TPR authorises UK's first CDC pension scheme

[RobertT]

Opting out of a company pension scheme is rarely a good move, due to the 'free money' you receive. It's part of your overall pay and benefits package and would be akin to taking a voluntary pay cut!

In money terms and based on current full time pay of £467 per week, your gross weekly contribution would be £28(the amount on your payslip). But factoring in the benefits of tax relief and PSE, that would be a net of only £19.
The government pay the other £9.

You'll also get another £63(13.6%) off RM. Meaning there'll be £91 going into your pension each week and it's only costing you £19.

Plus there's the option to pay an extra 1% of pensionable pay into the Lump Sum Booster, which would benefit from the same tax breaks aswell as being matched by RM.
There'll also be a DC AVC, probably similar to Flexiplan.

Joining Nest instead would cost you a gross of £23(5%) and a net of £16, but you'd only get £14(3%) off RM. So a total of £37 in return for £16 from you.

CDC aims to provide an index linked pension for life plus an upfront lump sum.
But there will also be the possibility to take a cash value and transfer out to a personal pension. As there will be with Nest too, as that is just like any other individual DC scheme!
You can then access that money from age 55, rising to 57 in 2028. Therefore the NRA of 67 for CDC, doesn't necessarily have to be an issue!

Any decision to opt out of both choices, will mean your take home pay will increase by the net amount and you'll be turning down a lot of money!
That in turn, will probably make your ability to retire at your selected age harder to achieve.

[renrag40]

Without a shadow of doubt you should always contribute the maximum you can into a company pension that would commit the company to pay the maximum under the rules of the pension scheme.
For 2 reasons.
1. It is tax efficient.
2. The amount of money the company contribute to your pension is far greater than the employee does.
You could always get a transfer value and move the funds into a draw down pension if you wanted to the closer you came to actually drawing the pension.
The golden rule to pensions is that the more money that is put in the more you will get out.

[Jefferson Starfish]

So would transferring the CDC pension need the approval of an IFA, if the value is over £30,000?

[RobertT]

So would transferring the CDC pension need the approval of an IFA, if the value is over £30,000?

As CDC has specifically been designated a Money Purchase/Defined Contribution pension scheme in the legislation, I believe the answer to that is no. As the £30k rule only applies to Defined Benefit schemes.
Although it's possible the lump sum element of the new scheme, the DBLSS, could fall foul of it.

[freespeech]

Can someone refresh my memory.......CDC payments are 4% of pensionable pay and we currently pay 6% for the DBCBS? Overall then our contributions would reduce?

[RobertT]

Contributions aren't changing, they're remaining at the current amounts:

6%(gross) from us and 13.6% from RM.

Plus the ability to pay an extra 1% into the Lump Sum Booster, which would be matched by the company.

EDIT: The above percentages currently only apply to the RMPP. Members of the RMDCP get a maximum of 10% from RM.

[vmaxv4]

Hopefully a benefit of the scheme being implemented is that the Cash Balance Scheme figures will be available when asking for quotes.
Personally I don’t see why not!!

[RobertT]

The DBCBS will just increase with the annual discretionary bonuses each year, so it'll be very easy to keep track of how much it's worth ourselves.

Although what we actually get will still depend on the value of our other RMPP benefits and our choices when we take them.

As far as I'm aware, they haven't released this year's increase yet!

[freespeech]

Contributions aren't changing, they're remaining at the current amounts:

6%(gross) from us and 13.6% from RM.

Plus the ability to pay an extra 1% into the Lump Sum Booster, which would be matched by the company.

Robert....I got the figures from the booklet "Proposed CDC Pension". Has this changed then?

The contributions into the CDC Section will be fixed at 15.2% of active members’ pensionable pay (“pp”), of which 11.2% of pp is payable by RMG and 4.0% of pp is payable by the active member1. As with other money purchase schemes, these will be set out in a Schedule of Payments.

[RobertT]

Contributions aren't changing, they're remaining at the current amounts:

6%(gross) from us and 13.6% from RM.

Plus the ability to pay an extra 1% into the Lump Sum Booster, which would be matched by the company.

Robert....I got the figures from the booklet "Proposed CDC Pension". Has this changed then?

The contributions into the CDC Section will be fixed at 15.2% of active members’ pensionable pay (“pp”), of which 11.2% of pp is payable by RMG and 4.0% of pp is payable by the active member1. As with other money purchase schemes, these will be set out in a Schedule of Payments.

The percentages you mention only relate to the pension section of the new scheme. That's what needed all the legislation.

Also included in the Anticipated CDC Design is the fact they'll be a lump sum section:

-1.2 Other Section

RMG would also open a Defined Benefit Lump Sum (“LS”) Section under the same Plan, to provide risk benefits (see Section 2.5 below) and a ‘tax-free cash’ lump sum as a Pension Commencement Lump Sum supported by the CDC pension. The assets of the two sections would be entirely segregated, with no facility for cross subsidy between the two.

Therefore the other 4.4% of contributions will go towards that, aswell as death in service payments.

Confirmation of the total 19.6% going into the combined CDC/DBLSS, can be found in the original 4 Pillars Agreement.

And more recently on the My Royal Mail CDC page.