Royal Mail defined contribution pension, what to do with it?

tadaska

Hi everyone,

I work for Royal Mail and had a defined contribution pension plan going (I paid some money, they paid more money) with Zurich. Now they started some new Collective Defined Contribution plan which I joined. But I still have the Zurich pension account with £16k in it but no more payments going in. The Zurich plan is called Ten Year Royal Mail Lifecycle Strategy. No idea what any of it means but I'd like to continue the Zurich's pension going and pay in maybe £25 a week myself. But I have 3 questions (that I can think of):

1. Do I just pay every week (or month) by direct debit or is there a better (more clever) way? Like maybe get my work to pay it and deduct it from my payslip so I don't pay tax on that amount? Or any other clever way.

2. Should I just leave the Zurich pension as it is and just start paying into it again or are there better options for me now that Royal Mail is not paying into it? I just want it to be safe and have some pension money from it when I retire.

3. I forgot what #3 was... Ahhh... Are there any other (better) options I can do?

Thank you!

atush

first off you c all Zurich and ask?

1. sounds like Salary sacrifice- great if your company offers it, but dont think they do.

2. You ask Zurich if you can pay in- probably yes. We have an old Aviva pension of my OH, and when he left the company it was changed to a personal pension (but on the same reduced fees as the company pension) and he carried on paying into it.

3. Maybe. Maybe not. It all depends on what you want to pt in your pension, which funds you want to choose, and the costs at Zurich to do it (compareed with elsewhere).

tacpot12

If the new scheme has lower charges than the old scheme, and the scheme will let you move it, I'd suggest you move the 16K to the new Collective Defined Contribution plan.

I would make sure you are paying the most into the new scheme that you can to get any employer contributions before paying anything into the old scheme. If you are paying the maximum you can into the new scheme and want to keep the old scheme because it has lower charges, just ask Zurich to setup a monthly direct debit payment. They will claim the tax back on the payments you make.

If you stay in the old scheme, I would look into the Lifecycle strategy as it is almost certainly a sub-optimal strategy!

tadaska

tacpot12 wrote: »

If you are paying the maximum you can into the new scheme and want to keep the old scheme because it has lower charges, just ask Zurich to setup a monthly direct debit payment. They will claim the tax back on the payments you make.

If you stay in the old scheme, I would look into the Lifecycle strategy as it is almost certainly a sub-optimal strategy!

I'm paying the maximum into the new scheme. The only reason I want to keep the old one going is because my ignorant self is paranoid that if Royal Mail goes tits up when I'm retired I will lose the pension.

Any suggestions to replace the Lifecycle strategy? It makes my eyes water every time I try reading pension related stuff... I wasn't even aware there were charges involved...

dasherman

You have actually joined the Defined Benefit Cash Balance Scheme(DBCBS), which is a transitional plan set up until the necessary legislation is passed for a CDC scheme to be introduced, which may or may not happen!

If you want to carry on paying into your Zurich pot,you may be able to get them to convert it into a personal pension as someone else has stated, otherwise you would have to transfer it somewhere else.

You won't be able to continue to pay into your Zurich pot via your RM wages, it will have to be a via a direct debit, etc.

You do get salary sacrifice on your contributions into the DBCBS, as you did with the RMDCP. RM call it Pension Salary Exchange(PSE).

You cannot move the £16k into the DBCBS and the the CDC scheme isn't in operation yet, so transfers into that are obviously not possible at the moment either. We don't yet know if they will be possible when/if CDC is introduced, but I suspect not.

There are 12 investment options via Zurich aswell as the Lifecycle Strategy, the plan info gives more detail: http://www.zurich.co.uk/internet/worksavings/SiteCollectionDocuments/royalmaildcplan/WD0900.pdf

The latest fund performance info for those 12 funds: http://webfund6.financialexpress.net/clients/zurichcp/portfoliopricetable.aspx?schemeID=261501

jamesd

tacpot12 wrote: »

If the new scheme has lower charges than the old scheme, and the scheme will let you move it, I'd suggest you move the 16K to the new Collective Defined Contribution plan.

And that could be a bad mistake. The plan isn't defined contribution, where what you wrote would be fine, it's collective defined contribution.

How CDC schemes work varies but one drawback they can have is taking money from the pots of some members to pay benefits to others. There may not even be individual pots at all. The income might also be based on amounts paid instead of actual investment performance. As well as investment performance, members living longer than anticipated can result in transfers from others.

At its most basic level this creates an incentive to pay too little to retirees, perhaps not passing on the full benefit of average or good investment as a DC scheme in drawdown can. You also can't do basic drawdown things like taking more income early on then decreasing once the state pension starts or you get older.

It's not just shared investments like say the NEST DC scheme as the name may imply. In some ways it can be more like DB but with other members picking up the shortfall bill because the employer no longer does.

So the issue isn't so much fees as what CDC means and how a particular scheme works. This one appears to have the full suite of CDC problems.