Cash balance fund cash sum

TheStrangler · Post by **TheStrangler** » 14 Oct 2019, 17:51

Just got the latest pension info.
The "cash balance fund sum" (since 2018) is approx £4,500.
If I left the business @57 and took all my pension (section c member) would I be able to take this as well as my lump sum and monthly pension?
If so is there a reduction of 5% per year and if that's the case would it be based on nra 60 or 65?

Thailand1 · Post by **Thailand1** » 14 Oct 2019, 20:31

Robert??

Post by **RobertT** » 15 Oct 2019, 05:00

Your DBCBS pot will be added to your 'total pot value' to which you can take a maximum of 25% as tax free cash.

Some or all of your lump sum will be made up of your DBCBS pot, meaning you don't have to give up so much or any pension to get that lump sum. In practice you're likely to get both a bigger lump sum and a bigger pension if you take a maximum of 25% tax free cash.

However, the DBCBS has an NRA of 65 and is attached to your RMPP benefits. So it only provides a lump sum in relation to the benefits you built up between 1st April 2012 and 31st March 2018. If it equals more than 25% of those benefits, you'll pay tax on anything over. I'm sure the pensions people will advise on that at the time.

I refer you to your plan guide and the recent letter(dated August 2019) regarding how our pension works, for more info!

GRS · Post by **GRS** » 15 Oct 2019, 16:27

Just chucking a question out there......... judging by how many questions and queries are put on this page how many people actually understand the pension scheme or in fact even know which schemes they are in. I think it’s a bloody disgrace that the whole set up is so complicated for people to understand. Every time RM,CWU or Pension administrators send out any info all they succeed in doing is muddying the waters further. It’s terrible that people who’ve paid in for twenty, thirty,forty plus years don’t know how much they will receive upon retirement or even when to retire.

Thailand1 · Post by **Thailand1** » 18 Oct 2019, 09:08

RobertT wrote:Your DBCBS pot will be added to your 'total pot value' to which you can take a maximum of 25% as tax free cash.

Some or all of your lump sum will be made up of your DBCBS pot, meaning you don't have to give up so much or any pension to get that lump sum. In practice you're likely to get both a bigger lump sum and a bigger pension if you take a maximum of 25% tax free cash.

However, the DBCBS has an NRA of 65 and is attached to your RMPP benefits. So it only provides a lump sum in relation to the benefits you built up between 1st April 2012 and 31st March 2018. If it equals more than 25% of those benefits, you'll pay tax on anything over. I'm sure the pensions people will advise on that at the time.

I refer you to your plan guide and the recent letter(dated August 2019) regarding how our pension works, for more info!

Hi Robert where’s the ref to the plan guide stated above?

Post by **RobertT** » 18 Oct 2019, 10:06

Thailand1 wrote:Hi Robert where’s the ref to the plan guide stated above?

You should have received a copy about 12 months ago, but it's also available to view on the RMPP website: https://www.royalmailpensionplan.co.uk/ ... ts/library" onclick="window.open(this.href);return false;
Look for 'member guide to benefits'.

posteee · Post by **posteee** » 25 Oct 2019, 00:03

Sorry, the acronyms still confuse me a little but here I go with my take on it. Robert ? Anyone ?

The latest pension benefits statement says "the cash balance benefit you have built up since 1st April 2018" . . . . . ." is payable as a cash sum" (I interpret that as lump sum ?). And it says "It is tax free if your benefits are within maximum limits"

Also on a document which can be found here, http://www.cwu.org/wp-content/uploads/2 ... -March.pdf" onclick="window.open(this.href);return false; the CWU also say, "At age 65, members will receive a lump sum worth at least 19.6% of pensionable pay" which also seems to suggest ALL of the Cash Balance Fund Cash Sum will be paid as cash sum (tax free).

But Robert you say the "DBCBS pot will be added to your 'total pot value' to which you can take a maximum of 25% as tax free cash" ?

And because the new Cash Balance Fund appears as if it will be paid as a lump sum . . . I have therefore interpreted this as meaning the other parts of the pension/s built up before 31st March 2018 (Final Salary and Career Salary Defined Benefit), will both be paid as separate pensions ?
Or if they are to merge altogether, the Cash Balance amount will still be a lump sum ?

However there seem to be stark anomalies and outright contradictions and I don't understand.
In reviewing what I thought I understood so far (not sure I do understand it anymore) :

1) The old pensions prior to 31st March 2018 will stay the same. We all have in our pension illustrations guides on how much we may receive annually from these. Whether we can choose to take 25% of the pre April 2018 monetary values as a lump sum or not I am not sure, but presume 25% of it can be.

2). The new pension after 31st March 2018 consists of 2 elements. One which seems to be the cash lump sum I have mentioned. The other element, which I am confused about is something the CWU are calling a "wage in retirement" (or CDC). This to me, is where I can't understand the contradiction.
Or is this meant to be one and the same thing and I am misunderstanding it ?

Because on the same document that it states 19.6% can be taken as a lump sum . . . it also says " The target CDC pension will be 1/80th of pensionable pay plus RPI revaluation. The employer will contribute 13.6% of pensionable pay into the new scheme and members will pay 6%". - But I thought this was a lump sum ???! -very confused by this.

3).The CWU FAQ document also says "The guaranteed lump sum element will be set at 3/80ths of pensionable pay". Again, this seems to be in contrast the Royal Mail Benefit Illustration and in contradiction to what it says earlier in the same document.

Very confused by it all

So all in all just when I thought I was beginning to understand it, everything appears to be clear as mud again.

Robert T ? Anyone ?

renrag40 · Post by **renrag40** » 25 Oct 2019, 01:08

The DBCBS will cease to accrue when the CDC pension starts....... whenever that will be. But in a recent letter updating members on the decision of HMRC that the DBCBS can only be taken tax free at NRA 65 and not NRA 60 one of the assumption was that the DBCBS will cease at the end of September 2020. The DBCBS is designed to fund the lump sum for the pension accrued in years 2012 to 2018. So more of your total pension pot can be paid as monthly pension. It will be most useful to people in section C. Any surplus from funding the tax free lump sum would then be taxed at your marginal rate.
When the CDC pension starts it will have an NRA of 67 and will be a completely different pension. Contributions will only be to the new pension. So if you live long enough you could get 3 different RM pensions, NRA 60, NRA 65 and NRA 67. Each on progressively less generous to the recipients.

posteee · Post by **posteee** » 25 Oct 2019, 13:10

Thanks renrag for the additional clarity, even though the situation (not your explanation), does appear to make it slightly more complicated.

However I have just read the document that Robert T directed us to earlier which can be found here https://www.royalmailpensionplan.co.uk/ ... gles_0.pdf" onclick="window.open(this.href);return false;

It does seems to say that the total value of all of the pension pots are taken into account when working out how much money we can take tax free (25%). This does still seem to contradict the wording on the nutshell pension illustration which reads (the cash balance) "is tax free". It doesn't seem to say anywhere on that illustration (that I have seen), that if the cash balance amount equates to more of 25% of the total pension value, tax will be charged.

The earlier document I refer to seems to answer these questions more clearly anyway.

Still unsure what solid advantages the "wage in retirement" or CDC pension gives vs having the money in an individual pot. I can see the obvious benefit, as it looks like a fair contribution (19.6%), but don't understand the advantage of it being a collective pot vs an individual cash balance pot of 19.6%.

Can't we just choose to have the 19.6% put in our own cash balance pot like the defined contribution plan ? Realise the defined contribution plan only gets a RM contribution of 10% (vs (13.6%) but can't figure out the collective structure and why this is better than individual pension pots. Can somebody clarify that ? And also it appears the new pension has a defined benefit element which guarantees we get at least back what is put in. Is that right ? (big plus I suppose).

Thanks.

Post by **RobertT** » 25 Oct 2019, 15:14

I would agree with Renrag's post!

The original plan with the DBCBS or 'cash balance' was that it would be 'attached' to all of our pension accrued up to 31st March 2018. But RM needed Cabinet Office approval for it to be attached to our RMSPS(pre 2012) because the government is now responsible for paying that. More info here: https://www.myroyalmail.com/node/11514" onclick="window.open(this.href);return false;

We recently received a letter(dated August 2019) stating that approval was refused, therefore the DBCBS can only be used to fund the tax free cash associated with our RMPP(2012-2018) benefits.

The proposed CDC pension provides a pension of 1/80th and a lump sum of 3/80ths of pensionable pay(via the DBLSS), although the pension amount is just a target – nothing is guaranteed.
The CWU campaigned for a pension providing a wage in retirement rather than a pot of money and the result of the 4 pillars negotiations was CDC. More info: https://www.myroyalmail.com/node/11511" onclick="window.open(this.href);return false;

The only other alternative would have been an individual DC pension which is just a pot of money, with which we would have choices in terms of where we invest the money and what we do with it at retirement.

The whole point of the DBCBS is that it provides a lump sum to take with our RMPP benefits, meaning section C members in particular don't have to give up so much pension to get a lump sum. A DC pension is a completely different thing and not attached to anything you've accrued via the RMSPS or RMPP.

Pensions are a very individual thing – what's right for you isn't necessarily right for someone else! Some might prefer the guaranteed nature of DBCBS, while others want the flexibility of DC.

So if you're planning on going DC instead, do your homework and make sure you're going into it with your eyes open. There was someone on here a while ago who did that without realising his pensionable allowances wouldn't be pensionable anymore!
There other potential pitfalls too.

Also bear in mind that CDC is a pension scheme for all RM employees. So unless there's a change of plan, when CDC happens we won't get an option to join the DC scheme instead.

posteee · Post by **posteee** » 25 Oct 2019, 15:37

Rober T - that helps again thanks.

So the 1/80th element pension and 3/80ths lump sum starts and & when parliament agrees it. So what happens to the cash element we have built up in between ?

And does that 3/80ths lump sum replace any other lump sum in any of the previous pension/s. Or can 25% of the total pension valuation still be taken as a lump sum too or instead ?

Sorry, still don't fully understand. Things becoming more clear, but still a bit like looking through a frosted window.

Appreciate your help though !!

Post by **RobertT** » 25 Oct 2019, 16:10

posteee wrote:Rober T - that helps again thanks.
So the 1/80th element pension and 3/80ths lump sum starts and & when parliament agrees it.

Yes.

So what happens to the cash element we have built up in between ?

It's still used to provide a lump sum associated with your NRA65 or more specifically your 2012-2018 benefits. It will still be in a big pot along with everyone else's hopefully going up by at least inflation, until you take your NRA65 benefits.

And does that 3/80ths lump sum replace any other lump sum in any of the previous pension/s. Or can 25% of the total pension valuation still be taken as a lump sum too or instead ?

You will still be able to your NRA60 and NRA65 benefits as you can now, but its important to realise the new CDC scheme will be completely separate from those benefits!

When CDC starts you will then accrue pension and lump sum at the rates I mentioned.

A multiple of 20 is usually used to work out the value of a defined benefit pension, which is what your NRA60 and NRA65 benefits are, as page 12 of the plan guide alludes to.
But as CDC pension schemes don't yet exist in the UK we don't yet know exactly how things will be worked out in terms of their total value.
The legislation should iron these thing out.

Sorry, still don't fully understand. Things becoming more clear, but still a bit like looking through a frosted window.
Appreciate your help though !!

It can be hard, but stick with it and it'll get easier.

heapsy · Post by **heapsy** » 27 Oct 2019, 00:33

GRS wrote:Just chucking a question out there......... judging by how many questions and queries are put on this page how many people actually understand the pension scheme or in fact even know which schemes they are in. I think it’s a bloody disgrace that the whole set up is so complicated for people to understand. Every time RM,CWU or Pension administrators send out any info all they succeed in doing is muddying the waters further. It’s terrible that people who’ve paid in for twenty, thirty,forty plus years don’t know how much they will receive upon retirement or even when to retire.

Tbh I think it is strange that people don't have a clue which section they are in. There's been loads of info over the years explaining the whole thing. I DO agree that the statement we receive is crap. If RM can suddenly produce a pension figure if you ask, then why can they not give, within a 3 month period, a pension statement online? Not being able to give us a breakdown between NRA60 / NRA65 is s**t.

However, people should read this forum. Too many people are asking the same questions over and over. The answer will still be the same. How much will my pension be reduced by if I take my pension 3 years early?

Post by **RobertT** » 27 Oct 2019, 06:38

Looking back at old illustrations, they used to provide NRA60 and NRA65 figures from 2010 to 2016, aswell as separate final salary and CSDB figures.
But the NRA65 figures were just an estimate of what you could get if you stayed with RM until that age, and more pertinently if the scheme had stayed open to future accrual.
In practice the scheme closed!

I would agree, there is no reason why the newer version of the illustrations shouldn't be in NRA60 & NRA65 form, anything else is just confusing people for no reason.

But it's not too difficult to work out ballpark figures for NRA60 & NRA65 using your most recent illustration and a bit of simple maths.
To do it more accurately you'll need illustrations from 2009 & 2010 and the rates of inflation since.

heapsy · Post by **heapsy** » 27 Oct 2019, 08:13

RobertT wrote:Looking back at old illustrations, they used to provide NRA60 and NRA65 figures from 2010 to 2016, aswell as separate final salary and CSDB figures.
But the NRA65 figures were just an estimate of what you could get if you stayed with RM until that age, and more pertinently if the scheme had stayed open to future accrual.
In practice the scheme closed!

I would agree, there is no reason why the newer version of the illustrations shouldn't be in NRA60 & NRA65 form, anything else is just confusing people for no reason.

But it's not too difficult to work out ballpark figures for NRA60 & NRA65 using your most recent illustration and a bit of simple maths.
To do it more accurately you'll need illustrations from 2009 & 2010 and the rates of inflation since.

Well I must admit, I'm struggling to get an idea of my figures, even though I understand completely how my pension works.