A separate vote for the final pension proposal?

[RobertT]

Robert this is from one of the original Q&A sessions when the DBCBS was first promoted as a long-term pension solution by Royal Mail.

The Defined Benefit cash balance fund would first be used to provide the tax-free lump sum for Plan benefits accrued between 1 April 2012 and 31 March 2018 up to the maximum permitted under HM Revenue & Customs rules - currently 25% of the overall value of Plan benefits;

Any balance of the Defined Benefit cash balance fund leftover after Step 1, would then be used to provide the tax-free lump sum for the RMSPS benefits accrued up to 31 March 2012 that transferred to Government. Again, that would be up to the maximum of 25% of the overall value of RMSPS benefits under current rules;

Fish, that just explains how the DBCB lump sum is accrued, it doesn’t imply the ability to take it outside the current RMPP rules.

The agreement says that the DBCBS will be a new section of the RMPP and will be used to provide some or all of the tax free cash when taking your NRA60 or NRA65 pensions.

There is no ability to take just the RMSPS(pre 2012) or just the RMPP(post 2012), therefore there will be no ability to take the DBCB lump sum either. Other than if you were to get a Cash Equivalent Transfer Value for the RMPP and give up your guaranteed pension to move it to a DC scheme for drawdown. In which case I assume you would have access your DBCB lump sum aswell, with any possible reductions if doing that at any age other than 60 or 65.
*It is not possible to transfer your RMSPS to a DC scheme.

The DBCBS provides similar benefits to paying AVC’s in as much as it’s there to provide a lump sum. But it doesn’t provide the same flexibilities!

[fishtank]

As far as I'm aware the original proposal was to link the DBCBS to the pre-2012 accrual, of course this would need government approval but I believe that would just be a rubber stamp exercise.

7. Why do we need to link the proposed Defined Benefit cash balance scheme to benefits accrued up to 2012 in the Royal Mail Statutory Pension Scheme, (RMSPS)?

The proposed Defined Benefit cash balance scheme will be set up as a new section of the Royal Mail Pension Plan, (the “Plan”). Under this scheme you would build up a guaranteed lump sum at retirement (age 65).

You would use that Defined Benefit cash balance lump sum at retirement to provide some or all of your tax-free lump sum instead of cashing in (“commuting”) your pre-2018 pension benefits. Under the Company’s proposal, this would involve two steps:

And then it lists the two steps I've already quoted...

[fishtank]

What it leads me to believe is that in layman's terms in order to get a large chunk of your lump sum tax free it has to be linked to a pension, fair enough that's why the transition DBCBS is inside the RMPP. As there is far more value in the pre-2012 accrual it makes sense to try to get government approval to link this. If members can only take 25% of 2012-2018 value it could leave some of them short changed.

The question is whether the new DBLSS will in fact be inside the RMPP (best case for us), inside the CDC (unlikely as they're incompatible) or not linked to any pension in which case the tax implications may be that members don't get any tax free allowance.

[RobertT]

As far as I'm aware the original proposal was to link the DBCBS to the pre-2012 accrual, of course this would need government approval but I believe that would just be a rubber stamp exercise.

7. Why do we need to link the proposed Defined Benefit cash balance scheme to benefits accrued up to 2012 in the Royal Mail Statutory Pension Scheme, (RMSPS)?

The proposed Defined Benefit cash balance scheme will be set up as a new section of the Royal Mail Pension Plan, (the “Plan”). Under this scheme you would build up a guaranteed lump sum at retirement (age 65).

You would use that Defined Benefit cash balance lump sum at retirement to provide some or all of your tax-free lump sum instead of cashing in (“commuting”) your pre-2018 pension benefits. Under the Company’s proposal, this would involve two steps:

And then it lists the two steps I've already quoted...

When you come to take your benefits, you would use the accumulated ‘cash balance’ to fund your tax free cash from the RMPP. If there’s any left over, that would be used to fund the tax free cash from the RMSPS, assuming the rules are amended to let us do that. The rule change would just mean the cash balance would enable us to take 25% tax free cash from all of our pension rather than just 6(2012-2018)years of it.

[RobertT]

What it leads me to believe is that in layman's terms in order to get a large chunk of your lump sum tax free it has to be linked to a pension, fair enough that's why the transition DBCBS is inside the RMPP. As there is far more value in the pre-2012 accrual it makes sense to try to get government approval to link this. If members can only take 25% of 2012-2018 value it could leave some of them short changed.

The question is whether the new DBLSS will in fact be inside the RMPP (best case for us), inside the CDC (unlikely as they're incompatible) or not linked to any pension in which case the tax implications may be that members don't get any tax free allowance.

The DBLSS will not be part of the RMPP - it clearly says that in the agreement! It will sit alongside the CDC, providing a lump sum benefit at an of NRA67 along with the ‘wage in retirement’ from the CDC also with an NRA of 67.

I see no reason why the DBLSS wouldn’t be tax free.

[fishtank]

This would suggest otherwise....

Why do we need HM Government approval for the proposed Defined Benefit cash balance scheme?

We do not need HM Government approval for our Defined Benefit cash balance scheme to work. We can set that up for our Plan without approval.

But we are working with HM Government so that our Defined Benefit cash balance scheme is as tax efficient as possible for members. We will achieve this if our proposed scheme is linked through to the benefits that members have accrued in the Royal Mail Statutory Pension Scheme (RMSPS). We need HM Government approval for that to happen.

I would suggest that if the DBLSS is not linked to RMPP or RMSPS there may be tax implications and that would have to mean the ability to offset against those two pensions.

[RobertT]

The DBCBS will be linked to the RMPP/RMSPS(NRA60&NRA65)!

The DBLSS will be linked to the CDC!

They are two different arrangements and will run independently of each other.

FACT!

[fishtank]

The DBCBS will be linked to the RMPP/RMSPS(NRA60&NRA65)!

The DBLSS will be linked to the CDC!

They are two different arrangements and will run independently of each other.

FACT!

The DBLSS is not linked to anything Robert, the agreement is specific about that. It is a stand alone cash balance scheme that will "sit alongside" the CDC scheme....that's a real fact because it says so.

Now as a stand alone cash balance scheme the tax position is that you can take 25% of that lump sum tax free. That could be a lot less than the 25% offset of the RMPP and RMSPS schemes.

Basically the transition DBCBS scheme offers better outcomes than the new DBLSS scheme for a lot of our members.

[fishtank]

Now assuming zero growth to accrue at 3/80ths you would need to put 3.75% of the total 19.6% contributions into this DBLSS scheme which only leaves 15.85% going into the Collective Ambition Scheme, that's less than the 16% DC members will be putting into their individual pots after April.

Not only is this proposed DBLSS scheme pretty useless at building up a tax free lump sum it's also potentially bleeding returns from your CDC pension.

[RobertT]

The DBCBS will be linked to the RMPP/RMSPS(NRA60&NRA65)!

The DBLSS will be linked to the CDC!

They are two different arrangements and will run independently of each other.

FACT!

The DBLSS is not linked to anything Robert, the agreement is specific about that. It is a stand alone cash balance scheme that will "sit alongside" the CDC scheme....that's a real fact because it says so.

Now as a stand alone cash balance scheme the tax position is that you can take 25% of that lump sum tax free. That could be a lot less than the 25% offset of the RMPP and RMSPS schemes.

That's where the secondary legislation comes in!

[fishtank]

The secondary legislation will have no bearing on the DBLSS, it's a DB scheme.

[RobertT]

The Defined Benefit Lump Sum Scheme would be used to provide the lump sum element of the CDC scheme. Therefore, for the new scheme to fit in with current UK pension rules and so we can still benefit from the usual 25% tax free element, the two schemes will need to be ‘joined together’ legally to enable that.

[heapsy]

A separate vote on the pension would make a mockery of the whole "all or nothing" approach the CWU have used. I applaud the efforts of our union negotiators, to a point. My main concern is the pension.

[cloherty1976]

The Defined Benefit Lump Sum Scheme would be used to provide the lump sum element of the CDC scheme. Therefore, for the new scheme to fit in with current UK pension rules and so we can still benefit from the usual 25% tax free element, the two schemes will need to be ‘joined together’ legally to enable that.

I have enough money in my avc to fund my 25% lump some and not reduce my pension. So would it be a good idea to stop paying into avc fund and investing in something else?

[RobertT]

I have enough money in my avc to fund my 25% lump some and not reduce my pension. So would it be a good idea to stop paying into avc fund and investing in something else?

Your AVC’s are used to fund the tax free lump sum from your RMPP/RMSPS benefits(NRA60&NRA65). If you have more than the 25% of your total pot value, as I also do, you have options:

Take the excess at the same time but possibly pay tax on it.
Buy an annuity.
Transfer out into another pension arrangement and drawdown over a period of time.
Defer it until a later date – max age 75.

Personally, as my NRA60 is not going to pay out a huge amount, I plan to take option 3 and drawdown my excess AVC cash, to supplement it.

A different choice might be better for you, as it will also depend on when you want to access that excess amount.

Whether we will be able to pay AVC’s once the CDC scheme is introduced is currently not known, apart from the already announced extra 1% employee/1% employer option.

But I can’t see the current Bonusplan & Flexiplan continuing.