but if all goes well should be very similar to what section B members accrued via CARE(2008-2018).

[renrag40]

The roughly 5% comes from the calculation that to go from £100 pensionable pay to £510 pensionable pay would require an annual increase of 4.64% every year for 36 years.
That will not be easy to duplicate once fund managers fees are taken out.
The only advice that I would venture to give to people who are going to rely on the proposed CDC scheme is don't.
If you can afford it, contribute to a private pension as well.

[Dorset Plodder]

All VERY confusing. By the time I retire I believe I'll be in reciept of something like six,or seven, different pensions from various sources (not all RM)

I'll have to get my Grandson to sort them out for me, he's bright lad.

[RobertT]

The roughly 5% comes from the calculation that to go from £100 pensionable pay to £510 pensionable pay would require an annual increase of 4.64% every year for 36 years.
That will not be easy to duplicate once fund managers fees are taken out.

Sorry I still don't really understand what you're saying!

When we get a pay rise our pensionable pay will increase by the same percentage, as will ours and RM's contributions. So investment returns won't need to increase by nearly 5% year on year!

The only advice that I would venture to give to people who are going to rely on the proposed CDC scheme is don't.
If you can afford it, contribute to a private pension as well.

By the sound of it, I joined RM a year or so after you, which puts me in section C. I realised a long time ago that what I'll be getting from the RM pension wouldn't be enough to retire when I wanted to, and that was when it was all final salary with an NRA of 60!

Turn the clock forward to now and my NRA60 would be just about enough the survive on, but not really enough to live on. So would have no choice but to work longer.

But the extra I've saved via AVC's, a personal pension and ISA's will enable me to retire much earlier and on a better income. So I would definitely suggest everyone saves extra if they can afford it, and the sooner you start the better. Even small weekly amounts have the potential to grow into decent amounts of money over 20-30 years.

[Dorset Plodder]

So I would definitely suggest everyone saves extra if they can afford it, and the sooner you start the better. Even small weekly amounts have the potential to grow into decent amounts of money over 20-30 years.

Sound advice as always Robert T.

I remember when I joined about 20 years ago my friend (already a Postie) was telling me how our Pension was one of the best in the country and would be well worth having.

Many years later (and about 4 changes to the various schemes) I'm glad I'm not relying on it. However I've always taken the view of "Health Before Wealth" Don't beat yourselves up because you've not amassed a personal fortune. Although it's nice to have a lot of money .... you've got to be around to spend it. I'm sure we all know friends that didn't live to spend it.

[renrag40]

My point is that the CDC pension could never realise the same benefits as Section B and should never be used to sell it to the members of the scheme by saying that it would as Pullinger and Co are saying.
If we compare from when I started until now.
1985, pensionable pay £100
2022, pensionable pay £510...... rising in April to £535.
It is the later figure that my final salary pension will be based on whereas the CDC is basically an inferior version of the career average scheme that was closed in 2018. So, If the CDC scheme was in operation in 1985 i would have built up £1019 in contributions in that year which would then have to grow at a compounded nett rate of 4.64% for 36 years to be able to attain the same benefits as you would achieved from Section B for that year and so on for each subsequent year.
Members in Section C will have the double whammy of increased contribution levels while at the same time accruing at the inferior 1/80th level compared to 1/60th in Section C.