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    • DairyQueen
    • By DairyQueen 12th Mar 18, 8:16 PM
    • 193Posts
    • 325Thanks
    Royal Mail Pension Proposal
    • #1
    • 12th Mar 18, 8:16 PM
    Royal Mail Pension Proposal 12th Mar 18 at 8:16 PM
    My brother works for Royal Mail and has received a confusing communication regarding the latest change to the pension scheme. He is completely at a loss to understand the proposals and he has turned to me for advice. I admit that, despite being more interested than most in pensions, I'm struggling to understand the latest dog's dinner concocted by Royal Mail and the union.

    Bro only has until 19th March to make a decision and I would be very grateful for any guidance that experts here can provide.

    Bro will be 61 this year and began receiving 'Age 60' RM pension benefits last year. He was a member of the FS scheme until it was replaced in 2008 by (I think) a career average DB scheme. His 'Age 60' benefits were accrued up to 2010, and he also has 'Age 65' benefits that will accrue from 2010 until the end of this month when the new scheme will be introduced.

    Having read through the bumf sent to him I believe that RM is trying to introduce a completely new form of company scheme for which it requires government approval. If I have understood correctly the new scheme will combine a DC-type pension (that pays an income based on investment returns across the whole scheme rather than on an individual's investment performance and choice of fund) plus a guaranteed lump sum. RM is seeking permission to allow the lump sum to be paid tax free regardless of whether it breaches the 25% rule.

    In the interim RM will introduce a transitional DC scheme from April this year. This transitional scheme includes a guarantee that the total value of the individual's pot accrued from April until retirement will not be less than the contributions paid (total of employer and employee). Employees also have the option to join the standard DC scheme that has been available to employees who have joined RM since 2008.

    Key points:
    - The employer contribution paid into the transitional scheme will be higher than the %age paid into the standard DC scheme.
    - Retirement age for the transitional scheme, and for the proposed hybrid that is intended to replace it, will be 65. NRA for the standard DC scheme is 67.
    - bro is a terrible money manager (by his own admission) and is completely incapable of managing a pension pot. His best interests are definitely served by receiving an income in retirement (guaranteed and index-linked if possible). Given the opportunity he will grab the max cash he can and spend it as rapidly as possible. His entire pension pot would last mere months if he had access to it.
    - we are not talking huge sums. Bro works hard but doesn't earn that much. The pension he has so far accrued is not sufficient to support him in retirement. This is not helped by him taking the max tax free 'Age 60' benefits, blowing it on a car, and paying tax on the reduced pension. He hasn't redirected the Age 60 reduced pension payment into another scheme (nor is he paying AVCs) in order to claw the tax back (he is still working so is paying tax on the pension income).
    - bro intends working until age 67 (his SPA is 66). I will recommend that he defers taking the SP until he stops working but I doubt that when push-comes-to-shove he will follow my advice.

    I THINK (but need confirmation) that bro is best-served by staying with the transitional scheme (and whatever replaces it should government approval be given). I believe that this is the less risky option and will provide more security in exchange for less flexibility and less upside on investment performance.

    Could anyone please confirm that my understanding of bro's options is correct? Also, that I am right in believing that bro will be better sticking with the proposed hybrid rather than transferring to the standard DC scheme? Especially so given that he will not resist the temptation to spend any large sums to which he has access and will always sacrifice future income in order to have cash now.

    Thanks for your help.
Page 1
    • Brynsam
    • By Brynsam 12th Mar 18, 8:21 PM
    • 568 Posts
    • 363 Thanks
    • #2
    • 12th Mar 18, 8:21 PM
    • #2
    • 12th Mar 18, 8:21 PM
    One for TPAS:

    They'll be able to talk him through the proposals. Given the looming deadline I suggest he rings them sooner rather than later!
    • DairyQueen
    • By DairyQueen 12th Mar 18, 9:17 PM
    • 193 Posts
    • 325 Thanks
    • #3
    • 12th Mar 18, 9:17 PM
    • #3
    • 12th Mar 18, 9:17 PM
    Thanks for that. I didn't know they could advise on specific schemes.
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