not on facebook
ANNOUNCEMENT : ALL OF ROYAL MAIL'S EMPLOYMENT POLICIES (AGREEMENTS) AT A GLANCE (UPDATED 2017)... HERE

ANNOUNCEMENT : NEW CORONAVIRUS FORUM... HERE



Paying more into pension

10 Mar 2020, 18:41

Just hoping for an answer as to whether or not we can pay extra amounts into our RM pensions, whether that be a lump sum or regular smaller payments over time.

If we are able to do so, how would i go about doing that, and are there any restrictions or downsides to doing so.

Thanks in advance for any advice/answers.

Paying more into pension

10 Mar 2020, 19:02

Which RM pension scheme are you currently a member of?

If you're paying into the DBCBS, then you will be able to pay into Bonusplan and/or Flexiplan. Details: https://www.royalmailpensionplan.co.uk/ ... n-benefits

If you're paying into the RMDCP administered by Scottish Widows, you can pay more into the pot you already have. Details in the plan guide: https://adviser.scottishwidows.co.uk/as ... 0353sw.pdf

Bear in mind that when the new CDC pension scheme starts you will all be auto-enrolled into that, with no option to stay in the scheme you're currently in. But there's nothing wrong with paying extra into the current arrangements before that happens.

Paying more into pension

10 Mar 2020, 20:18

Thanks for the swift response. Im in the RMDCP.

Another question i have is whether there is any benefit in paying more into my RM pension versus opening a SIPP?

Paying more into pension

10 Mar 2020, 20:26

mjd24 wrote:Thanks for the swift response. Im in the RMDCP.

Another question i have is whether there is any benefit in paying more into my RM pension versus opening a SIPP?

With a SIPP you merely benefit from tax relief. Pay £100 net in. With the tax relief on that you have £125 in your pot.

Pay extra into the RM pension under salary sacrifice then you benefit from the National Insurance element too. Pay in £100 net and you will have £147 in your pot.

Paying more into pension

11 Mar 2020, 05:36

mjd24 wrote:Thanks for the swift response. Im in the RMDCP.

Another question i have is whether there is any benefit in paying more into my RM pension versus opening a SIPP?

The first thing you do is make sure you're paying in the maximum 6% to benefit from the maximum RM contribution of 10%.

As Schiff says, you get a 47% uplift on your money with tax relief and salary sacrifice(PSE), but there's a limit to how much you can put in to get the benefits of PSE.

A simple way to work that out is to subtract the hourly rate of the minimum wage from RM's hourly rate and then multiply by the number of hours worked. So a full timers maths would be:

11.62 – 8.72 x 38 = 109.06

*8.72 is the rate that applies to the over 25's from 1st April 2020.

If you go over that amount you won't benefit from PSE on any of your contributions, so I would suggest a figure of no more than £100 to be sure. If you want to save more, then use a SIPP.

Your RM scheme only offers a small number of investment choices – 11 I think? While a SIPP can offer thousands, which some people might prefer. But more choice doesn't necessarily mean higher returns on your money!

Charges via the RMDCP may well be lower too.

Paying more into pension

11 Mar 2020, 09:37

Schiff wrote:Pay extra into the RM pension under salary sacrifice then you benefit from the National Insurance element too. Pay in £100 net and you will have £147 in your pot.


So if you choose to pay for example £100 a week into an AVC then don't you just pay less tax & NI in your pay so in this example you would save £32 and so the real cost of the £100 is £68 but the full £100 goes into your pot or does the full £100 go into your pot and then they add the tax relief and NI back on so increasing the money in your pot and the tax and NI in your pay stays the same? Hope that makes sense.

Paying more into pension

11 Mar 2020, 10:09

Think about it more in percentage terms.

Paying more into pension

11 Mar 2020, 13:38

Thanks for the replies- although im a bit confused by a couple of things.

The PSE (what does this stand for?) salary sacrifice thing:
How does this work in basic terms? “Salary sacrifice” sounds like it means having more of your pay go straight into your pension, as opposed to paying in extra amounts (from another account) to the pension. Is this right?

I am currently paying in 6% which i believe is the most i can do, but my question is about transferring money into my RM pension from another account.

Im only 36 and i do have a stocks and shares isa, which i researched into for a long time to have some basic knowledge on what i was doing before setting it up a few years ago. I also have a seperate bank account with an “emergency fund” of cash.

So now im looking at how best to make the most of my pension and whether or not it would be an idea to pay more into that if possible.

Paying more into pension

11 Mar 2020, 13:57

So only £100 goes into the AVC pot and not £147? The 47 is the percentage saving in tax & NI so 32/68 = 47%. Think I've got it now. Thanks.

Paying more into pension

11 Mar 2020, 14:58

mjd24 wrote:Thanks for the replies- although im a bit confused by a couple of things.

The PSE (what does this stand for?) salary sacrifice thing:
How does this work in basic terms? “Salary sacrifice” sounds like it means having more of your pay go straight into your pension, as opposed to paying in extra amounts (from another account) to the pension. Is this right?

Everyone who pays into a pension gets what's known as tax relief, which is a government incentive to encourage more people to save for their retirement. RM employees get tax relief at source meaning each £1 gross that goes into your pension only costs £0.80. In practice your income tax bill will reduce by £0.20 and the government pay that instead of you.

Salary Sacrifice is a similar initiative that saves some NIC's aswell. It means that each £1 gross saves you another £0.12.

So in total each £1 gross contribution only costs £0.68 with the government paying the other £0.32. The amount on your pay slip is the gross amount, that applies to both your standard contributions and any extra you choose to pay.

RM call it Pension Salary Exchange(PSE). More PSE info here: https://www.myroyalmail.com/node/6791

I am currently paying in 6% which i believe is the most i can do, but my question is about transferring money into my RM pension from another account.

Im only 36 and i do have a stocks and shares isa, which i researched into for a long time to have some basic knowledge on what i was doing before setting it up a few years ago. I also have a seperate bank account with an “emergency fund” of cash.

So now im looking at how best to make the most of my pension and whether or not it would be an idea to pay more into that if possible.

The only way you can pay into your pensions is via your wages or it may be possible to transfer in another pension scheme you may have from a previous employer, for example.
You can't directly transfer in from a savings account such as an ISA!

It's always a good idea to pay into a pension, particularly with the tax breaks we get at RM.

Paying more into pension

11 Mar 2020, 15:00

Steve_claret wrote:So only £100 goes into the AVC pot and not £147? The 47 is the percentage saving in tax & NI so 32/68 = 47%. Think I've got it now. Thanks.

When you pay AVC's you decide how much you want to pay in gross terms and that's how much shows on your pay slip.
If you pay in £100 gross, then the net would be £68. Other amounts would be proportional.

Schiff's example of paying in £100 and getting £47 added on can only really be a theoretical example, because if you paid in that much(£147 gross) you'd fall out of the limits for PSE and so only benefit from the tax relief.

Paying more into pension

11 Mar 2020, 19:22

Robert, I think I've got it now. Thanks again.

Paying more into pension

11 Mar 2020, 22:32

Thankyou so much for taking the time to explain everything and provide those links Robert, its hugely appreciated.

Paying more into pension

21 Mar 2020, 13:26

RobertT wrote:
Your DBCBS pot will be added to your 'total pot value' to which you can take a maximum of 25% as tax free cash.

Some or all of your lump sum will be made up of your DBCBS pot, meaning you don't have to give up so much or any pension to get that lump sum. In practice you're likely to get both a bigger lump sum and a bigger pension if you take a maximum of 25% tax free cash.

However, the DBCBS has an NRA of 65 and is attached to your RMPP benefits. So it only provides a lump sum in relation to the benefits you built up between 1st April 2012 and 31st March 2018. If it equals more than 25% of those benefits, you'll pay tax on anything over. I'm sure the pensions people will advise on that at the time.

I refer you to your plan guide and the recent letter(dated August 2019) regarding how our pension works, for more info!

.....

Hi Robert

Just a question what happens if cash balance fund exceeds 25% of your pension fund ie your NRA 65 benefits????

Can you put it put the excess into extra monthly pension or do you have to take the excess subject to income tax?

Can’t find answer anywhere.

Thanks in advance.

Paying more into pension

21 Mar 2020, 15:41

I think there is some confusion as to what you can do with any excess Cash Balance money once you've taken the 25% tax free. And that is caused by RM's poorly written and conflicting literature!

The 2018 Pension Review booklet stated there would be the option to transfer out any excess to purchase an annuity or for drawdown, bearing in mind it's not likely to be a massive amount of money.
There has been no mention of that option since, as far as I'm aware!

But there is definitely no ability to commute it to more pension within the RMPP to increase your NRA65 benefits.

If you take any excess as a lump sum, it will be treated as income and come under PAYE income tax rules.

Sorry I can't give you a definitive answer.

Paying more into pension

21 Mar 2020, 16:28

Hi Robert

Thanks for reply....The reason I ask this question is because I can see a massive delay in the start of the CDC pension due to the current crisis.

I think the new legislation is the last thing on the governments priority list.

Then if that’s the case your Cash Balance Scheme contributions could build up for a longer period than originally planned.

What are your views?

I think also you should be elected to be one of the pension trustees.

Thanks again.

Paying more into pension

21 Mar 2020, 16:57

I agree about the legislation! Things seemed to be going along quite nicely once the general election was over, and now CDC could be kicked into touch for a while?
Although from an investment point of view, it may not be a bad thing for CDC that the markets have gone down, as it might benefit from the recovery and get it off to a good start.

The Cash Balance scheme is open ended to some degree, but I think RM were hoping to stop that and bring CDC in on 1st April 2021 at the latest. As you say, the longer the Cash Balance scheme is running, the likely we are to pay tax on some of it.

I don't know about being a trustee, but it's nice of you to say so. :thumbup

Paying more into pension

21 Mar 2020, 18:15

Hi Robert again!

Just one more thing if you don’t mind....do you know where the cash balance scheme is being invested or is it just what it says!

Thanks again your knowledge has helped loads of people on this forum.

Paying more into pension

22 Mar 2020, 00:45

The cash balance fund was due to pay its first discretionary increase in September 2020....... what do we think it will be?
My money is on a big fat 0...........

Paying more into pension

22 Mar 2020, 05:26

Thailand1 wrote:Hi Robert again!

Just one more thing if you don’t mind....do you know where the cash balance scheme is being invested or is it just what it says!

Thanks again your knowledge has helped loads of people on this forum.

The annual report and accounts show the type of investments the DBCBS is invested in, but there's no specifics! It's available to view in the library section of the RMPP website.

The discretionary increases are aimed to be 'in excess of CPI' with a 'cap of 4% above CPI'. We shall have to wait and see what, if any increase we get, but the first is due on 31st March 2020.

Previous page Next page


Page 1 of 1