Rmdcp Vs dbcbs

[posted]

If it helps people, I thought I would add in my personal experience of DC scheme as I track mine quite closely.

Remember, past performance should not be relied upon as an indication of future performance. The value of your investment may go up as well as down . Usual palava out of the way!

So, I’ve been in the scheme since December 2010 and the Investment name is Sharia. I believe it invests in the HSBC Amanah Global Equity Fund.

When I purchased the first ‘share’, the price in Dec 2010 was £6.47. In Dec 2017, the price was £15.29, so looking at it clinically on those 2 dates, that’s an increase of 236%.

Now obviously it’s not as straightforward as that as I’ve made a contribution in every pay period at varying prices in between those quoted above.

So to give an indication of of how that fund has grown each year I’ve listed below the price each December and in brackets the growth %age compared to previous Dec.

2010 £6.47
2011 £6.51 (0.6%)
2012 £7.28 (11.8%)
2013 £8.56 (17.6%)
2014 £9.87 (15.3%)
2015 £10.38 (5.2%)
2016 £13.17 (26.9%)
2017 £15.29 (16.1%)

These figures are gross of the Annual Mamagement Charge which if I recall is ~1.5% of the value of the fund, deducted each month at what ever the fund price is at the time.

Obviously also need to take account of inflation.

For me, DBCBS doesn’t really cut it. Yes it’s 19.6% of a (reduced) pensionable pay with a discretionary bonus of CPI+2% (capped at 5% I think).

I’m quite happy if the DC fund can achieve c7% annual growth rate.

I have emailed the pension helpline asking what assumes growth rate they have used in the illustrations. Waiting for a response.

[milly]

If it helps people, I thought I would add in my personal experience of DC scheme as I track mine quite closely.

Remember, past performance should not be relied upon as an indication of future performance. The value of your investment may go up as well as down . Usual palava out of the way!

So, I’ve been in the scheme since December 2010 and the Investment name is Sharia. I believe it invests in the HSBC Amanah Global Equity Fund.

When I purchased the first ‘share’, the price in Dec 2010 was £6.47. In Dec 2017, the price was £15.29, so looking at it clinically on those 2 dates, that’s an increase of 236%.

Now obviously it’s not as straightforward as that as I’ve made a contribution in every pay period at varying prices in between those quoted above.

So to give an indication of of how that fund has grown each year I’ve listed below the price each December and in brackets the growth %age compared to previous Dec.

2010 £6.47
2011 £6.51 (0.6%)
2012 £7.28 (11.8%)
2013 £8.56 (17.6%)
2014 £9.87 (15.3%)
2015 £10.38 (5.2%)
2016 £13.17 (26.9%)
2017 £15.29 (16.1%)

These figures are gross of the Annual Mamagement Charge which if I recall is ~1.5% of the value of the fund, deducted each month at what ever the fund price is at the time.

Obviously also need to take account of inflation.

For me, DBCBS doesn’t really cut it. Yes it’s 19.6% of a (reduced) pensionable pay with a discretionary bonus of CPI+2% (capped at 5% I think).

I’m quite happy if the DC fund can achieve c7% annual growth rate.

I have emailed the pension helpline asking what assumes growth rate they have used in the illustrations. Waiting for a response.

This kind of performance is swaying me towards the RMDCP as I believe you can invest into the same or similar funds to my AVC's which have more than doubled in 11 years.
I know that I won't have the greater contribution from Royal Mail but I think I would rather be in charge of my own destiny than rely on the woeful investment decisions of the trustees.

[RobertT]

It does need to be mentioned that the worlds stock markets have risen quite sharply over the last 8-10 years, with the FTSE 100 for example rising from below 4000 in 2009 to 7200 today, and it was as high as nearly 7800 earlier this year! Most people who’ve invested in stocks will have benefitted from those gains.

Looking at the fund factsheets, the Sharia fund seems to be invested quite heavily in both technology and American stocks and is regarded as a high risk fund. Which generally means the returns are high in the good times but expect big drops in the bad times. It’s more suited to those with a good few years left until retirement!

So when the next crash comes along, which it will sooner or later, expect those average annual returns to go down quite considerably. Some commentators are saying we’re in a ‘slow crash’ at the moment - time will tell if that is the case!

Personally I’ve experienced two market crashes, and it’s not nice when you realise your savings have gone down by 40%+. But if you ride out the storm and keep putting the money in, when things go back up, you should be sitting pretty.

The problem of course is how to manage your investments as you get closer to retirement! The usual practice is to transfer to safer investments as you approach that age, but timing can be critical.

Whether the RMDCP is right for you will depend on many things.
In my opinion if you’re already in the RMDCP, then I can see the benefits of staying in it – flexibility, more control over investments, etc.
But if you’re in the RMPP then you’re maximising your DB benefits by being in the DBCBS, which to me is a better long term choice.

But as ever, it’s down to individual circumstances and choice.

[posted]

It does need to be mentioned that the worlds stock markets have risen quite sharply over the last 8-10 years, with the FTSE 100 for example rising from below 4000 in 2009 to 7200 today, and it was as high as nearly 7800 earlier this year! Most people who’ve invested in stocks will have benefitted from those gains.

Looking at the fund factsheets, the Sharia fund seems to be invested quite heavily in both technology and American stocks and is regarded as a high risk fund. Which generally means the returns are high in the good times but expect big drops in the bad times. It’s more suited to those with a good few years left until retirement!

So when the next crash comes along, which it will sooner or later, expect those average annual returns to go down quite considerably. Some commentators are saying we’re in a ‘slow crash’ at the moment - time will tell if that is the case!

Personally I’ve experienced two market crashes, and it’s not nice when you realise your savings have gone down by 40%+. But if you ride out the storm and keep putting the money in, when things go back up, you should be sitting pretty.

The problem of course is how to manage your investments as you get closer to retirement! The usual practice is to transfer to safer investments as you approach that age, but timing can be critical.

Whether the RMDCP is right for you will depend on many things.
In my opinion if you’re already in the RMDCP, then I can see the benefits of staying in it – flexibility, more control over investments, etc.
But if you’re in the RMPP then you’re maximising your DB benefits by being in the DBCBS, which to me is a better long term choice.

But as ever, it’s down to individual circumstances and choice.

Spot, I've got another 30+ years till I hit SPA so can ride out the storm. May even pay AVCs when it is at the bottom of the cycle.
Will have to look at it closer as I approach retirement depending on how markets are performing.

I'm just not sure what happens at 65. Will I have to do something (withdraw) with the funds or can I leave them in there a bit longer in case the stock market/annuity rates are crap at the time.

I'm also dubious of the 2% the company will pay towards the life assurance bit. Why mention the 2%? why not just say this is what you will also be covered for?
In the other schemes there's no mention of how much the company is contributing for the same life assurance package. Perhaps they want to down-dial the benefit in the future if the 2% isn't buying them much.

[RobertT]

I'm just not sure what happens at 65. Will I have to do something (withdraw) with the funds or can I leave them in there a bit longer in case the stock market/annuity rates are crap at the time.

The RMDCP is a DC scheme so you have a number of choices when you come to take your benefits. You can currently access them anytime between 55 and 75, but it’s been proposed the minimum age will increase to 10 years before state pension age. So you might not be able to get at your money until 58 or later. Although nothing has been written in stone yet!
This website is a good guide to what you can do with your DC pension pot.

I'm also dubious of the 2% the company will pay towards the life assurance bit. Why mention the 2%? why not just say this is what you will also be covered for?
In the other schemes there's no mention of how much the company is contributing for the same life assurance package. Perhaps they want to down-dial the benefit in the future if the 2% isn't buying them much.

With both the RMDCP and the DBCBS, RM pay for the death benefits, etc via an insurance policy. While as far as I know, with the existing RMPP and the proposed CDC, those benefits are paid out of the money in the overall pot. So that extra 2% is only for the life of the DBCBS.

[wheresourmoney]

As hard as I've tried i am still struggling to understand any of it, i think i'm at that age where my brain is overloaded with to much information, so any help would be well received. i'm 61 with 21 years under my belt, i took out a lump sum and small pension when i was 55 and i am in the rmpp - c plan. thanks

[posted]

Just doing some quick math, hoping somebody can check my sanity.

If the CBS was given a 2.5% boost each year (slightly above BoE target inflation), the DC scheme would only need to achieve an average 3% year-on-year growth to match it.
Table on left is CBS, table on right is DC.
Within each table, the left column is the running total of Contribution for that year, plus the pot of money from previous years (incl last year's growth).
The column on right is just the indicative growth amount at the end of each year.

For consistency I've assumed growth is average each year, and the salary does not change (in 25 years!) nor does the Lower Earnings Deduction.

[RobertT]

As far as I’m concerned, comparing the DBCBS to the RMDCP isn’t just a case of working out what the potential returns are going to be.
You also got to factor in what you can do with the money when you come to access it!

The appeal of the DBCBS for current RMPP members and particularly section C, is that it’s providing a lump so you don’t have to give up as much pension, or potentially no pension at all, to get that lump sum.
As most people do choose to take the maximum 25% tax free cash, it means they’ll get a bigger pension for life, aswell as a pot of money. Whereas by opting for the RMDCP, RMPP members just get a pot of money of which only 25% is guaranteed to be tax free.

[posted]

As far as I’m concerned, comparing the DBCBS to the RMDCP isn’t just a case of working out what the potential returns are going to be.
You also got to factor in what you can do with the money when you come to access it!

The appeal of the DBCBS for current RMPP members and particularly section C, is that it’s providing a lump so you don’t have to give up as much pension, or potentially no pension at all, to get that lump sum.
As most people do choose to take the maximum 25% tax free cash, it means they’ll get a bigger pension for life, aswell as a pot of money. Whereas by opting for the RMDCP, RMPP members just get a pot of money of which only 25% is guaranteed to be tax free.

Surely there's a significant impact on pension in any DB scheme if you a) take it early and/or b) take a lump sum

[RobertT]

Surely there's a significant impact on pension in any DB scheme if you a) take it early and/or b) take a lump sum

If you take your RMPP DB pension early you can expect a 5% reduction for each year you take it before Normal Retirement Age.

The argument for taking it early is that you get less pension but for longer. Although if you’re still working you may well be paying tax on it aswell – so a double whammy!

The argument for taking it at NRA is you get more each week, which is more likely to be enough to live on, and based on averages you’ll get more income in total over the course of your retirement.

Section A/B members get a lump sum as standard but have the choice to give up some or all of it to get a bigger pension.
Section C members don’t get a lump sum as standard but have the choice to give up some pension to get one.

Most employee members of the RMPP are in section C and choose to take the maximum lump sum when taking their benefits. So the DBCBS will enable them to have a bigger pension for life than they would have got, and they’ll get a lump sum too.

[Hawkey99]

Hi Robert,

So do you plan to take all of your pensions as a pension with no lump sum and use your AVC as your lump sum.

As you will be over 25% in your AVC and DBCBS can you simply just transfer anything over 25% or indeed all of this into a SIPP.

If so would you receive tax relief on it.

Thanks

[RobertT]

Hi Robert,

So do you plan to take all of your pensions as a pension with no lump sum and use your AVC as your lump sum.

Yes.

As you will be over 25% in your AVC and DBCBS can you simply just transfer anything over 25% or indeed all of this into a SIPP.

You can't transfer the DBCBS, that has to be used along your RMPP to provide a lump sum. But you can transfer out your Flexiplan & Bonusplan if you choose, but you risk losing their full tax free status.

Assuming you use the your AVC's and DBCBS to first fund your tax free cash, with any excess left over after taking the 25%, you will have 4 options:

Take it as taxable cash.
Transfer into another pension for drawdown.
Transfer for annuity purchase(I don’t think Zurich offer that, but I could be wrong).
Defer it until a later date – max age 75.

If so would you receive tax relief on it.

You’ve already received tax relief on my payments going in, so you won’t get any more on transfer.

[Hawkey99]

Many thanks for response as always.

[joe712000]

Surely there's a significant impact on pension in any DB scheme if you a) take it early and/or b) take a lump sum

If you take your RMPP DB pension early you can expect a 5% reduction for each year you take it before Normal Retirement Age.

The argument for taking it early is that you get less pension but for longer. Although if you’re still working you may well be paying tax on it aswell – so a double whammy!

The argument for taking it at NRA is you get more each week, which is more likely to be enough to live on, and based on averages you’ll get more income in total over the course of your retirement.

Section A/B members get a lump sum as standard but have the choice to give up some or all of it to get a bigger pension.
Section C members don’t get a lump sum as standard but have the choice to give up some pension to get one.

Most employee members of the RMPP are in section C and choose to take the maximum lump sum when taking their benefits. So the DBCBS will enable them to have a bigger pension for life than they would have got, and they’ll get a lump sum too.

I'm currently a DC plan member with the option of transferring to the DBCBS.What would be my best option with a view to taking my pension at 55?Any advice would be much appreciated.

[RobertT]

I'm currently a DC plan member with the option of transferring to the DBCBS.What would be my best option with a view to taking my pension at 55?Any advice would be much appreciated.

The RMDCP provides a pot of money with which you have a number of flexible options, more info here. It’s worth whatever it’s worth when you choose to access it – current minimum age is 55.

The DBCBS may provide a higher overall contribution rate to the RMDCP and it gives a guaranteed sum, but it has an NRA of 65. So any decision to access it before that age will incur a reduction.

Personally I think most people who are currently in the RMPP will be best served by sticking with the default choice of the DBCBS, to maximise their DB benefits, with taking their benefits at NRA being the best course of action. And using AVC’s and/or separate pension arrangements to fund early retirement.

Those currently in the RMDCP, joining the DBCBS will mean giving up the flexibility they have with DC in favour of a guaranteed pot at 65, which doesn’t really help if you want to retire at 55. So, if I was in the RMDCP, I think I would stay put.


But that’s just my opinion, and what’s best for you will come down to circumstances and choice.