Reply from Jon Millidge group HR director

[stephen500]

I asked some questions about the latest pension proposal, incl about the reference in the new booklet to "surviving spouse", which had me puzzled. I received this reply on Sat morning. See file. ( I have also posted this in the pensions section, but as it is linked to four pillars, I thought you might want to see this here as well as you may not visit the pensions section)

[Lincox]

Not quite sure that his statement that you can only take 25% as a lump sum is strictly correct in respect of the DB Scheme. I know that at one time the amount of lump sum that you could take from a defined benefit scheme was 3x remaining pension. As there is no individual fund for each member in a DB scheme it would be unlikely that they could calculate what a persons individual pot was and therefore could not relate your maximum lump sum to 25% as there is no pot to calculate this.

[RobertT]

The lump sum formula on the pensions website is as follows:

Section B:

Your total benefits will be calculated as follows:
1. For your reckonable service up to and including 31 March 2008:
Your pension is worked out as 1/80th of your pensionable salary for each year (or part year) of reckonable service completed before 1 April 2008;
PLUS
2. For your reckonable service on and after 1 April 2008:
Your pension is calculated as the total of your revalued pension blocks earned up to your last day of service. You can find out more about how your pension blocks are calculated on the next page.

You are also entitled to a lump sum which is linked to the value of your pension as calculated above.
The lump sum is typically three times the total pension from and above.

Section C:

A tax-free lump sum option
On taking your benefits, you may be able to give up part of your pension in exchange for a tax-free lump sum of up to 25% of the total value of your benefits (including any AVCs).

The way to work out the total value of your RMPP ‘pot’ is to multiply your overall yearly pension(NRA60+NRA65) by 20. Then add on the lump sum(section B) and any AVC’s, and if this new scheme is implemented, the value of your cash balance or DC fund.

With section B, it's quite possible that the standard lump sum might be more than 25%, but that is the rules of that particular scheme. In which case any other funds from AVC's, Cash Balance or DC may be taxed if taken as cash, or else transferred to another pension for drawdown or annuity purchase.

With section C, there is no option other than a maximum 25% tax free lump sum, as described above.

I would assume Mr Milledge is quoting section C as that applies to the majority of current employee members of the RMPP.

That's my understanding anyway, unless some knows different?

[Lincox]

What you have detailed Robert C is my hang on tax free lump sums within each given scheme. I t was wrong of Mr Milledge to state that the maximum lump sum is 25% across all schemes.