Which was the better scheme?

[NorthernBoy]

Okay, so when I joined RM in 1993 I was always told that the old pension scheme (A/B) was better than C which I was enrolled into.

My question is was this really the case, or is it just one of those old assumptions that never gets questioned.

My understanding was that A/B came with an automatic lump sum, but Plan C didn’t, I think this was the reasoning why it was seen as better. How much was the lump sum, was it a multiple of the annual pension?

Just curious as to what the thoughts are of older members are who had knowledge of these schemes and what the pros and cons of each were.

I think they were both good schemes, but I don’t know if A/B was really better than C, hence my question.

[baldrick]

It's 10 years since I took my pension so I don't remember exactly. But I think the lump sum was twice the annual pension, but you could chose to convert lump sum into pension (which I did), or pension into lump sum which most did.

I thought the scheme previous to mine was better as the annual uprating was based on Retail Price Index which is higher than Consumer Price Index.

I don't know how the newer scheme works or if it is better. I always assume that any new scheme is going to be worse for employees than the previous one.

[freespeech]

I take the view that any "later" scheme is always progressively worse than the one it replaced. I can't think of any company that has willingly introduced a new scheme better than the old (in terms of a better outturn for members). If you see "final salary" as the gold standard that is a prime example and went some years ago. Our "new" (yet to be introduced) scheme doesn't even guarantee pension amounts......

[deltaforce]

It's 10 years since I took my pension so I don't remember exactly. But I think the lump sum was twice the annual pension, but you could chose to convert lump sum into pension (which I did), or pension into lump sum which most did.

I thought the scheme previous to mine was better as the annual uprating was based on Retail Price Index which is higher than Consumer Price Index.

I don't know how the newer scheme works or if it is better. I always assume that any new scheme is going to be worse for employees than the previous one.

The lump sum in sec B was roughly 3 times annual pension but the indexing is inferior to section c. I never understood why this was agreed to at the time… inflation erodes your pension no mattter what scheme you are in. The diffference between cpi and rpi is quite substantial over your pension lifetime. Section B pension was also based on 1/80 of your annual pensional pay per year of service and Section c was based on 1/60

[heapsy]

Section B is by far the better scheme despite a lower calculation for inflation.. Even though that is the case, ALL of your basic pay is pensionable, that's about £64 a week for a full timer, or £1.92 a week extra in contributions, due to the introduction of the LEL for section C members.That's £3,328 of your pay that isn't pensionable if you are Section C. Don't forget, there's also a higher contribution from the employer than there is for section C members and they get a lump sum as standard when you retire on top for section B. Doesn't sound much but it adds up. Poor communication by the CWU has meant few people if any actually knew about the differences. Even a late driver (section B) who comes to our office weekly never knew about the reduced contributions. He's 62 and currently gets £10k a year NRA 60 pension and £60k in the bank.The union should be ashamed. What they should have done years ago was increase the contribution rate for the employee to something like 8 or 9% for the new section C members, but maybe lowered the contribution rate for the employer to offset costs. That might sound a lot, but let's face it, retirement costs. In our job, a bit of overtime to cover the extra cost is all it would take. Not a lot when you consider the benefits.

[RobertT]

Section B is regarded by many as being better than section C, but is it?

Take the theoretical situation of two people who started on the same day, but are in the two different sections.

The accrual rates for final salary and CARE schemes are very similar, 1/80ths for section B and 1/60ths for section C. But with the FS scheme obviously being based on pay when you leave and CARE effectively being a separate pension for each year of membership.

Example earnings of £25k would provide the following pension benefits per year:

Section B:

£25,000 is pensionable
Gross pension contributions(6%) = £1,500
Accrual rate of 1/80ths of pensionable pay = a pension of £312 per year
Lump sum of 3x pension = £937
Annual uprating of CPI

Section C:

£21,672 is pensionable due to the LED*
Gross pension contributions(6%) = £1,300
Accrual rate of 1/60ths of pensionable pay = a pension of £361 per year
Standard lump sum = £0
Annual uprating of RPI(but could change)

Commutation rate of roughly 1:20 when converting pension to lump sum. Meaning if section C members wanted to reduce their pension down to the same level as B members, they would get a lump sum of £980 in return.

So unless I've missed something obvious, overall section C not only provided a higher level of benefits than B, but it actually cost less to be a member too.

Section C also had the benefit of Bonusplan, which had the potential to provide a decent chunk of the tax free lump sum, if paid into for long enough and at a marginal cost to the member.

*based on pre 2014 changes to LED, etc.

The DBCBS provides a higher amount for section B members due to no LED, but as they get a lump sum anyway, more is likely to be lost to the tax man.

The DBCBS was only ever intended as a stop gap scheme until CDC starts anyway.


How does CDC compare to previous schemes?

It's got the potential to be as good as section B of the CARE(2008-2018) scheme if it does what it's supposed to do. There's no way it will match the final salary scheme!

But considering RM initially wanted to put us all in the DC plan from 2018, then personally I think CDC is an improvement on that.
The aim is to provide a pension rather than a pot of money with options, and CDC does that. With the obvious caveats that we should all know about by now.

[heapsy]

The problem Robert, as I mentioned in my post is one of poor communication. The union, nor RM for that matter even mention AVCs to you. You know yourself that when you started you probably knew next to nothing about pensions, even the one you were joining. The union hide behind the argument that they cannot give financial advice. It isn't financial advice unless you point out one thing is better than the other. They should have, and could today give guidance as to how to improve your pension without breaking rules or laws. As I posted earlier, they could have changed the contribution rates, even reducing the RM rate, but increasing the employee rate to negate that change. A real s**t show from a union that doesn't give a toss. You only have to look at the increased pension age of the new scheme to realise they don't give a s**t about their members, especially those in delivery.

[RobertT]

To be honest I didn't know I was in a pension at all when I first joined RM as a teenager. They called it superannuation on the wage slips at the time, and I thought it was some kind of tax!

Nobody ever mentioned AVC's to me, but older annual pension statements did include Flexiplan and Bonusplan valuations, which probably lit a spark and I looked into them further.
Statements direct from the providers came later.

I would agree the communication isn't great, but people also have to learn how to help themselves too! The biggest problem with pension provision in RM and in the UK in general, is apathy in my opinion!

I've had conversations with colleagues in their 20's and 30's about pensions and they just don't want to know. They see it as something to think about when they're old, which is totally missing the point.

[Woody Guthrie]

But considering RM initially wanted to put us all in the DC plan from 2018, then personally I think CDC is an improvement on that.

Personally I believe that the individual DC scheme but with the same level of contributions as the CDC scheme would have been a better all round outcome for the vast majority of members.

The problem was neither the union nor the business wanted to go there.
The union I believe for ideological reasons, because unions are built on collectivism, not individuality.
Just an opinion.

[RobertT]

The CWU clearly wanted a scheme that provides a pension in the traditional sense, rather than just a pot of money with options.

RM just wanted to provide a scheme that they pay a certain percentage of pay into, with no other liabilities. They get that with either DC or CDC at whatever contribution rate is chosen.

Personally I think if RM knew it was going to take about 5 years for the CDC scheme to actually start, they probably wouldn't have agreed to it.