New Collective Pension Plan Questions

[kazardaimenu]

Say you pay into this for 25 years with the 1% boost what would you be getting at the end of it? This wage in retirement stuff sounds like a scam for the company to trouser a large portion of investment gains.

[Edward Hunter]

I have taken my NRA60 benefits a couple of years early. With the new scheme moving to NRA 67 instead of 65 will i now get a reduced benefit if i take what was my NRA 65 at 65?

[mr hil.]

Say you pay into this for 25 years with the 1% boost what would you be getting at the end of it? This wage in retirement stuff sounds like a scam for the company to trouser a large portion of investment gains.

A quick answer with simplified figures, using a basic full time salary of£505 per week, just my back of a fag packet calculations so no financial advice offered or implied

Your Weekly contribution @ 6%= £30.30
RM Contribution @13.6% =£68.68
Yearly total contributions =£5146.96
1% Boost contrib. after 25 yrs =£6565.00
Total Contribs after 25 yr s=£135,239.00 (excluding RM 1% Boost matching of£7878.00 )

Yearly Wage in Retirement accrual 1/80th = £328.25 pa
Expected Annual pension after 25 yrs =£8206.25 pa
Lump sum accrual per year =£984.75
Lump sum after 25 years =£24618.75
1%lump sum boost total inc RM after 25 yrs =£14443.00
TOTAL LUMP SUM =£39061.75

So total lump sum of Nearly £40K with a yearly pension of £8206.25 after paying in £45,955.00 but if in pse it would be 28% less due to salary sacrifice (no tax or NI) I think so only actual cost to you of £33,087.60.

I don't think it is a scam personally and these figures obviously will be wrong due to annual reviews and possible increases/reductions and no future pay rises factored in.

[NWpostie]

Basic rule is never turn down free money from Royal Mail, it's better to be in a company pension scheme and benefit from employers contributions and tax advantage.

[mr hil.]

I have taken my NRA60 benefits a couple of years early. With the new scheme moving to NRA 67 instead of 65 will i now get a reduced benefit if i take what was my NRA 65 at 65?

No, both the old pensions are totally separate from the new CDC pension at the moment ( there may be a time when you could transfer in other pensions into the new pensions but that isn't available now) the NRA 65 pension would not be reduced if taken at 65

[Jefferson Starfish]

Say you pay into this for 25 years with the 1% boost what would you be getting at the end of it? This wage in retirement stuff sounds like a scam for the company to trouser a large portion of investment gains.

A quick answer with simplified figures, using a basic full time salary of£505 per week, just my back of a fag packet calculations so no financial advice offered or implied

Your Weekly contribution @ 6%= £30.30
RM Contribution @13.6% =£68.68
Yearly total contributions =£5146.96
1% Boost contrib. after 25 yrs =£6565.00
Total Contribs after 25 yr s=£135,239.00 (excluding RM 1% Boost matching of£7878.00 )

Yearly Wage in Retirement accrual 1/80th = £328.25 pa
Expected Annual pension after 25 yrs =£8206.25 pa
Lump sum accrual per year =£984.75
Lump sum after 25 years =£24618.75
1%lump sum boost total inc RM after 25 yrs =£14443.00
TOTAL LUMP SUM =£39061.75

So total lump sum of Nearly £40K with a yearly pension of £8206.25 after paying in £45,955.00 but if in pse it would be 28% less due to salary sacrifice (no tax or NI) I think so only actual cost to you of £33,087.60.

I don't think it is a scam personally and these figures obviously will be wrong due to annual reviews and possible increases/reductions and no future pay rises factored in.

Why is RM's 1% booster payment worth more than a members 1%?

[freespeech]

Say you pay into this for 25 years with the 1% boost what would you be getting at the end of it? This wage in retirement stuff sounds like a scam for the company to trouser a large portion of investment gains.

A quick answer with simplified figures, using a basic full time salary of£505 per week, just my back of a fag packet calculations so no financial advice offered or implied

Your Weekly contribution @ 6%= £30.30
RM Contribution @13.6% =£68.68
Yearly total contributions =£5146.96
1% Boost contrib. after 25 yrs =£6565.00
Total Contribs after 25 yr s=£135,239.00 (excluding RM 1% Boost matching of£7878.00 )

Yearly Wage in Retirement accrual 1/80th = £328.25 pa
Expected Annual pension after 25 yrs =£8206.25 pa
Lump sum accrual per year =£984.75
Lump sum after 25 years =£24618.75
1%lump sum boost total inc RM after 25 yrs =£14443.00
TOTAL LUMP SUM =£39061.75

So total lump sum of Nearly £40K with a yearly pension of £8206.25 after paying in £45,955.00 but if in pse it would be 28% less due to salary sacrifice (no tax or NI) I think so only actual cost to you of £33,087.60.

I don't think it is a scam personally and these figures obviously will be wrong due to annual reviews and possible increases/reductions and no future pay rises factored in.

Why is RM's 1% booster payment worth more than a members 1%?

I assume the members 1% is based on a 6% contribution and RM's 1% is based on a 13.6% contribution.

[Jefferson Starfish]

Say you pay into this for 25 years with the 1% boost what would you be getting at the end of it? This wage in retirement stuff sounds like a scam for the company to trouser a large portion of investment gains.

A quick answer with simplified figures, using a basic full time salary of£505 per week, just my back of a fag packet calculations so no financial advice offered or implied

Your Weekly contribution @ 6%= £30.30
RM Contribution @13.6% =£68.68
Yearly total contributions =£5146.96
1% Boost contrib. after 25 yrs =£6565.00
Total Contribs after 25 yr s=£135,239.00 (excluding RM 1% Boost matching of£7878.00 )

Yearly Wage in Retirement accrual 1/80th = £328.25 pa
Expected Annual pension after 25 yrs =£8206.25 pa
Lump sum accrual per year =£984.75
Lump sum after 25 years =£24618.75
1%lump sum boost total inc RM after 25 yrs =£14443.00
TOTAL LUMP SUM =£39061.75

So total lump sum of Nearly £40K with a yearly pension of £8206.25 after paying in £45,955.00 but if in pse it would be 28% less due to salary sacrifice (no tax or NI) I think so only actual cost to you of £33,087.60.

I don't think it is a scam personally and these figures obviously will be wrong due to annual reviews and possible increases/reductions and no future pay rises factored in.

Why is RM's 1% booster payment worth more than a members 1%?

I assume the members 1% is based on a 6% contribution and RM's 1% is based on a 13.6% contribution.

Booster payments are an extra 1% of pensionable pay.
If your pay is £505 per week, both the postie and RM pay in £5.05.

[kazardaimenu]

Say you pay into this for 25 years with the 1% boost what would you be getting at the end of it? This wage in retirement stuff sounds like a scam for the company to trouser a large portion of investment gains.

A quick answer with simplified figures, using a basic full time salary of£505 per week, just my back of a fag packet calculations so no financial advice offered or implied

Your Weekly contribution @ 6%= £30.30
RM Contribution @13.6% =£68.68
Yearly total contributions =£5146.96
1% Boost contrib. after 25 yrs =£6565.00
Total Contribs after 25 yr s=£135,239.00 (excluding RM 1% Boost matching of£7878.00 )

Yearly Wage in Retirement accrual 1/80th = £328.25 pa
Expected Annual pension after 25 yrs =£8206.25 pa
Lump sum accrual per year =£984.75
Lump sum after 25 years =£24618.75
1%lump sum boost total inc RM after 25 yrs =£14443.00
TOTAL LUMP SUM =£39061.75

So total lump sum of Nearly £40K with a yearly pension of £8206.25 after paying in £45,955.00 but if in pse it would be 28% less due to salary sacrifice (no tax or NI) I think so only actual cost to you of £33,087.60.

I don't think it is a scam personally and these figures obviously will be wrong due to annual reviews and possible increases/reductions and no future pay rises factored in.

Thanks for this. It still smells a bit like a Ponzi scheme if our returns are linked to wage increases (roughly 2% a year) and the pot as a whole linked to market returns ( between 8 - 10%) could there be a huge surplus in years to come for RM to dip into?

[mr hil.]

The total Booster of 1% from you and 1% from RM is actually worth 2.2% in total ( probably due to the tax laws). As I said just a back of a fag packet calculation using the available figures from the new website. I included the extra 0.2 % with RM contribution to keep it separate from the calculations for your own personal total contribution figures for clarity in the final comparison. I am no expert but this was just my own understanding of the simple breakdown of why I don't think it is a scam.

We will all get far more than these figures suggest when you take into account wage growth and investment returns when added each year ( just to clarify I personally have seen my RM wage increase by over 40% in the last 10 years much of which is pensionable) You also have to take into account future inflation effects which is far too complicated to discuss on this particular thread

[mr hil.]

Thanks for this. It still smells a bit like a Ponzi scheme if our returns are linked to wage increases (roughly 2% a year) and the pot as a whole linked to market returns ( between 8 - 10%) could there be a huge surplus in years to come for RM to dip into?

The yearly increases or reductions are not solely reliant on wage increases, the previous years "savings" will be revalued to reflect the investment performance that is why they say increases or reductions are part of the scheme. Once an increase is applied to the lump sum part of a years "savings" it is guaranteed and will not be reduced in the future, only the wage in retirement can go down.

[RobertT]

could there be a huge surplus in years to come for RM to dip into?

No!
The whole point of the pension element is that there will never be a surplus or deficit, because everyone will have their own proportional slice of the overall cake, however big it may be. So pensions will go up or down accordingly.

[RobertT]

The total Booster of 1% from you and 1% from RM is actually worth 2.2% in total ( probably due to the tax laws). As I said just a back of a fag packet calculation using the available figures from the new website. I included the extra 0.2 % with RM contribution to keep it separate from the calculations for your own personal total contribution figures for clarity in the final comparison. I am no expert but this was just my own understanding of the simple breakdown of why I don't think it is a scam.

The 2.2% includes the assumed rate of returns on the extra contribution. So in practice that could be higher or lower.

More info here, where it says:

The extra Lump Sum Booster contributions will boost your guaranteed lump sum by 2.2% of your Pensionable Pay. Why 2.2% when its 1% from me and 1% from Royal Mail? It also states though this could change.. Why is this?

The guaranteed lump sum when you come to retire is 2.2% of your pensionable pay during the time you were making Lump Sum Booster contributions. This is higher than the contributions going in (2%) because it is assumed that the money invested will increase over time. Like the main lump sum benefit, the Collective Plan aims to increase your Lump Sum Booster to help keep up with the cost of living. If the lump sum investments perform well, it’s likely to go up, along with everyone else’s lump sums. Any increases to your lump sum, once granted, will also be guaranteed by Royal Mail so cannot be taken away in the future.

The rules of the Collective Plan allow for the rate the booster builds up to change from 2.2%. If it does, what you have already built up will not change. Any change in the rate will be communicated to you so you can decide if you would like to continue making Lump Sum Booster contributions.

[kazardaimenu]

Ok that’s reassuring. It sounds a lot better after some explanation than it did on the face of it.

[fitz15]

What will happen to the surplus money in the old pension plans when the new one starts up.