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New pension flexibility - how are you affected?

12 Apr 2015, 15:34

http://royalmailpensionplan.co.uk/65/22 ... on-changes

From April 2015 there will be changes to the way some people can access their pension savings; we have summarised these below. Whether or not you’re affected will depend on your own circumstances so please check the details carefully.

Greater flexibility for members with ‘money purchase’ benefits

Removing the requirement to buy a pension at retirement has got the most publicity, but this won’t directly affect most of you.

What are ‘money purchase’ benefits?
This is where your pension contributions are saved and invested in an account (or pension ‘pot’ as the media calls it) The amount in your pot when you retire is based on how much has been paid in and how well the investments have performed. If you pay into to one of the Plan’s Additional Voluntary Contribution (AVC) schemes, like Flexiplan or Bonusplan, then these are money purchase benefits. Please note that Addplan contributions buy additional service (benefits) in the main Plan. They aren’t money purchase benefits, so aren’t affected by these changes.

At the moment, when you take your main Plan benefits, you can already choose to use your AVC pot as part of the maximum amount of tax-free cash you can take. Or you can use your AVC pot to buy a pension (also called an annuity). An annuity is simply retirement income that is paid to you regularly, usually for life.

Am I affected?
From April 2015, if you have money purchase benefits (such as AVCs) you won’t have to buy an annuity and you can take your pot at any time from age 55.

For most members with AVC pots, very little will change. Your AVC pot can still be used towards your tax-free cash from the Plan. However, some members who have particularly large pots may be affected. This is because if you have any AVC savings left after using them to fund your 25% tax-free cash from the Plan, you might be allowed to take more of your AVC pot as cash than before the changes, either from the Plan or by transferring them to another arrangement. Any cash taken above the current 25% tax-free limit would be taxed at your highest tax rate. Also, any further tax-deductible AVCs you pay would be limited to £4,000 a year(formerly £10,000).

Earliest age for taking your benefits
The earliest age you can start receiving a pension (except if it’s payable on ill-health grounds) is 55 - ten years before the current State Pension age. The Government plans to increase this minimum age to 57 but not until 2028, by which time the State Pension age will be 67. From then on, the minimum age for taking benefits will increase in the same way as the State Pension age so that it’s always ten years earlier.

Am I affected?
If you reach 55 before the change is introduced (expected to be from 6 April 2028) you will still be able to take some or all of your benefits from 55.

Lower value pension benefits
In May, we wrote to tell you that the Government had changed the rules about when you can take all your pension benefits as a lump sum if they’re below a certain value. You can choose to take a one-off lump sum (without any annual pension) if the value of your pension benefits is below a certain amount. We explain how to work this out below. You need to include pension benefits from all company or personal pension schemes you might have – including this Plan, the Royal Mail Statutory Pension Scheme or any pensions from previous jobs.

Am I affected?
Broadly speaking, if you haven’t started taking your pension, and the total from all schemes (when you do take it) is expected to be less than £1,500 a year, you may be able to take it all as a lump sum. From April 2015, the earliest age this applies is 55.

Here’s how to work out if you can take all your benefits as a lump sum. If it seems a bit complicated, the Pensions Service Centre will be able to give you more accurate information if it looks like you will be eligible at the time you take your benefits.

1. Find the value of your benefits payable from the Plan and the Statutory Pension
Scheme from your most recent benefit illustration – you’ll need to add up the
pensions payable at 60 and 65).
2. If you’re a Section C member, you need to include the value of any Pension
Supplement.
3. If you have other company pensions that you will receive when you’re 60 or 65,
you need to find out from your previous employer or pension scheme
administrator how much they will be. Then add these amounts to those from
steps 1 and 2.
4. Once you’ve added all these pensions together, multiply the total by 20.
5. If you’re a Section A/B member, add the value of the lump sums payable at 60
and 65 (plus any lump sums payable from previous schemes).
6. If you have paid any Additional Voluntary Contributions to Flexiplan or
Bonusplan, add the current fund values to the total you got from the previous
steps.
7. If you have any personal pension schemes, you also need to include the current
fund value.

Here’s a sum that some of you might find easier to follow:
ALL annual pensions (from every scheme you have benefits in) x 20 = £
PLUS all lump sums = +£
PLUS all personal pension and AVC funds = +£
TOTAL AMOUNT = £_______

If the total amount is LESS than £30,000 you might be able to take a one-off lump sum instead of an annual pension.
NOTE: this is only a guide and the Pensions Service Centre will be able to give you more up-to-date information if you’re thinking of taking your benefits. Other
conditions may apply and you will have to pay income tax on most of the lump sum.
More information is also available from HM Revenue & Customs

If the total is MORE than £30,000 you will still be able to take the normal lump sum
from your Plan benefits (or a higher amount if you take a reduced pension) and this
amount will still be tax-free.

Small lump sums
The Government has also increased the limits that apply to members who want to take a one-off lump sum from either a single pension scheme or from pension
schemes from the same employer. From April 2015, members with total benefits of up to £10,000 (within one or more related pension schemes) can take all of these as a cash sum instead of receiving a regular pension. That’s the same as a pension valued at around £500 a year, including any lump sum. And the age you can do this from is 55. This limit will apply separately for your benefits in the Plan and the Royal Mail Statutory Pension Scheme. So, if your benefits in the Plan are within this limit, you could take these as a one-off lump sum and have the remainder (from the RMSPS) paid as a normal pension and tax-free lump sum.

Other conditions may apply and you will have to pay income tax on most of the small lump sum. If you want to know more, the Pensions Service Centre can help.

NOTE: If you take all your pension pots as cash, you will lose the option of converting them into regular retirement income – for example, by buying an annuity. Cashing in your pensions pots may also affect the State benefits you’re entitled to when you retire. For example, if you take them all as a lump sum this may reduce your entitlement to Pension Credit. And depending on your current income and size of the lump sum you take, it may also affect how much Income Tax you pay if you reinvest your lump sum to increase your annual income.

We recommend that you take advice before deciding what to do. You can find
a local Independent Financial Advisor at http://www.unbiased.co.uk or you can visit the
Pensions Advisory Service website.

Transferring your benefits
If you stop paying into the Plan – for example if you stop working for Royal Mail or the Post Office – and don’t take your pension straight away, your benefits are usually held in the Plan until you’re 60 (they are increased each year in line with inflation).
Or you could transfer your benefits to another pension scheme. However, you should always consider this very carefully because if you transfer out, you may not benefit from some of the security and cover provided by the Plan, for instance: lump sum and pensions payable to your dependants if you die, or early payment if you can’t work because of ill health.

The Government will also require most members of a workplace defined benefit pension scheme, like the Plan, to get financial advice before being allowed to
transfer out their benefits to most money purchase schemes. The advice will have to be from an independent financial adviser and it must say that transferring your benefits is in your best interests. The Pensions Service Centre will write to you to explain the requirements and what you need to do if you are considering
transferring your benefits.

The Government intends to ban most transfers from ‘unfunded’ public sector schemes. This includes the Royal Mail Statutory Pension Schemes, so you cannot
transfer benefits from this scheme to a money purchase scheme, such as a personal pension, if it offers the new flexibilities introduced from April 2015.

Am I affected?
The benefits you built up before 1 April 2012 are in the Royal Mail Statutory Pension Scheme. If you leave employment (or decide to stop contributing to the Plan) you won’t be able to transfer this part of your benefits to a money purchase scheme if it offers the new pension flexibilities available from April 2015. Most personal pensions are money purchase schemes.

Guidance guarantee
From April 2015, anyone who has money purchase pension savings will be entitled to free and impartial guidance at retirement. This guidance will be tailored for each person and will take account of your personal and financial circumstances. The guidance will be provided independently through ‘Pension Wise’ – you can visit the website here: http://www.pensionwise.gov.uk

Am I affected?
If you have savings in one of the Plan’s AVC schemes (Flexiplan or Bonusplan), from April 2015, we will write to you before you take your benefits to explain how to get guidance. You don’t have to take up the offer of guidance but it may help you to think about your options before you make decisions about your pension benefits.

Further information
If you have questions about any of the information in this note, please contact the
Pensions Service Centre:
Pensions Service Centre, PO Box 500, Chesterfield, S49 1WX
0114 241 4545 or Postline 5456 4545
pensions.helpline@royalmail.com
Last edited by RobertT on 26 Dec 2018, 06:59, edited 1 time in total.

Re: New pension flexibility - how are you affected?

12 Apr 2015, 16:05

Thanks Robert :thumbup

Re: New pension flexibility - how are you affected?

12 Apr 2015, 20:49

Stickied,cheers Rob.

New pension flexibility - how are you affected?

29 May 2016, 19:27

If I use my Bonus Plan AVC will I have to leave the Royal Mail pension plan completely?

New pension flexibility - how are you affected?

29 May 2016, 19:30

Sorry I mean if I use my Bonus Plan AVC to buy an annuity will I have to leave the Royal Mail Pension Plan, because that is what they seem to be implying. Royal Mail Pension is an irritation, not telling you properly what options you have at the beginning of the process and not answering questions properly, silly papers going back and forward, now it seems I may have to leave the pension plan! I still work for Royal Mail.

New pension flexibility - how are you affected?

30 May 2016, 07:11

Until April 2015 you could only take your AVC’s at the same time as your main scheme benefits, but that changed with the introduction of the ‘new pension rules’ as detailed in my first post. Therefore I don’t think there is anything stopping you from taking what you’ve already built up in your Bonusplan or Flexiplan any time after 55 and carry on paying into the RMPP and your AVC’s. Although you may have to transfer your pot to another provider.

On a separate note, considering the main aim of AVC’s is to fund your tax free lump sum and so preserve your monthly pension amount, why do you want to buy an annuity? And are you aware that annuity rates are completely rubbish? Personally I’ve been paying into Bonusplan for over 20 years and the fund is only worth about £11,000. If I was 60 today and I bought an annuity(level, single life) with it, I’d only get about £10 per week pension and that would potentially be taxable too depending on overall income.

New pension flexibility - how are you affected?

30 May 2016, 14:03

I took my Bonusplan wholly as tax free cash at the same time as I took my NRA 60 and as, Robert mentions I did this so as to preserve some of my remaining pension. I have carried on paying in to my Bonusplan to build up a second tax free lump sump to take along with my NRA 65 - this option is referred to in the AVC booklet.

New pension flexibility - how are you affected?

25 Jul 2016, 16:53

Lets say, for the sake of argument, my total pot (including AVC's) is £300,000 - but of that, £100,000 is AVC's. That is, 33% of the pot- not 25%.
I know I could take 25% of the total pot as tax free cash - which in this case would be £75,000. Supposing I took that £75k as tax free cash. My question is around the other 25% / £25k of my AVC fund.
I know I could still take it, but pay tax on it (probably at 20%). But I'd like to avoid that if possible. What are my other options ? Could it be used to add value to my main pension, thereby increasing my pension payout ? Or is there a way that we can stagger the taking of the AVC tax free pot, to minimise tax liable on it ?

BTW - was it not the case that all the AVC pot in Royal Mail could be taken as cash at one time ?

New pension flexibility - how are you affected?

25 Jul 2016, 17:54

jetblack wrote:Lets say, for the sake of argument, my total pot (including AVC's) is £300,000 - but of that, £100,000 is AVC's. That is, 33% of the pot- not 25%.
I know I could take 25% of the total pot as tax free cash - which in this case would be £75,000. Supposing I took that £75k as tax free cash. My question is around the other 25% / £25k of my AVC fund.
I know I could still take it, but pay tax on it (probably at 20%). But I'd like to avoid that if possible. What are my other options ? Could it be used to add value to my main pension, thereby increasing my pension payout ? Or is there a way that we can stagger the taking of the AVC tax free pot, to minimise tax liable on it ?

You could do one of 3 things with the £25k in your example:

1) Take it all out as cash in one go, in which case it would count as income and be taxed at your ‘marginal rate’. So depending on your overall income for that tax year, some of it could potentially be taxed at 40%, but as you say most if not all of it would take a 20% hit.

2) Draw it down over a period of time so hopefully avoiding any tax liability. Although I don’t think Zurich currently allow you to do that, so you would have to transfer it to somewhere that does.

3) Use it to buy an annuity.

As far as I know you can’t use it to buy more benefits from your main RMPP pension.

BTW - was it not the case that all the AVC pot in Royal Mail could be taken as cash at one time ?

No.

The literature I have from when I first started paying AVC’s in the 90’s says:

Your final benefits are limited to a maximum of:
A pension of 2/3 of your final earnings
Or
A pension of ½ your final earnings plus a tax free lump sum of 1 & ½ times your earnings


If your contribution levels meant that those limits were likely to be exceeded, you would have had to stop them.


In practice most people don’t build up large amounts in AVC’s like the £100k in your example, so finding a home for any ‘excess’ isn’t an issue.

Under the new rules you have the ability to save as much as you want, within certain limits, taking advantage of tax relief and PSE(Salary Sacrifice) along the way. It’s when you actually reach an age when you want to take your pension/AVC’s that you might have to be quite savvy to avoid paying too much tax.

New pension flexibility - how are you affected?

25 Jul 2016, 20:21

RobertT wrote:
2) Draw it down over a period of time so hopefully avoiding any tax liability. Although I don’t think Zurich currently allow you to do that, so you would have to transfer it to somewhere that does.

This looks most promising option to me. Going to look into flexible drawdown options. Also going to look into using my partners (not yet existing) pension/sipp to offload some cash into.

Thanks for reply Robert.

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