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Defined cash balance scheme

07 Jan 2020, 12:12

This being the current scheme we're paying into as of April 2018, has anyone here claimed this whilst still working for rm?
There's a figure in the pension illustration under "cash balance fund sum" which I'm told you should look at separately to (in addition to) the pension estimate lump sums.
Can you take this before age 60 and if so, is it subject to 5% per year reduction?
How do you go about claiming this, would you contact the normal rm pension people or is it run by Capita?

Defined cash balance scheme

07 Jan 2020, 14:13

Me thinks a big shout out to Robert T on this one.

Defined cash balance scheme

07 Jan 2020, 14:54

Assuming you're in sections A, B or C:

The Cash Balance is attached to your NRA65 benefits and specifically those benefits you accrued from 1st April 2012 to 31st March 2018.
The plan was for it to also be attached to the rest of our benefits(pre 2012), but RM needed Cabinet Office approval for that, which was refused. We got a letter about it a few months ago!

The Cash Balance, or DBCBS, is there to fund some or all of your tax free lump sum associated with those benefits. So if you're taking your NRA65 you'll also be able to take your cash balance. But it will be reduced if you're under 65.

There is no mention in the plan guide, of being able to take it separately from your NRA65 benefits!

See the RMPP website, your plan guide(also available on the RMPP website) and MyRoyalMail for more info.

If you're in section F, which means you were previously in the RMDCP and opted to pay into the DBCBS instead. Then the rules are slightly different, also see the RMPP website for more info.

Defined cash balance scheme

07 Jan 2020, 18:10

Yes I'm plan C member.
Who would I contact to have this lump sum paid?
The pension estimate letter only asks if you want to apply for Nra 60, Nra 65 or both?
Would it be Capita or Zurich perhaps?

Defined cash balance scheme

08 Jan 2020, 17:30

I have no experience of the exact process of claiming your pension/s, perhaps someone will put me right, if I'm wrong. But I believe you first have to decide whether you want to take NRA60, NRA65 or both.

Once you've got back to them with your answer, they'll come up with exact figures rather than estimates. They should include the DBCBS and any AVC's. But as you're still paying in, the figures will obviously vary as each week passes. So I assume they'll base the numbers on you taking your benefits on a certain date in the future?

As a current employee, as far as I know, you should be contacting the PSC in Sheffield regarding info on anything post 1st April 2012.

Defined cash balance scheme

10 Jan 2020, 13:48

Does anyone know by what % the Cash Balance reduces per year if you take it early?
Previously it was always a reduction of 5% per year if you took it your pension early but as the Cash Balance has only been running since April 2018 would that still be the same % figure?
To further complicate matters the Cash Balance scheme will cease when then new joint is introduced probably later this year.

Thanks

Defined cash balance scheme

10 Jan 2020, 15:36

As you say, the pension itself is reduced by 5% for each year it's taken early.
As the DBCBS is part of the RMPP and has an NRA of 65, then a similar percentage reduction probably also applies to that. Although that's really just an assumption, I don't think there's any literature to back it up, afaik.

If I remember correctly, when the DBCBS began, there was also a clause saying it could be taken at 60 along with your NRA60 benefits, without reduction.
But that would presumably depend on RM receiving Cabinet Office approval for the DBCBS to be 'attached' to our pre 2012 benefits?
In practice, that approval wasn't forthcoming!

The DBCBS was always designed as a transitional scheme and part of the RMPP, to provide a lump sum to take with our pre 2018 benefits. Therefore the introduction of CDC(and DBLSS) shouldn't complicate our RMPP benefits at all.

We don't yet know when CDC will start, but later on this year looks a reasonable possibility to me!

Defined cash balance scheme

10 Jan 2020, 17:04

I’ve just turned 60 and was given the option of a lump sum as part of RMPP NRA 60. This relates to DBCBS part which i have taken.

Defined cash balance scheme

10 Jan 2020, 23:23

RobertT wrote:As you say, the pension itself is reduced by 5% for each year it's taken early.
As the DBCBS is part of the RMPP and has an NRA of 65, then a similar percentage reduction probably also applies to that. Although that's really just an assumption, I don't think there's any literature to back it up, afaik.

If I remember correctly, when the DBCBS began, there was also a clause saying it could be taken at 60 along with your NRA60 benefits, without reduction.
But that would presumably depend on RM receiving Cabinet Office approval for the DBCBS to be 'attached' to our pre 2012 benefits?
In practice, that approval wasn't forthcoming!

The DBCBS was always designed as a transitional scheme and part of the RMPP, to provide a lump sum to take with our pre 2018 benefits. Therefore the introduction of CDC(and DBLSS) shouldn't complicate our RMPP benefits at all.

We don't yet know when CDC will start, but later on this year looks a reasonable possibility to me!


Given that we are nearing the end of the current pension year, 31st March, I would have thought that nothing would change until 1st April 2021. Especially as our government never do anything at any real pace. Is there a danger that the Cash Balance scheme could be worth more than 25% of the NRA65 scheme, especially for those in section C?

Defined cash balance scheme

11 Jan 2020, 05:06

hatter68 wrote:I’ve just turned 60 and was given the option of a lump sum as part of RMPP NRA 60. This relates to DBCBS part which i have taken.

And has that been reduced in any way?
For early payment or by income tax?

Defined cash balance scheme

11 Jan 2020, 05:08

heapsy wrote:Given that we are nearing the end of the current pension year, 31st March, I would have thought that nothing would change until 1st April 2021. Especially as our government never do anything at any real pace. Is there a danger that the Cash Balance scheme could be worth more than 25% of the NRA65 scheme, especially for those in section C?

31st March is the end of the RMPP pension year. But as CDC will be a completely separate scheme, then it's year could potentially start at any time.

Personally I think progress towards the introduction of CDC has been relatively fast considering what needs to be done.

Yes, the longer the DBCBS is in place, the more likely it is to be more than 25%. If that is the case, we may have to pay tax on anything over.

A few months ago RM sent us a letter(dated August 2019), in which they stated:
…..We still expect most members to be able to take their Cash Balance benefit as part of their overall tax free lump sum at age 65. Anything remaining would be liable to tax....

….Based on analysis. If we launch CDC in the expected time frame we believe the governments decision not to allow integration of the DBCBS into the RMSPS will not have a significant impact on the total benefits paid to members.
...


What we don't know is what that time frame is. Although the letter did include examples based on the DBCBS running until September 2020.

Defined cash balance scheme

11 Jan 2020, 09:59

RobertT wrote:
heapsy wrote:Given that we are nearing the end of the current pension year, 31st March, I would have thought that nothing would change until 1st April 2021. Especially as our government never do anything at any real pace. Is there a danger that the Cash Balance scheme could be worth more than 25% of the NRA65 scheme, especially for those in section C?

31st March is the end of the RMPP pension year. But as CDC will be a completely separate scheme, then it's year could potentially start at any time.

Personally I think progress towards the introduction of CDC has been relatively fast considering what needs to be done.

Yes, the longer the DBCBS is in place, the more likely it is to be more than 25%. If that is the case, we may have to pay tax on anything over.

A few months ago RM sent us a letter(dated August 2019), in which they stated:
…..We still expect most members to be able to take their Cash Balance benefit as part of their overall tax free lump sum at age 65. Anything remaining would be liable to tax....

….Based on analysis. If we launch CDC in the expected time frame we believe the governments decision not to allow integration of the DBCBS into the RMSPS will not have a significant impact on the total benefits paid to members.
...


What we don't know is what that time frame is. Although the letter did include examples based on the DBCBS running until September 2020.



Based on this, this could mean the end of AVCs ?

Defined cash balance scheme

11 Jan 2020, 12:03

RobertT wrote:
hatter68 wrote:I’ve just turned 60 and was given the option of a lump sum as part of RMPP NRA 60. This relates to DBCBS part which i have taken.

And has that been reduced in any way?
For early payment or by income tax?

This is a tax free lump sum which I could have deferred until NRA65, when I will receive the remainder of this fund.

Defined cash balance scheme

11 Jan 2020, 13:52

hatter68 wrote:
RobertT wrote:
hatter68 wrote:I’ve just turned 60 and was given the option of a lump sum as part of RMPP NRA 60. This relates to DBCBS part which i have taken.

And has that been reduced in any way?
For early payment or by income tax?

This is a tax free lump sum which I could have deferred until NRA65, when I will receive the remainder of this fund.

I take it that the tax free lump sum was 'attached' to the part of your NRA60 benefits that RM are responsible for, i.e the inflationary increases on your pre 2012 benefits?
Could you have taken the rest as a taxable lump sum aswell, rather than deferring it until you take your NRA65.

Defined cash balance scheme

11 Jan 2020, 13:53

NWpostie wrote:
RobertT wrote:
heapsy wrote:Given that we are nearing the end of the current pension year, 31st March, I would have thought that nothing would change until 1st April 2021. Especially as our government never do anything at any real pace. Is there a danger that the Cash Balance scheme could be worth more than 25% of the NRA65 scheme, especially for those in section C?

31st March is the end of the RMPP pension year. But as CDC will be a completely separate scheme, then it's year could potentially start at any time.

Personally I think progress towards the introduction of CDC has been relatively fast considering what needs to be done.

Yes, the longer the DBCBS is in place, the more likely it is to be more than 25%. If that is the case, we may have to pay tax on anything over.

A few months ago RM sent us a letter(dated August 2019), in which they stated:
…..We still expect most members to be able to take their Cash Balance benefit as part of their overall tax free lump sum at age 65. Anything remaining would be liable to tax....

….Based on analysis. If we launch CDC in the expected time frame we believe the governments decision not to allow integration of the DBCBS into the RMSPS will not have a significant impact on the total benefits paid to members.
...


What we don't know is what that time frame is. Although the letter did include examples based on the DBCBS running until September 2020.


Based on this, this could mean the end of AVCs ?

That's a subject that was covered recently!

In my opinion, once the RMPP closes completely and we get moved over into the new CDC scheme, the ability to pay AVC's into Bonusplan and Flexiplan will probably stop.

But at the moment we don't yet know exactly what will happen.

Defined cash balance scheme

11 Jan 2020, 15:08

RobertT wrote:
hatter68 wrote:
RobertT wrote:
hatter68 wrote:I’ve just turned 60 and was given the option of a lump sum as part of RMPP NRA 60. This relates to DBCBS part which i have taken.

And has that been reduced in any way?
For early payment or by income tax?

This is a tax free lump sum which I could have deferred until NRA65, when I will receive the remainder of this fund.

I take it that the tax free lump sum was 'attached' to the part of your NRA60 benefits that RM are responsible for, i.e the inflationary increases on your pre 2012 benefits?
Could you have taken the rest as a taxable lump sum aswell, rather than deferring it until you take your NRA65.

I was given four options 1Take basic annual pension no lump sum 1a Take basic annual pension same as 1 and lump sum from DBCBS 2 Take reduced basic annual pension and lump sum from main benefits and option 2a which is almost identical to option1a which was the I chose. This all relates to RMPP part.

Defined cash balance scheme

11 Jan 2020, 16:52

RobertT wrote:
NWpostie wrote:
RobertT wrote:
heapsy wrote:Given that we are nearing the end of the current pension year, 31st March, I would have thought that nothing would change until 1st April 2021. Especially as our government never do anything at any real pace. Is there a danger that the Cash Balance scheme could be worth more than 25% of the NRA65 scheme, especially for those in section C?

31st March is the end of the RMPP pension year. But as CDC will be a completely separate scheme, then it's year could potentially start at any time.

Personally I think progress towards the introduction of CDC has been relatively fast considering what needs to be done.

Yes, the longer the DBCBS is in place, the more likely it is to be more than 25%. If that is the case, we may have to pay tax on anything over.

A few months ago RM sent us a letter(dated August 2019), in which they stated:
…..We still expect most members to be able to take their Cash Balance benefit as part of their overall tax free lump sum at age 65. Anything remaining would be liable to tax....

….Based on analysis. If we launch CDC in the expected time frame we believe the governments decision not to allow integration of the DBCBS into the RMSPS will not have a significant impact on the total benefits paid to members.
...


What we don't know is what that time frame is. Although the letter did include examples based on the DBCBS running until September 2020.


Based on this, this could mean the end of AVCs ?

That's a subject that was covered recently!

In my opinion, once the RMPP closes completely and we get moved over into the new CDC scheme, the ability to pay AVC's into Bonusplan and Flexiplan will probably stop.

But at the moment we don't yet know exactly what will happen.


I remember discussing this with you RobertT, I'm just thinking out loud, as it is, there is uncertaintay as what will happen, my main concern is that I'm able to retire with a good pension and big lump sum to tide me over til my 65 NRA benefit and state pension kicks in.

At the moment I'm unsure as much of us are as to how it will work out in practice.

I would prefer to have some clarity as to my options come retirement as soon as possible.

One of thing I would like to know under the CDC scheme is whether its possible to build a lump sum without impacting on your CDC payout. The sooner I know the better I can plan.

Defined cash balance scheme

12 Jan 2020, 07:49

hatter68 wrote:I was given four options 1Take basic annual pension no lump sum 1a Take basic annual pension same as 1 and lump sum from DBCBS 2 Take reduced basic annual pension and lump sum from main benefits and option 2a which is almost identical to option1a which was the I chose. This all relates to RMPP part.

You've taken your NRA60 which relates to service up to 31st March 2010, that part of our pensions actually comes under the RMSPS.
Your NRA65 relates to service from 1st April 2010.
The RMPP is from 1st April 2012 onwards, plus inflationary increases of RMSPS benefits.

Defined cash balance scheme

12 Jan 2020, 07:54

NWpostie wrote:I remember discussing this with you RobertT, I'm just thinking out loud, as it is, there is uncertaintay as what will happen, my main concern is that I'm able to retire with a good pension and big lump sum to tide me over til my 65 NRA benefit and state pension kicks in.

At the moment I'm unsure as much of us are as to how it will work out in practice.

I would prefer to have some clarity as to my options come retirement as soon as possible.

One of thing I would like to know under the CDC scheme is whether its possible to build a lump sum without impacting on your CDC payout. The sooner I know the better I can plan.

As part of the CDC arrangements we will also be building up a tax free lump sum of 3/80ths of pensionable pay via the Defined Benefit Lump Sum Scheme. Based on current full time basic pay of £441 per week that equates to around £860 per year.

The plans also stated we'd have the opportunity to pay another 1% which will be matched by RM. That would increase the yearly lump accrued by about £460 to £1,320.
The plan is that will be guaranteed, with the addition of inflationary increases assuming investment performance allows it, in a similar way to the current DBCBS.

But both the lump sum and the pension itself(accruing at 1/80ths) will have an NRA of 67, meaning a probable reduction if taken beforehand. CDC Q&A's here: https://www.myroyalmail.com/node/11511

If we are no longer able to pay into the current AVC's once CDC starts, then my suggestion would be to pay into a personal pension instead, and access the money via drawdown to supplement your pension until 65/SPA.
You won't get the benefit of PSE, but you'll still get the tax relief, plus a better choice of investments.

If your NRA60 is lower than the personal tax allowance(currently £12,500 p/y) you may be able withdraw all the money in your personal pension tax free over that 5-7 year period.
I'm planning on doing just that!

For example:

You retire at 60 and have an NRA60 of £8,000 per year, you have no other income, therefore you have £4,500 of unused personal tax allowance.

You also have a personal pension pot of £30,000. You take 25% tax free up front to leave £22,500 to drawdown over the next 5 years at the rate of £4,500 per year.
And you've withdrawn all your £30,000 tax free.

That obviously doesn't account for any fluctuations in the value of the investments or changes in the PTA. But it would be in addition to your AVC cash as that is not classed as taxable income, as long as it's lower than 25% of your RM total pot value.

Defined cash balance scheme

12 Jan 2020, 14:29

RobertT wrote:
hatter68 wrote:I was given four options 1Take basic annual pension no lump sum 1a Take basic annual pension same as 1 and lump sum from DBCBS 2 Take reduced basic annual pension and lump sum from main benefits and option 2a which is almost identical to option1a which was the I chose. This all relates to RMPP part.

You've taken your NRA60 which relates to service up to 31st March 2010, that part of our pensions actually comes under the RMSPS.
Your NRA65 relates to service from 1st April 2010.
The RMPP is from 1st April 2012 onwards, plus inflationary increases of RMSPS benefits.

The NRA60 RMSPS part I was given choice of taking full pension or reduced pension with maximum tax free lump sum. I had to send this back to capita before I received RMPP options.

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