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Royal mail unfair cdc pension scheme

25 Oct 2019, 21:04

Royal Mail’s version of the CDC pension is unfair to younger members
From John Ralfe, John Ralfe Consulting, Nottingham, UK

October 25, 2019 8:23 pm
According to Guy Opperman, the pensions minister, companies with defined benefit pensions are interested in collective defined contribution pensions, which Royal Mail is introducing for its 140,000 employees (“Collective schemes threat to final salary pensions”, October 19).

CDC pensions aim to sit between DB — an employer guaranteeing a pension based on salary and years service — and individual defined contribution. A CDC scheme sets a “target pension”, raised or lowered in line with the value of overall assets. CDC may have some (modest) benefits versus DC, but only if the precise structure is scrupulously fair. Royal Mail’s version is anything but fair, and is designed to raid younger members’ savings to pay older members’ pensions.

Fairness requires that a younger CDC member, with, say, 40 years investment returns to retirement, should receive a higher pension than an older member saving the same amount with, say, just 10 years investment returns to retirement. But Royal Mail’s CDC ignores the time value of money and has the same target pension for all members — 1/80th of salary — regardless of age. Older members can receive this “average” target pension with just a few years investment returns only by using the younger members’ savings, so their pension is less than the “fair” pension. And Royal Mail is closing the existing DC pension, so younger employees cannot avoid CDC by staying in DC.


Meanwhile, Royal Mail’s CDC will hold 100 per cent equities for members up to age 67, with no explanation of what happens, especially to younger members, when this huge bet fails.

John Ralfe
John Ralfe Consulting,
Nottingham, UK

Royal mail unfair cdc pension scheme

26 Oct 2019, 19:53

When it says reckonable service, is that total service or service from when CDC pension starts ?

Royal mail unfair cdc pension scheme

27 Oct 2019, 06:37

gary1975 wrote:When it says reckonable service, is that total service or service from when CDC pension starts ?

The definition of reckonable service can be found on page 7 of your annual benefit illustration/statement. It's basically how long you've been paying into your RM pension up to 31st March 2019. So if you joined RM in 2001 for example, you may have:

7 years of final salary pension
10 years of CSDB pension
1 year of cash balance

But bear in mind that any time spent as a part timer, will be pro rata. For example: If full time hours was 40 hours per week and you were on a 20 hour contract, 1 year of actual service will have earned you 6 months of reckonable service.

When CDC starts(assuming it does), what you've built up via the above service will be ringfenced and continue to increase with inflation. CDC will be a completely new and separate scheme and you will start to earn pension on the basis of 1/80th of pensionable pay for each year you're a member.

Based on current full time basic pay of £441 per week that would be a pension of about £287 for each year of employment, with the aim of inflationary increases each year too.

But that is just a target!
If the investments perform well, we could get more. If they don't we'll get less.
And any increases or decreases will be decided on a yearly basis

We'll also be building up a guaranteed lump sum of 3/80th's of pensionable pay per year, with the addition of targeted inflationary increases.

CDC will have an NRA of 67.
Last edited by RobertT on 27 Oct 2019, 10:48, edited 1 time in total.

Royal mail unfair cdc pension scheme

27 Oct 2019, 10:34

RobertT wrote:
gary1975 wrote:When it says reckonable service, is that total service or service from when CDC pension starts ?

The definition of reckonable service can be found on page 7 of your annual benefit illustration/statement. It's basically how long you've been paying into your RM pension up to 31st March 2019. So if you joined RM in 2001 for example, you may have:

7 years of final salary pension
10 years of CSDB pension
1 year of cash balance

But bear in mind that any time spent as a part timer, will be pro rata. For example: If full time hours was 40 hours per week and you were on a 20 hour contract, 1 year of actual service will have earned you 6 months of reckonable service.

When CDC starts(assuming it does), what you've built up via the above service will be ringfenced and continue to increase with inflation. CDC will be a completely new and separate scheme and you will start to earn pension on the basis of 1/80th of pensionable pay for each year you're a member.

Based on current full time basic pay of £441 per week that would be a pension of about £287 for each ear of employment, with the aim of inflationary increase each year too.

But that is just a target!
If the investments perform well, we could get more. If they don't we'll get less.
And any increases or decreases will be decided on a yearly basis

We'll also be building up a guaranteed lump sum of 3/80th's of pensionable pay per year, with the addition of targeted inflationary increases.

CDC will have an NRA of 67.


Hi Robert

Reduction on the above if taken Early.....5% per year?

Royal mail unfair cdc pension scheme

27 Oct 2019, 10:47

The Anticipated CDC Design booklet(https://www.royalmailgroup.com/media/10 ... ooklet.pdf ) states:

Subject to employer policy from time to time, members would have the following options.

- Retire early on an actuarially equivalent reduced pension.

- For members still in RMG service beyond 67, continue to build up pension (and receive the same increases / cuts over that period as other members) beyond 67 until they leave RMG.

- Take a transfer value to another HMRC registered pension plan. The transfer value amount would be determined as the member’s share of the Section’s total assets. This share would be determined on a basis consistent with that used to determine the annual increases/decreases, but updated to allow for Section asset return and other experience to the date of transfer.

- Full commutation (on cost neutral terms) for small lump sums or on serious ill-health would be allowed on transfer value (ie share of fund) terms.

For any member options above which require an actuarially equivalent conversion of the default CDC pension, the terms (‘factors’) will be determined by the Plan Actuary. They would be cost neutral on the “central” (or “best”) estimate valuation basis, with allowance if appropriate for any differences in expected demographics for the members taking the option.


So as long as the RM model for CDC gets the go ahead, you will be able to take your pension early. But whether the reduction would be 5%, I don't know.

Royal mail unfair cdc pension scheme

27 Oct 2019, 11:38

RobertT wrote:
gary1975 wrote:When it says reckonable service, is that total service or service from when CDC pension starts ?



But bear in mind that any time spent as a part timer, will be pro rata. For example: If full time hours was 40 hours per week and you were on a 20 hour contract, 1 year of actual service will have earned you 6 months of reckonable service.


Robert, The four pillars agreement stated full time employees were to be employed on a 35 hour contract. Indeed our RDC implemented a number of 35 contracts last October on completion of 2 years service. As the contract supplied was worded "part time" I made a point of encouraging those concerned to challenge the wording & it was altered to full time.

As the SWW is now in dispute it is apparent, that unless 35 hour full time is achieved, we will have a situation whereby a contract states full time (35 hr) but those employed on that contract will have pro-rata service when working out pension entitlement.

Royal mail unfair cdc pension scheme

27 Oct 2019, 11:59

rogersh wrote:
RobertT wrote:
gary1975 wrote:When it says reckonable service, is that total service or service from when CDC pension starts ?



But bear in mind that any time spent as a part timer, will be pro rata. For example: If full time hours was 40 hours per week and you were on a 20 hour contract, 1 year of actual service will have earned you 6 months of reckonable service.


Robert, The four pillars agreement stated full time employees were to be employed on a 35 hour contract. Indeed our RDC implemented a number of 35 contracts last October on completion of 2 years service. As the contract supplied was worded "part time" I made a point of encouraging those concerned to challenge the wording & it was altered to full time.

As the SWW is now in dispute it is apparent, that unless 35 hour full time is achieved, we will have a situation whereby a contract states full time (35 hr) but those employed on that contract will have pro-rata service when working out pension entitlement.

Rogersh, i think you've got the wrong end of the stick there:

A. I was only giving an example.
B. That example will apply to pensionable service before 31st March 2018 in the RMSPS/RMPP and potentially dating back to the 1960's.
C. The 4 Pillars was agreed in early 2018 and does not apply to what's happened in the past.
D. Many years ago, full time hours were 40 per week and as high as 43.5 if I remember correctly. Therefore working less hours than full time, would build up RMSPS/RMPP benefits on a pro-rata basis.

Royal mail unfair cdc pension scheme

27 Oct 2019, 12:28

RobertT wrote:
rogersh wrote:
RobertT wrote:
gary1975 wrote:When it says reckonable service, is that total service or service from when CDC pension starts ?



But bear in mind that any time spent as a part timer, will be pro rata. For example: If full time hours was 40 hours per week and you were on a 20 hour contract, 1 year of actual service will have earned you 6 months of reckonable service.


Robert, The four pillars agreement stated full time employees were to be employed on a 35 hour contract. Indeed our RDC implemented a number of 35 contracts last October on completion of 2 years service. As the contract supplied was worded "part time" I made a point of encouraging those concerned to challenge the wording & it was altered to full time.

As the SWW is now in dispute it is apparent, that unless 35 hour full time is achieved, we will have a situation whereby a contract states full time (35 hr) but those employed on that contract will have pro-rata service when working out pension entitlement.

Rogersh, i think you've got the wrong end of the stick there:

A. I was only giving an example.
B. That example will apply to pensionable service before 31st March 2018 in the RMSPS/RMPP and potentially dating back to the 1960's.
C. The 4 Pillars was agreed in early 2018 and does not apply to what's happened in the past.
D. Many years ago, full time hours were 40 per week and as high as 43.5 if I remember correctly. Therefore working less hours than full time, would build up RMSPS/RMPP benefits on a pro-rata basis.


Robert I was using your example of "Pro Rata" to highlight what is currently in place, namely employees being employed on 35 & 38 hour Full Time contracts simultaneously.
I believe pensionable pay is based on basic hours worked.
If the CDC scheme is implemented & there is no change in the 38 hour week would it not be the case that those on a 35 hour week would have less reckonable service.

Royal mail unfair cdc pension scheme

27 Oct 2019, 12:59

Depending on which RM pension you're currently in, you might also have allowances that are pensionable or a reduction in pay known as the Lower Earnings Deduction before pensionable pay is calculated.
The plan for CDC is for basic pay and pensionable allowances to be included, but no LED.

Members of the CDC scheme will build up pension based on the basic hours they work(plus pensionable allowances). So anyone on less than 38 hours will obviously be accruing it at a lower rate, as is the case now.

Royal mail unfair cdc pension scheme

27 Oct 2019, 14:09

Will CDC be compulsory ?

Been in RM for 5 years in DC scheme, I plan to retire in 5-6 years at age 63/64 and expecting to build up to around 30k+ in this and take cash or drawdown on retirement.

DC scheme not great, but it's what I have been basing my plans on along with pensions from previous employments. CDC seems to be a bit of a gamble.

Royal mail unfair cdc pension scheme

27 Oct 2019, 14:32

FAO Robert

Not sure if this correct...but until the CDS pension scheme is correctly regulated as a recognised Goverment pension scheme you can draw out anytime without penalty....treated the same as AVC's????

Royal mail unfair cdc pension scheme

27 Oct 2019, 15:05

JKSmudge wrote:Will CDC be compulsory ?

Been in RM for 5 years in DC scheme, I plan to retire in 5-6 years at age 63/64 and expecting to build up to around 30k+ in this and take cash or drawdown on retirement.

DC scheme not great, but it's what I have been basing my plans on along with pensions from previous employments. CDC seems to be a bit of a gamble.

CDC is being billed as a pension scheme for all RM employees with all current arrangements being closed. So unless that changes, it won't be compulsory, but it'll be a case of CDC or nothing I'm afraid.

You can of course open a pension or pensions independent of RM, but you'll miss out on the employer contributions.

Royal mail unfair cdc pension scheme

27 Oct 2019, 15:09

Thailand1 wrote:FAO Robert

Not sure if this correct...but until the CDS pension scheme is correctly regulated as a recognised Goverment pension scheme you can draw out anytime without penalty....treated the same as AVC's????

I'm not sure what you mean by CDS!

The CDC scheme doesn't exist yet, so there's nothing to withdraw. But the plans state you will be able to transfer a 'cash value' into a normal individual DC scheme, rather than take the annual pension for life.

The DBCBS or 'cash balance' is different and is to be used to fund some or all of the tax free cash associated with your 2012-2018 benefits, and is similar to AVC's.

There is no mention of being able to transfer it as a separate fund in the plan guide, but it is mentioned in the 'pension review update' we got in February 2018. That's available to view here: https://www.myroyalmail.com/pensions/rm-pension-plan where it says:

Members would also have the option to:
• take the DBCBS lump sum as taxable cash, where the lump sum is above the 25% tax-free limit
• transfer it to an external pension arrangement for drawdown
• or purchase an annuity

Royal mail unfair cdc pension scheme

27 Oct 2019, 15:29

Yes slip of the finger!....I meant CDC!

Royal mail unfair cdc pension scheme

27 Oct 2019, 18:16

Received my illustration :arrrghhh :arrrghhh LOOKS LIKE WERE ALL GETTING RIPPED OFF ???? :shock:

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