Courier Newsflash today

[sweepster70]

Royal Mail must think it's workforce is stupid, saying that their cash balance scheme is better than a proper db scheme, as in WINRS.
It's so easy to get a higher return when you assume that the asset returns will be 2% above cpi.
I have an AVC with just over £8000 in and it made £24.27 profit this year. This 2% above cpi is fantasy, meaning even less when we retire.
With a proper db scheme you know exactly how much you'll be getting when you retire and it'll go up with inflation.
Royal Mail are gambling with our retirement and they'll be only one winner.

[regalia25]

Blimey.
You might want to review which funds your AVCs are invested in !
My RM DC pension is invested in three funds through Zurich. My last statement shows they produced returns of 15.68% 12.80% and 16.54%. Thats an average, per year, for the last 5 years !!
Yours appears to have given you a return of 0.31% !! Albeit this last year has not been as good as some recent ones.
I think it goes to show the advantages of taking financial advice.

[RobertT]

Royal Mail must think it's workforce is stupid, saying that their cash balance scheme is better than a proper db scheme, as in WINRS.
It's so easy to get a higher return when you assume that the asset returns will be 2% above cpi.
I have an AVC with just over £8000 in and it made £24.27 profit this year. This 2% above cpi is fantasy, meaning even less when we retire.
With a proper db scheme you know exactly how much you'll be getting when you retire and it'll go up with inflation.
Royal Mail are gambling with our retirement and they'll be only one winner.

Personally I don’t think WinRS is necessarily the answer to everything. With it still being a DB scheme, there are still potential long term financial dangers for the employer, which from their point of view I do understand.

It was also mentioned on RMTV that we will supposedly get a better pension with CB/DC than with WinRS, which is just wrong!
If there’s anyone from RM management reading this: WE ARE NOT STUPID!

As for your AVC returns, it sounds as if you’re in the cash fund? In which case you have missed out on some great returns from the other available investment options.

[daveyeff]

as i understand it though, the scheme RM are offering is not even a pension. its a lump sum for you to buy a pension??. not sure if that's right but I know the union are saying its not a pension. anyone clued up would like to clarify??...Robert ??

[RobertT]

as i understand it though, the scheme RM are offering is not even a pension. its a lump sum for you to buy a pension??. not sure if that's right but I know the union are saying its not a pension. anyone clued up would like to clarify??...Robert ??

Regardless of whether you join the Cash Balance or the Defined Contribution scheme, all you’re doing is building up a pot of money.

The stated aim is to then use it to fund your tax free lump sum so you don’t have to give up any pension to do that.

But you could also buy an annuity or draw it down over a period of time, but you would have to transfer it to another pension arrangement first.

[Dorset Plodder]

as i understand it though, the scheme RM are offering is not even a pension. its a lump sum for you to buy a pension??. not sure if that's right but I know the union are saying its not a pension. anyone clued up would like to clarify??...Robert ??

Regardless of whether you join the Cash Balance or the Defined Contribution scheme, all you’re doing is building up a pot of money.

The stated aim is to then use it to fund your tax free lump sum so you don’t have to give up any pension to do that.

But you could also buy an annuity or draw it down over a period of time, but you would have to transfer it to another pension arrangement first.

Helpful as ever RobertT. There's me sitting there thinking, "Great so I'll end up getting another lump sum of cash, and perhaps have to hunt around for an annuity ...... just as I'm considering taking another lump sum of cash from my original pension Pot" Your comment explains it. It appears we all get a bit more interested in Pensions the nearer we get to retiring.

[GRS]

Surely if they are only offering a cash back scheme they are breaking the law as now every employer has to offer their staff the opportunity of joining a pension scheme not just a cash back one.

[RobertT]

Information is still quite thin on the ground, but based on what we know the only real difference between cash balance and defined contribution is how the money is invested.

CB guarantees a minimum amount and is quite similar to a ‘with profits’ fund. While with DC we’ll have a number of different investment options.

So in practice, both are effectively DC schemes, where we build up a pot of money along with contributions from RM plus tax relief from the government. But with the ‘added’ feature of being linked to our pre 2018 benefits to fund the lump sum, should we want to do that.

[BeamishStout]

Regardless of whether you join the Cash Balance or the Defined Contribution scheme, all you’re doing is building up a pot of money.

Robert with different contribution rates, depending on when you started at RM, am I also correct in assuming that with with the DC scheme (13.6% employer or 10% Post 2008) the employee has much more control over where he/she can invest depending on their lifestyle/attitude to risk etc? The DB scheme appears to aggregate the funds and make investment choices for the entire membership? I would also think that this DB scheme would minimize risk for the scheme with only very partial investments in equities. The silence has been deafening from RM about future investment choices. To gain a targeted return of CPI +2% (the figure RM seem to be using) without investing much in equities may be the equivalent of pulling a rabbit out of a hat.

The stated aim is to then use it to fund your tax free lump sum so you don’t have to give up any pension to do that.

Presumably you mean the lump sums given in the NRA60 and NRA65 nutshells for those who have not invested in AVCs specifically for this purpose? Surely this blurb about not giving up pensions for the new DB cash scheme is somewhat of a smokescreen because taking the max lump sum will reduce the resultant annuity if buying on the open market or reduce the pension provided by RM. So it is not as if you don't lose something by taking the maximum lump sum(s).

But you could also buy an annuity or draw it down over a period of time, but you would have to transfer it to another pension arrangement first.

It is a sobering thought that you would need something like £100K ATM to provide a £5473 annuity (single life) from 65 according to

http://www.sharingpensions.co.uk/annuit ... latest.htm

and obviously the larger the lump sum you take out the less annuity you can get! All the RM blurb attempts to dazzle by focusing on the total cash benefit of the various plans..

[RobertT]

Regardless of whether you join the Cash Balance or the Defined Contribution scheme, all you’re doing is building up a pot of money.

Robert with different contribution rates, depending on when you started at RM, am I also correct in assuming that with with the DC scheme (13.6% employer or 10% Post 2008) the employee has much more control over where he/she can invest depending on their lifestyle/attitude to risk etc? The DB scheme appears to aggregate the funds and make investment choices for the entire membership? I would also think that this DB scheme would minimize risk for the scheme with only very partial investments in equities. The silence has been deafening from RM about future investment choices. To gain a targeted return of CPI +2% (the figure RM seem to be using) without investing much in equities may be the equivalent of pulling a rabbit out of a hat.

The current DC scheme(RMDCP) currently has 11 fund choices I think, and members can choose 1 or more funds to invest in. Those funds vary risk wise! I would assume the ‘new DC’ scheme will be fairly similar.

The Cash Balance scheme isn’t really DB as RM seem to be saying. It’s just a DC pension but with no investment risk. Our money will all be put into one pot and invested as a whole, rather than as individuals as with the DC scheme/s.

Also, the recent booklet we received stated the CB scheme will have a normal retirement age of 65, which suggests to me that there may be a reduction for early payment. But that is my take on it and not yet confirmed!

RM are very risk adverse as far as pensions are concerned, I would assume the investment strategy would be mainly bonds, so personally I think their CPI+2% target might be hard to achieve, based on current yields. Time will tell on that one!

The main difference with the CB/DC proposal compared to the existing RMDCP, is that our funds will be ‘attached’ to our current main scheme benefits(RMSPS & RMPP) to help fund the tax free lump sum, pending government approval.

The stated aim is to then use it to fund your tax free lump sum so you don’t have to give up any pension to do that.

Presumably you mean the lump sums given in the NRA60 and NRA65 nutshells for those who have not invested in AVCs specifically for this purpose? Surely this blurb about not giving up pensions for the new DB cash scheme is somewhat of a smokescreen because taking the max lump sum will reduce the resultant annuity if buying on the open market or reduce the pension provided by RM. So it is not as if you don't lose something by taking the maximum lump sum(s).

In practice most current RMPP members are in section C and don’t have AVC’s, so RM’s literature is aimed at them. In which case I think it’s best to view the CB/DC proposal as if everyone will be paying AVC’s to build up a pot of money to fund the tax free lump sum, with the main difference being how the money is invested.

If that cash pot is equal to 25% of the total benefits, then no pension would be lost. If it’s less than 25% I assume we could still commute some pension to provide a higher lump sum(up to 25%) if we choose. Or, if it’s more, then we could either taxed if taking it as cash, or you could transfer out to another pension arrangement to buy an annuity or drawdown.

Transferring out independently of the main scheme also seems to be an option, just as you can currently do with AVC’s, if you choose.

The rules regarding lump sums for section B members are slightly different(see plan guide on pensions website), because they get one as standard. Therefore the flexibility of the DC option may be better for them.

Equally those who already have sizeable AVC funds, myself included, may not have any need for more tax free cash at commencement of their RM pensions, or may become liable to pay tax where they perhaps wouldn’t under the current arrangements. Therefore more thought to how you manage your AVC/CB/DC pots will be needed.
Personally I already have a personal pension pot tucked away aimed at funding early retirement before I take any of my RM pension/s and AVC’s. So I see my new pot of RM pension money as more towards that, which would be in the DC scheme!

But you could also buy an annuity or draw it down over a period of time, but you would have to transfer it to another pension arrangement first.

It is a sobering thought that you would need something like £100K ATM to provide a £5473 annuity (single life) from 65 according to

http://www.sharingpensions.co.uk/annuit ... latest.htm

and obviously the larger the lump sum you take out the less annuity you can get! All the RM blurb attempts to dazzle by focusing on the total cash benefit of the various plans..

Buying an annuity is something you will need to think long and hard about, or seek financial advice. Rates have been low for some time and show no signs of improving drastically. When I first took an interest in pensions over 20 years ago a pot of £100k would get a level pension at 65 of about £15k per year, so they’re now only around 1/3rd of that. You don't want to lock yourself into a low rate for life.

They’re not particularly good value for money and are very inflexible, but the pension reforms of 2015 now allow us complete control of our pension investments, giving us the ability to access our savings as cash, if we want to.

[BeamishStout]

The Cash Balance scheme isn’t really DB as RM seem to be saying. It’s just a DC pension but with no investment risk. Our money will all be put into one pot and invested as a whole, rather than as individuals as with the DC scheme/s.

That is how I view DB as well.

RM are very risk adverse as far as pensions are concerned, I would assume the investment strategy would be mainly bonds, so personally I think their CPI+2% target might be hard to achieve, based on current yields. Time will tell on that one!

My feelings as well.

In practice most current RMPP members are in section C and don’t have AVC’s, so RM’s literature is aimed at them. In which case I think it’s best to view the CB/DC proposal as if everyone will be paying AVC’s to build up a pot of money to fund the tax free lump sum, with the main difference being how the money is invested.

This explains my confusion as I am in Section C and do have AVCs to specifically fund the 25% tax-free lump sum.

Equally those who already have sizeable AVC funds, myself included, may not have any need for more tax free cash at commencement of their RM pensions

Agreed

They’re not particularly good value for money and are very inflexible, but the pension reforms of 2015 now allow us complete control of our pension investments, giving us the ability to access our savings as cash, if we want to.

So here is the rub. The illustrations appear to be quoting figures suggesting what your lump sum could generate based on some assumptions which may or may not be correct.

Thanks for the confirmations Robert

[RobertT]

So here is the rub. The illustrations appear to be quoting figures suggesting what your lump sum could generate based on some assumptions which may or may not be correct.

Exactly!

DB pensions provide a pension based on wages and length of service, that’s why they’re called Defined Benefit. Plus they pay out an index linked(either RPI or CPI) income for life.

RM’s Cash Balance scheme is a Defined Contribution pot of money, with a ‘risk free’ investment strategy. It could even provide returns of less than inflation, which would mean our money is actually going down in value.

Personally I would suggest nobody takes any notice of the illustrations as they seem like the work of a complete fantasist to me!

Thanks for the confirmations Robert

No problem.