18 Jan 2019, 18:17

A colleague is 65 next month & has received option forms for both Age 60 & 65 Benefits.

He as requested I look at copies & seek clarification on here re widowers pension & option 3A - but I have told him I cannot advise his option choice.

Age 60 Benefits shows

Option 1A Basic annual pension £1829.29 – Widow(er)’s pension £914.65 (which is half)

*Option 2A “””””””””””””””” £1338.48 - “”””””””””””””””””” £914.65 (the same figure??)

Age 65 Benefits shows

Option 1A Basic annual pension £2887.32 - Widow(er)’s pension £1494.65

*Option 2A “””””””””””””””” £2322.24 - """"""”””””””””””””” £1443.66 (which is half of £2887.32 ??)

(?? possible discrepancies)

*Option 2A includes tax-free cash (lump-sum) – main benefits

Also can you clarify option 3A – Your additional funds as tax-free cash, a pension/pension supplement and any amount of tax-free cash (lump-sum) between the values of your main benefits shown under Option 1A and Option 2A. Please tell us below the amount of tax-free cash you wish to receive.

If you want all your additional funds as tax-free cash, a pension and some more tax-free cash (lump-sum), please tick box 3A on the enclosed benefit option form..

He has additional funds in both age 60/65 benefits.

Can you clarify “any amount of tax-free cash (lump-sum) between the values of your main benefits”

Robert T I would be obliged for your advice.

He as requested I look at copies & seek clarification on here re widowers pension & option 3A - but I have told him I cannot advise his option choice.

Age 60 Benefits shows

Option 1A Basic annual pension £1829.29 – Widow(er)’s pension £914.65 (which is half)

*Option 2A “””””””””””””””” £1338.48 - “”””””””””””””””””” £914.65 (the same figure??)

Age 65 Benefits shows

Option 1A Basic annual pension £2887.32 - Widow(er)’s pension £1494.65

*Option 2A “””””””””””””””” £2322.24 - """"""”””””””””””””” £1443.66 (which is half of £2887.32 ??)

(?? possible discrepancies)

*Option 2A includes tax-free cash (lump-sum) – main benefits

Also can you clarify option 3A – Your additional funds as tax-free cash, a pension/pension supplement and any amount of tax-free cash (lump-sum) between the values of your main benefits shown under Option 1A and Option 2A. Please tell us below the amount of tax-free cash you wish to receive.

If you want all your additional funds as tax-free cash, a pension and some more tax-free cash (lump-sum), please tick box 3A on the enclosed benefit option form..

He has additional funds in both age 60/65 benefits.

Can you clarify “any amount of tax-free cash (lump-sum) between the values of your main benefits”

Robert T I would be obliged for your advice.

18 Jan 2019, 20:01

I haven't had any personal experience of pension option forms, but a few have posted similar queries to yours! So here's my reading of it:

You don't mention which section he is in, but I assume C?

The above seems normal to me. He can take his full pension and no lump sum(option 1A). Or a reduced pension and a maximum 25% lump sum(option 2A).

I don't think choosing to take the lump sum affects how much widows pension is paid, so no obvious discrepancies.

The lump sum in 2A is the maximum he can take(25%), but he can choose to take a smaller percentage if he wants to, giving him a bigger pension.

By the sound of it, he also has AVC's via Bonusplan and/or Flexiplan?

If so, he has the option of using that money to fund a bigger tax free lump sum.

The normal use of AVC's is to fund the tax free lump sum, so 3A would be the obvious box to tick. But that is opinion rather than advice!

I hope that helps, but one thing that springs to mind is, did he not take his NRA60 at 60? It's usually a mistake to take your pension early(particuarly when still working). It's also a mistake to defer it past NRA!

You don't mention which section he is in, but I assume C?

Age 60 Benefits shows

Option 1A Basic annual pension £1829.29 – Widow(er)’s pension £914.65 (which is half)

*Option 2A “””””””””””””””” £1338.48 - “”””””””””””””””””” £914.65 (the same figure??)

Age 65 Benefits shows

Option 1A Basic annual pension £2887.32 - Widow(er)’s pension £1494.65

*Option 2A “””””””””””””””” £2322.24 - """"""”””””””””””””” £1443.66 (which is half of £2887.32 ??)

(?? possible discrepancies)

*Option 2A includes tax-free cash (lump-sum) – main benefits

The above seems normal to me. He can take his full pension and no lump sum(option 1A). Or a reduced pension and a maximum 25% lump sum(option 2A).

I don't think choosing to take the lump sum affects how much widows pension is paid, so no obvious discrepancies.

Also can you clarify option 3A – Your additional funds as tax-free cash, a pension/pension supplement and any amount of tax-free cash (lump-sum) between the values of your main benefits shown under Option 1A and Option 2A. Please tell us below the amount of tax-free cash you wish to receive.

If you want all your additional funds as tax-free cash, a pension and some more tax-free cash (lump-sum), please tick box 3A on the enclosed benefit option form..

He has additional funds in both age 60/65 benefits.

Can you clarify “any amount of tax-free cash (lump-sum) between the values of your main benefits”

The lump sum in 2A is the maximum he can take(25%), but he can choose to take a smaller percentage if he wants to, giving him a bigger pension.

By the sound of it, he also has AVC's via Bonusplan and/or Flexiplan?

If so, he has the option of using that money to fund a bigger tax free lump sum.

The normal use of AVC's is to fund the tax free lump sum, so 3A would be the obvious box to tick. But that is opinion rather than advice!

I hope that helps, but one thing that springs to mind is, did he not take his NRA60 at 60? It's usually a mistake to take your pension early(particuarly when still working). It's also a mistake to defer it past NRA!

18 Jan 2019, 22:27

Thanks Robert I have copied the option form to show how the figures are presented

I think he must be section C.

I believe he must have opted to delay taking age 60 benefits as he was sent two identical forms (apart one is age 60 benefits & one 65) with 3 options.

I Understand 1A &2A options but not sure of the amount he could draw tax-free lump sum with Option 3 which states; Any amount of tax-free cash (lump sum) between the values of your main benefits – This is where I am not exactly sure what the maximum tax-free cash you wish to receive would be.

AGE 60 BENEFITS

Benefit type................ Option 1A ......... Option 2A

Basic annual pension....... £1829.29 ......... £1338.48

Pension supplement........ £0.00 ...............£0.00

Tax-free cash................ NONE...............xxxxxxx

(lump sum)-

main benefits

Tax-free cash.................xxxxxxx........... xxxxxx

(lump sum-

additional funds*

Widow(er)’s pension........ £914.65............£914.65

BENEFITS AGE 65

Benefit type.................. Option 1A......... Option 2A

Basic annual pension........£2887.32............£2322.24

Pension supplement.............£0.00.............£0.00

Tax-free cash.................... NONE.............xxxxxxx

(lump sum)-

main benefits

Tax-free cash.................xxxxxxxxx............xxxxxxx

(lump sum-

additional funds*

Widow(er)’s pension........£1494.65 ..............£1443.66

*Includes total of all additional funds (to the extent that they can be taken tax-free as part of your age 65 benefits), if you have more than one.

OPTION 3A If you want all your additional funds as tax-free cash, a pension and some more tax-free cash (lump sum), please tick box 3A on the enclosed benefit option form.

Edit. I read my LGPS which stated Option C would be your choice to elect to reduce the gross annual pension to £.....(please enter amount) in order to increase your lump sum. (This amount cannot be less than the gross annual pension in Option B)

I would say that the amount over the maximum he could take would be taxable. So Option 3A would be this?. But it says "some MORE tax free cash(lump sum)"

I think he must be section C.

I believe he must have opted to delay taking age 60 benefits as he was sent two identical forms (apart one is age 60 benefits & one 65) with 3 options.

I Understand 1A &2A options but not sure of the amount he could draw tax-free lump sum with Option 3 which states; Any amount of tax-free cash (lump sum) between the values of your main benefits – This is where I am not exactly sure what the maximum tax-free cash you wish to receive would be.

AGE 60 BENEFITS

Benefit type................ Option 1A ......... Option 2A

Basic annual pension....... £1829.29 ......... £1338.48

Pension supplement........ £0.00 ...............£0.00

Tax-free cash................ NONE...............xxxxxxx

(lump sum)-

main benefits

Tax-free cash.................xxxxxxx........... xxxxxx

(lump sum-

additional funds*

Widow(er)’s pension........ £914.65............£914.65

BENEFITS AGE 65

Benefit type.................. Option 1A......... Option 2A

Basic annual pension........£2887.32............£2322.24

Pension supplement.............£0.00.............£0.00

Tax-free cash.................... NONE.............xxxxxxx

(lump sum)-

main benefits

Tax-free cash.................xxxxxxxxx............xxxxxxx

(lump sum-

additional funds*

Widow(er)’s pension........£1494.65 ..............£1443.66

*Includes total of all additional funds (to the extent that they can be taken tax-free as part of your age 65 benefits), if you have more than one.

OPTION 3A If you want all your additional funds as tax-free cash, a pension and some more tax-free cash (lump sum), please tick box 3A on the enclosed benefit option form.

Edit. I read my LGPS which stated Option C would be your choice to elect to reduce the gross annual pension to £.....(please enter amount) in order to increase your lump sum. (This amount cannot be less than the gross annual pension in Option B)

I would say that the amount over the maximum he could take would be taxable. So Option 3A would be this?. But it says "some MORE tax free cash(lump sum)"

Last edited by rogersh on 21 Jan 2019, 18:48, edited 2 times in total.

19 Jan 2019, 10:42

Section C members normally have the choice whether to take no lump sum, the maximum lump sum(25%) or a lesser percentage somewhere inbetween 0-25%.

The figures regarding 'lump sum additional funds' seem to assume he can take his main benefits under either 1A or 2A, and then have his additional funds added on to his lump sum entitlement. With the first £353(NRA60) and £3,062(NRA65) being tax free and anything he has left over in his AVC's afterwards being taxed if taken as cash. I believe there is also the option to buy an annuity if the excess amount is over £1,000 or if it's under, you can commute it and get a bit more pension.

So I would ask: Does that £3,415 relate to his entire AVC pot or has he got a higher amount?

The main use for AVC's is to fund some or all of the tax free lump sum when taking your pension/s. Meaning you don't have to give up so much pension to get that lump sum.

The usual calculation to find the value of your total RMPP pot is to add the pension amounts together, multiply by 20 then add on AVC's. You can then take 25% of the total as tax free cash.

The maths using the figures you've given above would look like this:

£1,829 + £2,887 x 20 = £94,320 + £3,415 = £97,735, giving a total lump sum of £24,433.

The total lump sum quoted above is £24,403. So not exact, but pretty close!

Option 3A gives him the choice to have all of his AVC's paid out as cash first and then his pension and any lump sum from 1A or 2A worked out afterwards.

So if he has AVC's worth £15,000 for example, the maths would look like this:

£1,829 + £2,887 x 20 =£94,320 + £15,000 = £109,320, giving a total lump sum of £27,330. And leaving a total pension of £4,099 per year.

Therefore in that example, by choosing option 3A he'll have a bigger tax free lump sum and a bigger pension. With no excess AVC money to worry about.

* I'm assuming the definition of 'additional funds' relates to AVC's!

The figures regarding 'lump sum additional funds' seem to assume he can take his main benefits under either 1A or 2A, and then have his additional funds added on to his lump sum entitlement. With the first £353(NRA60) and £3,062(NRA65) being tax free and anything he has left over in his AVC's afterwards being taxed if taken as cash. I believe there is also the option to buy an annuity if the excess amount is over £1,000 or if it's under, you can commute it and get a bit more pension.

So I would ask: Does that £3,415 relate to his entire AVC pot or has he got a higher amount?

The main use for AVC's is to fund some or all of the tax free lump sum when taking your pension/s. Meaning you don't have to give up so much pension to get that lump sum.

The usual calculation to find the value of your total RMPP pot is to add the pension amounts together, multiply by 20 then add on AVC's. You can then take 25% of the total as tax free cash.

The maths using the figures you've given above would look like this:

£1,829 + £2,887 x 20 = £94,320 + £3,415 = £97,735, giving a total lump sum of £24,433.

The total lump sum quoted above is £24,403. So not exact, but pretty close!

Option 3A gives him the choice to have all of his AVC's paid out as cash first and then his pension and any lump sum from 1A or 2A worked out afterwards.

So if he has AVC's worth £15,000 for example, the maths would look like this:

£1,829 + £2,887 x 20 =£94,320 + £15,000 = £109,320, giving a total lump sum of £27,330. And leaving a total pension of £4,099 per year.

Therefore in that example, by choosing option 3A he'll have a bigger tax free lump sum and a bigger pension. With no excess AVC money to worry about.

* I'm assuming the definition of 'additional funds' relates to AVC's!

19 Jan 2019, 17:31

Robert - Thanks for your comprehensive response.

I do not know if he has more AVC's - Would this not be shown? .So assuming he has not & additional funds are the same thing.

The total tax-free cash for Option 2A = £24,404.80

Option 3A states "I wish to receive £______________________ tax-free cash (lump sum)

This is the part I cannot understand. Surely this cannot be above the total of Option 2A, which is the maximum.

Another consideration is pension contributions since April 2018. I do not know his details. This was a hurried request for advice, so I do not know all the facts.

I do not know if he has more AVC's - Would this not be shown? .So assuming he has not & additional funds are the same thing.

The total tax-free cash for Option 2A = £24,404.80

Option 3A states "I wish to receive £______________________ tax-free cash (lump sum)

This is the part I cannot understand. Surely this cannot be above the total of Option 2A, which is the maximum.

Another consideration is pension contributions since April 2018. I do not know his details. This was a hurried request for advice, so I do not know all the facts.

19 Jan 2019, 19:44

As I wrote earlier I have no personal experience of these forms, so can't really give you a definitive answer. Others have previously posted on a similar theme who have had experience and they've commented that the value of AVC's aren't included on the options forms. Nor is the supplement amount which only section C members get.

Perhaps one of those people could clarify things?

The line: ”Includes total of all additional funds (to the extent that they can be taken tax-free as part of your age 65 benefits), if you have more than one” would suggest to me that the total £3,415 additional funds mentioned are just the amount that would be tax free when taking benefits under 2A.

So the point I was trying to make, probably not very well, is that if he has more AVC's, that amount will be accounted for in the final lump sum (and pension) he will receive. Which would be higher than the £24,404 you mention.

If he's been paying into the DBCBS since April 2018, that money will be used to fund some of the lump sum in a similar way to AVC's. So isn't included in the option forms either!

My only suggestion therefore would be for him to contact the pensions people for clarification.

Sorry I can't be of more help.

Perhaps one of those people could clarify things?

The line: ”Includes total of all additional funds (to the extent that they can be taken tax-free as part of your age 65 benefits), if you have more than one” would suggest to me that the total £3,415 additional funds mentioned are just the amount that would be tax free when taking benefits under 2A.

So the point I was trying to make, probably not very well, is that if he has more AVC's, that amount will be accounted for in the final lump sum (and pension) he will receive. Which would be higher than the £24,404 you mention.

If he's been paying into the DBCBS since April 2018, that money will be used to fund some of the lump sum in a similar way to AVC's. So isn't included in the option forms either!

My only suggestion therefore would be for him to contact the pensions people for clarification.

Sorry I can't be of more help.

19 Jan 2019, 21:17

Once again thanks for your time & input which is not easy when all information is not known. I think your suggestion for him to contact the pensions people for clarification is good advice. I would not presume to give definitive advice on such an important decision, even with all the information, and you have commented likewise.

22 Jan 2019, 10:26

Would your friend be able to get some financial advice before making his decision.

There was some talk about the company contributing to this but can't remember the full details.

There was some talk about the company contributing to this but can't remember the full details.

22 Jan 2019, 14:32

Hawkey99 wrote:Would your friend be able to get some financial advice before making his decision.

There was some talk about the company contributing to this but can't remember the full details.

See this thread.

22 Jan 2019, 18:44

Thanks both for input, Today I have given him the information Robert has provided with other information below.

Contact the pensions service centre

Email – pensions.helpline@royalmail.com

or call 0144 241 4545

_royal_mail_flexible_pension_booklet_2018

February 2018 | royalmailpensionplan.co.uk

How do I choose?

Which option’s right for you will depend on your personal circumstances, so you’ll need to think carefully before you make a decision.

To help you work out what’s best for you, you can speak to an Independent Financial Adviser. They’ll probably charge you for their time.

You can find details of your nearest Independent Financial Adviser at: unbiased.co.uk.

Robert. I took a small deferred LG Pension Age 60 which had 3 options, I chose option A.

A - Standard annual pension £2,500 p.a & lump sum(tax-free) £7,500

B – £2,000 p.a + lump sum £13,250 - This was the Maximum conversion

Option C- Elect to reduce annual Pension in order to increase lump sum. This amount cannot be less than the gross pension shown in option B. (ie not less than £2,000)

This is where I find it confusing you must elect over £2,000. Does that not reduce you lump sum.(Below £13,250)

Or would an example be to elect an annual pension of £2,250 & lump sum est. £10,000 which is an increase on £7,500

Contact the pensions service centre

Email – pensions.helpline@royalmail.com

or call 0144 241 4545

_royal_mail_flexible_pension_booklet_2018

February 2018 | royalmailpensionplan.co.uk

How do I choose?

Which option’s right for you will depend on your personal circumstances, so you’ll need to think carefully before you make a decision.

To help you work out what’s best for you, you can speak to an Independent Financial Adviser. They’ll probably charge you for their time.

You can find details of your nearest Independent Financial Adviser at: unbiased.co.uk.

Robert. I took a small deferred LG Pension Age 60 which had 3 options, I chose option A.

A - Standard annual pension £2,500 p.a & lump sum(tax-free) £7,500

B – £2,000 p.a + lump sum £13,250 - This was the Maximum conversion

Option C- Elect to reduce annual Pension in order to increase lump sum. This amount cannot be less than the gross pension shown in option B. (ie not less than £2,000)

This is where I find it confusing you must elect over £2,000. Does that not reduce you lump sum.(Below £13,250)

Or would an example be to elect an annual pension of £2,250 & lump sum est. £10,000 which is an increase on £7,500

22 Jan 2019, 20:00

Your LGPS is obviously different to RM, but I would imagine your example is correct.

So:

A = maximum pension + minimum lump sum

B = minimum pension + maximum lump sum

C = somewhere between A & B

That is usually the case with RM too, with section A/B members getting a lump sum as standard, but section C don't. But your info also seemed to imply AVC's were involved. I note that you've now edited those figures out of your previous post!

If AVC's are a factor, the maximum lump sum would be higher, due to the value of the overall pot being higher.

So:

A = maximum pension + minimum lump sum

B = minimum pension + maximum lump sum

C = somewhere between A & B

That is usually the case with RM too, with section A/B members getting a lump sum as standard, but section C don't. But your info also seemed to imply AVC's were involved. I note that you've now edited those figures out of your previous post!

If AVC's are a factor, the maximum lump sum would be higher, due to the value of the overall pot being higher.

22 Jan 2019, 21:31

RobertT wrote:Your LGPS is obviously different to RM, but I would imagine your example is correct.

So:

A = maximum pension + minimum lump sum

B = minimum pension + maximum lump sum

C = somewhere between A & B

That is usually the case with RM too, with section A/B members getting a lump sum as standard, but section C don't. But your info also seemed to imply AVC's were involved. I note that you've now edited those figures out of your previous post!

If AVC's are a factor, the maximum lump sum would be higher, due to the value of the overall pot being higher.

Equivalent to C = Option 3A – Your additional funds as tax-free cash, a pension/pension supplement and any amount of tax-free cash (lump-sum) between the values of your main benefits shown under Option 1A and Option 2A. Please tell us below the amount of tax-free cash you wish to receive.

His total tax-free cash (lump sum) main benefits for Option 1A & 2A was NONE to the TOTAL of £24,404.80

So would his "between the values of your main benefits" be between NONE & the TOTAL. Then enter "I wish to receive £X amount lump sum". Then they would calculate his annual pension, based on the figure given on each form I assume.

Spoke to him briefly, he did not confirm he paid AVC's, I will relate any further info that emerges.

The only reason I deleted the figures is because I did not really feel comfortable posting someones personal details.

04 Feb 2019, 19:46

Off topic but how is he getting £1800 at age60? After 38 years I will get about £1100.