LTB 238/15 Pension Salary Exchange (PSE)

[POSTMAN]

LTB 238/15 Pension Salary Exchange (PSE) ??" (Important Information)
TO ALL BRANCHES WITH POSTAL MEMBERS

Dear Colleague

Pension Salary Exchange (PSE) – (Important Information)

The Government is introducing changes to UK pensions in April 2016 which will have the effect of increasing National Insurance Contributions for members of Defined Benefit Schemes including the Royal Mail Pension Plan (RMPP).

Please find attached a Joint Statement agreed between CWU, Unite and Royal Mail Group on the introduction of Pension Salary Exchange (PSE), designed to offset the impact of the above mentioned Government changes. We have also attached an advance copy of a letter we are sending to members’ home addresses this week explaining Pensions Salary Exchange.

Background

Members of the Royal Mail Pension Plan (RMPP) are currently contracted out of the state second pension, which means that RMPP members and the company pay reduced National Insurance Contributions (NICs) on the relevant earnings. In April 2016 the Government is introducing a new single tier state pension and ending contracting out for approved Defined Benefit Pension Schemes. This will mean that from April 2016 members of RMPP will face an increase in their level of National Insurance Contribution.

The union has been in discussion with Royal Mail through the pension policy committee (PPC) established as part of the Agenda for Growth Agreement, on a change to the way pension contributions are made which will reduce the impact of the increase in NICs for both RMPP members and the employer.

How Pension Salary Exchange works

PSE will change the way pension contributions are made for members of the RMPP and the Royal Mail Defined Contribution Plan (RMDCP). Members will no longer make a direct contribution to the pension scheme – instead their pay will be reduced by the amount of their pension contribution and the employer’s contribution to the pension scheme will increase by the same amount:
· The total pension contribution is unchanged and there is no effect on pension benefits
· Members save National Insurance contributions – this will reduce the effect of the increase in NICs for RMPP members in April and for RMDCP members will produce an increase in take home pay (RMDCP members pay a full National Insurance contribution at present and are therefore not affected by the changes which the Government is introducing in April 2016)
· This also has the effect of reducing the additional cost of National Insurance contributions for Royal Mail
PSE will have no effect on pension benefits or anything pay related (such as death in service payments). Pre exchange pay will be known as “basic weekly or monthly pay”. Pension accrual will be based on this amount, as will future pay rises, pay related allowances and overtime payments (where overtime is a multiplier of hourly rates).

About 86% of Defined Benefits schemes now operate on a similar basis.

Affect for Pension Plan Members

Changes to National Insurance Contributions take effect in April 2016 but the intention is to introduce PSE in late summer this year, before the NIC changes take place. The immediate effect will be to increase take home pay for both RMPP and RMDCP members. After April 2016, when the full rate of NICs become payable for members of the RMPP, PSE will reduce the effect of the increase in NICs for RMPP members. RMDCP members will continue to enjoy an increase in take home pay after April 2016.

Savings for members of different schemes

The examples below have been prepared by the union’s pension advisors First Actuarial and are based on before tax earnings of £24,000 a year.

Scheme / Member
Annual Saving
RMPP Section A/B
£156
RMPP Section C
£132
RMDCP 4% Contribution
£120
RMDCP 5% Contribution
£144
RMDCP 6% Contribution
£168

The above example shows the immediate savings. As a result of Government changes which will increase National Insurance contributions for RMPP members from April 2016, an RMPP Section B member earning £20,000 a year before tax is projected to have to pay additional level of NIC of £199 a year – introduction of PSE would reduce this to £55. A Section B member earning £25,000 a year before tax would face an increase of £269 a year in NICs which would be reduced to £89.
Will PSE be automatic for everyone?

PSE will work on an opt out basis – anyone not wanting to change the way in which pension contributions are made will be able to choose to opt out before the scheme begins or at any time thereafter.

Scheme members earning under £10,000 a year basic pay will not be eligible for PSE – this is to ensure that no one will lose out in terms of entitlement to certain income related benefits or that pay after salary exchange falls below minimum wage. Royal Mail and CWU are continuing to discuss how this exemption would work in detail (some members might have a basic pay of less than £10,000 a year but their regular total earnings level might be significantly higher). Both parties would in principle wish to extend the savings from PSE to as many pension plan members as possible but at the same time want to ensure that appropriate safeguards are in place.

Any member who is not eligible, or who opts out, will continue to pay contributions as they do now.

Introduction of PSE
PSE will be introduced in late summer this year. Royal Mail is placing an insert in the Courier which is due out this week. Both the company and the union are planning further communications closer to the launch date. PSE is being introduced in Royal Mail Group. The union will be holding discussions with other companies employing members of the Royal Mail Pension Plan with a view to extending these arrangements.

Summary

The introduction of Pension Salary Exchange is designed to offset the impact of unavoidable Government changes to UK pensions in April 2016, which will mean higher National Insurance Contributions for Employees and the Employer from April 2016. There is no adverse impact from Pension Salary Exchange on the individual pension benefits and entitlements of CWU members. There is no adverse impact from Pension Salary Exchange on any element of pay.

Please ensure the content of this LTB is circulated immediately to all CWU reps and our members in the workplace. Any enquiries on the above LTB should be addressed to the DGS (P) Department.

Yours sincerely

Dave Ward Ray Ellis
Deputy General Secretary (P) Assistant Secretary

[daveyeff]

can someone explain this in laymans terms or like I was a ten yr old please

[CLINTEASTWOOD]

uurr aaa let me think mmmm i will have to phone a friend.

[POSTMAN]

Try the 2 articles on propaganda.con...
https://www.myroyalmail.com/news" onclick="window.open(this.href);return false;

[manboss]

I don't understand if this effects your state pension. So if i'm going to pay less NIC year on year, does this effect the amount you receive when you come to claim your state pension?

[RobertT]

My understanding is that you have to earn at least £112 per week to qualify for NI and if you don’t earn that much you won’t be earning anything towards your state pension either. So unless you’re on very low hours, your state pension shouldn’t be affected.

In my opinion the info on myroyalmail isn’t particularly good, so you might find these a bit more informative:

https://www.gov.uk/salary-sacrifice-and ... ts-on-paye" onclick="window.open(this.href);return false;
http://www.pensionsadvisoryservice.org. ... -sacrifice" onclick="window.open(this.href);return false;
https://www.moneyadviceservice.org.uk/e ... ce-schemes" onclick="window.open(this.href);return false;

[manboss]

Thanks for the links and your time RobertT

[RobertT]

No problem. PSE or salary sacrifice to give it it's more common name is used by lots of companies to reduce the NI liabilities of both the company and it's employees. It won't affect your basic state pension at all, because as long as you're earning enough to pay NI you're building up the same entitlement as anybody else, regardless of total earnings. And when our new NI payment rate comes in from April 2016 for members of the RMPP, from 10.6% to 12%, this new scheme will help to offset that increase.

I'm sure there will be a few who it does affect, but for most it will be a no brainer.

[tinkerdil]

I am just trying to understand how this works, will it be decided on an individual basis, the amount to be sacrificed?

[paulp]

if pse puts more money in our pockets why didnt we do it earlier

[RobertT]

I am just trying to understand how this works, will it be decided on an individual basis, the amount to be sacrificed?

It'll be the amount you pay into your RM pension plus any AVC's you may also pay.

if pse puts more money in our pockets why didnt we do it earlier

It's been brought on by the impending increase of NI in April 2016 for members of the RMPP as that also increases RM's NI payments, but there's no reason it couldn't have been introduced sooner.

[El-Bandito]

So what are the pros and cons of staying in? It is starting to look like a NI evasion to me. I am guessing it is a Tory plan. I am getting the feeling that in a few years time i will be bothered with PSE missold phone calls.

[motherhubbard]

So what are the pros and cons of staying in?

The pro is a few extra quid in your pocket.
The con is RM are paying less NI so you may have to accept the closure of a library or an overcrowded classroom.

[k979aaa]

So what are the pros and cons of staying in?

The pro is a few extra quid in your pocket.
The con is RM are paying less NI so you may have to accept the closure of a library or an overcrowded classroom.

Or in time less state pension NHS or even working till 70+

[trythat]

So what are the pros and cons of staying in?

The pro is a few extra quid in your pocket.
The con is RM are paying less NI so you may have to accept the closure of a library or an overcrowded classroom.

Or in time less state pension NHS or even working till 70+

Must admit I think I'll be opting out, to me this is one of those tax dodging things every party seems to want to clamp down on. Also if it keeps something open that various governments want to close or make it a volunteer based sevice, I take the small financial hit.