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Trustee decision on RM's pension proposal

15 May 2017, 11:45

http://www.royalmailpensionplan.co.uk/s ... 17.pdf.pdf

Royal Mail Pension Plan (Royal Mail Sections): Changes Proposed By Royal Mail

Dear Member,

I wrote to you in January when Royal Mail began a consultation about its sections of the Royal Mail Pension Plan (the Plan). Following the consultation, Royal Mail proposed to the Trustee Board that Sections B and C of the Plan be closed from the end of March 2018. The Trustee has taken independent advice regarding the proposed closure and has been considering the options available to the Plan very carefully.

The Trustee has now agreed to Royal Mail’s request to close Sections B and C of the Plan. Below I explain how and why we reached this difficult decision.

Please note: The closure will only affect Royal Mail employee members of the Plan. If you have left employment or opted out of the Plan, or your Age65 benefits are already being paid, then your benefits will not be affected and this letter is just for your information.

Key points
• The closure will happen at the end of March 2018.
• The benefits you have built up already, and which are protected by law, are secure and are not being reduced.
• The Trustee’s decision was not taken lightly and rigorous independent advice was taken throughout the process of considering the proposal.
• The Trustee concluded that agreeing to Royal Mail’s proposal to close Sections B and C of the Plan was the best outcome for the membership as a whole.

Who is the Trustee and what is its role?

The Plan’s Trustee is a company called ‘Royal Mail Pensions Trustees Limited’. This company is legally responsible for ensuring that the Plan is run properly.

There are nine directors on the Board. One is an independent Chair appointed by Royal Mail, but with union agreement, and four are nominated by the membership (three through a CWU process and one through a Unite/CMA process). The remaining four are nominated by Royal Mail, of whom two are independent trustees, and one is chosen by Post Office.

No matter who they are nominated by, each trustee director has the same legal responsibilities to all members of the Plan.

Royal Mail proposed to make changes to the rules in order to close Sections B and C of the Plan and to make other changes to the way the benefits you will have built up to the end of March 2018 will increase in future. Changes to the Plan may only be made if the Trustee also agrees to them.

The Trustee’s considerations

In deciding whether to agree to the changes proposed by Royal Mail, the Trustee examined and considered various issues, taking independent professional advice. These are some key points that the Trustee considered.

Ensuring that the benefits which members had already built up in the Plan would be protected

The Trustee checked with its advisers that pension benefits you have already built up and which are protected by legislation are not reduced by the proposals. The benefits you have built up, plus any increases added, will be paid to you when you reach age 60 and 65.

Royal Mail’s proposals include a change to the Plan’s rules which, the Government has confirmed, would ensure that benefits held in the Royal Mail Statutory Pension Scheme (RMSPS) continue to increase in line with RPI whilst members remain in Royal Mail employment (maintaining the position which currently applies while the Plan is open). The RMSPS is the scheme set up by Government in 2012 which holds all your benefits built up before 1 April 2012.

Royal Mail’s reasons for proposing that Sections B and C of the Plan be closed, including:

• The on-going affordability of the current benefits to Royal Mail.
• A concern that benefits already built up should be secure.


The Trustee’s independent advisers were able to examine the affordability of the Plan for Royal Mail and confirmed that the proposal was justifiable on business grounds.

The Trustee’s advisers found that if the Plan remained open and benefits continued to build up there was a risk that the Plan would be unable to pay all the benefits that have been built up by the members once the current surplus is used up. The advice was that the Plan should not rely on Royal Mail being able to afford to provide any additional funding in future.

The best outcome for all members

The role of the Trustee is to consider the interests of all the members of the Royal Mail sections of the Plan – that is to say employee members, pensioners and deferred members (those who have left employment but not yet taken their benefits). Our first concern is the protection of the benefits that all members have already built up. When looked at in the context of highly uncertain future funding from Royal Mail, if the Plan remained open and ran into deficit, this could mean benefits being reduced. The Trustee Board’s view was that the proposal to close Sections B and C of the Plan was the best outcome for the membership of those sections as a whole in these difficult circumstances. The Trustee has therefore agreed to Royal Mail’s request.

Conclusion

The Trustee has followed a full and very detailed process in deliberating over the proposed changes. I fully appreciate how much members value their Plan benefits. This was a difficult decision for the Board to take, but it was taken, reluctantly, after having heard arguments from all sides and weighing up all the relevant issues.

If you have any questions please contact the Pensions Service Centre. Their details are as follows:

In writing: Pensions Service Centre, PO Box 5863, Pond Street, Sheffield, S98 6AB
Pensions Helpline: 0114 241 4545 or Postline: 5456 4545
Email: pensions.helpline@royalmail.com
or visit: http://www.royalmailpensionplan.co.uk

Trustee decision on RM's pension proposal

15 May 2017, 20:06

Remind me again , who is the trustee meant to look out for ?

Trustee decision on RM's pension proposal

15 May 2017, 20:44

Look out for the company I would say after the lame response to my questions...

We haven't wasted the surplus we are award winners sir! :arrrghhh

Trustee decision on RM's pension proposal

15 May 2017, 21:03

Two interesting questions need answering. 1: 200k was payed into Moya's pension pot last year. THAT is a fifth of her entire lifetime limit. If she goes over that limit she gets hit with a massive tax bill? 2: Isn't there a requirement for the trustees to ensure that our pensions ARE covered by the investments? It seem there is no obligation to do this.

Trustee decision on RM's pension proposal

15 May 2017, 21:28

I could be wrong Heapsy but I believe that the Trustee has been legally required to have a certain percentage of the assets held in safe investments ie. bonds and gilts. Thus the problems.
This is a question I have about the CWU proposal - if the CWU proposal is accepted, would this require legislative change ?

Of course, I could be completely wrong - and the Trustees have chosen to invest disproportionately in low yielding gilts/bonds. In which case it would clearly be a case of ineptitude.

Trustee decision on RM's pension proposal

16 May 2017, 05:53

heapsy wrote:Two interesting questions need answering. 1: 200k was payed into Moya's pension pot last year. THAT is a fifth of her entire lifetime limit. If she goes over that limit she gets hit with a massive tax bill?

Any additional tax is payable when a total of £1,000,000 has been withdrawn from the pension. So she may well end up paying 55% tax on some of it.

2: Isn't there a requirement for the trustees to ensure that our pensions ARE covered by the investments? It seem there is no obligation to do this.

I think their main concern is to ensure what we’ve already accrued is safe, rather than any future promises. Although they didn’t do a particularly good job of keeping our pre 2012 pensions safe – the government had to take it over!

Trustee decision on RM's pension proposal

16 May 2017, 05:57

jetblack wrote:I could be wrong Heapsy but I believe that the Trustee has been legally required to have a certain percentage of the assets held in safe investments ie. bonds and gilts. Thus the problems.

As far as I know that is not the case. I seem to have a few missing, but if you’ve ever looked at the trustee reports that come with our annual statements you will know that the RMPP has been invested as much as 84% in equities(1994/95). That’s compared to only around 10% now I think.

This is a question I have about the CWU proposal - if the CWU proposal is accepted, would this require legislative change ?

Probably not, as ultimately it’s the trustees who decide where our money is invested, guided by their actuarial advisors.
84% exposure to equities is too high in my opinion and puts any investment plan in jeopardy, which makes the CWU’s WinRS proposal very risky. But having the majority in low yielding bonds is just as bad.

Of course, I could be completely wrong - and the Trustees have chosen to invest disproportionately in low yielding gilts/bonds. In which case it would clearly be a case of ineptitude.

I don’t believe you are wrong Jet!

Trustee decision on RM's pension proposal

16 May 2017, 08:27

Contrast the case made by the Trustees of RM with Ros Altmann's response to the Government's Green Paper on final salary type pension schemes.

http://pensionsandsavings.com/pensions/ ... ion-costs/

Reproduced below is her own Summary of the full response.

EXECUTIVE SUMMARY

Main points:

The Green Paper seems too complacent about the affordability and sustainability of DB pensions. UK DB pensions are the most expensive in the world and most private sector schemes are now closed as the costs have soared beyond any previous expectations. Potential post-Brexit economic uncertainty makes contingency planning for such huge asset pools even more urgent.

Quantitative Easing has undermined DB schemes. It has inflated estimated liabilities, increased annuity buyout costs and driven excessive investment in lower-return bonds.

UK DB pension schemes are currently misallocating resources, to the detriment of the economy and future generations.
DB scheme advisers are too focussed on minimising risk, rather than ‘managing’ risk. Optimising returns rather than maximising returns is required, allowing for upside to outperform liabilities when schemes are in deficit. Just focussing on matching liabilities is not enough, schemes need to outperform if they are in deficit with a weak sponsor.

DB pension assets would be better used to invest in growth-enhancing investments, rather than just chasing low-return ‘safer’ fixed income.

The Regulator needs more powers to oversee consolidation or merger of smaller and medium sized schemes, to achieve economies of scale, improved cost-effectiveness and efficiency of investment management and better governance standards.

Pooling assets can help ensure better standards of investment management, access to more diversified asset classes, better quality advice and professional risk management.

Current annuity buyout requirements are too draconian. Using BHS example, the Regulator should devise a new self-sufficiency measure (perhaps technical provisions plus a margin) to allow employers to sever ties without having to meet full annuity buyout costs.

A regime is needed for the future of closed schemes, to ensure the assets and liabilities can be managed effectively over the long-term.

Open schemes are in a very different position from closed schemes. As most private sector schemes are now closed, their sponsors will have no economic interest in their liabilities in a few years’ time, as no staff will be accruing benefits.

Trustee decision on RM's pension proposal

16 May 2017, 17:44

RobertT wrote:
jetblack wrote:I could be wrong Heapsy but I believe that the Trustee has been legally required to have a certain percentage of the assets held in safe investments ie. bonds and gilts. Thus the problems.

As far as I know that is not the case. I seem to have a few missing, but if you’ve ever looked at the trustee reports that come with our annual statements you will know that the RMPP has been invested as much as 84% in equities(1994/95). That’s compared to only around 10% now I think.


Yes - you are right Robert - when I've looked into it more it seems that as DB schemes such as ours close to new members, the trustees then "derisk". As they won't have the pension liabilities going forward (that they would were the scheme still fully open) they move the assets from riskier (but usually better paying) investments (equities) to more secure ones (bonds/gilts).
And this is happening concurently with this :-
Image


And then they turn round to us and say the scheme is no longer affordable - "Look for yourselves", they say, "we are/will be running a massive deficit" :hmmmm

And you say that today allocation to equities is at 10% Robert. That would seem to be in line with the trend shown in this graph :-
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Trustee decision on RM's pension proposal

16 May 2017, 20:27

Just a slight correction to my previous post. According to the 2016 RMPP annual reports and accounts the equity allocation is a massive 9.8%.

The previous years equity percentages were:

2015 - 10.2%
2014 -11.6%
2013 - 15.7%
2012 - 10.6%
2011 - 15.5%
2010 - 22.7%
2009 - 43% aprox
2008 - 46.2%
2007 - 64.6%
2006 - 77.1%
2005 - 77.0%

As stock markets have risen sharply since the last crash, with the FTSE100 going from 3861 points in October 2008 to 7522 points today(16/5/17), which is an all time high. It is fair to say that our wonderful trustees have missed out on a serious amount of investment growth over the last 6-7 years in particular.

Trustee decision on RM's pension proposal

16 May 2017, 21:34

In affect these people have been paid to waste the surplus as fast as possible so that Royal Mail can say it's no longer affordable and save a bucket load of cash!

I always thought longer term investment instantly said stocks and shares :no no

Trustee decision on RM's pension proposal

19 May 2017, 20:10

RobertT wrote:
2015 - 10.2%
2014 -11.6%
2013 - 15.7%
2012 - 10.6%
2011 - 15.5%
2010 - 22.7%
2009 - 43% aprox
2008 - 46.2%
2007 - 64.6%
2006 - 77.1%
2005 - 77.0%

As stock markets have risen sharply since the last crash, with the FTSE100 going from 3861 points in October 2008 to 7522 points today(16/5/17), which is an all time high it is fair to say that our wonderful trustees have missed out on a serious amount of investment growth over the last 6-7 years in particular.


Yes - completely agree Robert - that would seem to be the approach of any half decent investor.
But, remarkably, as your table above shows, the single largest divestment away from equities seems to have occurred between 2009 and 2010, when it was cut by a half. I fully expect that this money was reallocated to (interest dependant) gilts and bonds - at the very same time that interest rates had plummeted to unprecedented lows.

What is going on ??

Trustee decision on RM's pension proposal

19 May 2017, 20:55

Don't suppose the CWU and Unite could take legal action on this?

Trustee decision on RM's pension proposal

20 May 2017, 06:57

jetblack wrote:Yes - completely agree Robert - that would seem to be the approach of any half decent investor.
But, remarkably, as your table above shows, the single largest divestment away from equities seems to have occurred between 2009 and 2010, when it was cut by a half. I fully expect that this money was reallocated to (interest dependant) gilts and bonds - at the very same time that interest rates had plummeted to unprecedented lows.

Yes and not only were investment returns much lower as a result of transferring from equities to bonds, but they sold the equities they did hold at a much lower price than if they’d waited a few years. A DOUBLE WHAMMY!

What is going on ??

We're being shafted!

Trustee decision on RM's pension proposal

25 May 2017, 18:39

Well it seams to me the administrators would stand more too gain than the fund it's self so you have to question any inappropriate payments made too them something stinks if a pension fund goes bump in 9 years?

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