Reducing working hours and effect on Royal Mail Pension

HelenLou

My husband is 58 and is considering reducing his working hours from 5 days to 4 days but we are worried how this will effect his final salary pension. He has 20 years of contributions paid into the final salary service which ceased in 2008 and 10 years CSDB blocks which is pension built in the last 10 years to Oct 2018. If my husband reduces his working hours by a fifth will this effect the payment from his final salary part of his pension when he comes to take his pension? He plans on working until he is 65 but reducing his hours to 4 days until then. He is undecided whether to take his pension when he is 60 or 65. Royal Mail won’t give a forecast of what he is likely to get until 4 months before he is 60. We’ve emailed Royal Mail pensions and they say that reducing working hours won’t have an effect on pensionable pay but on the 2018 benefit illustration he go in October 2018 it says , ‘your pension may be lower than last year if your final salary pay or allowances have been reduced.’ Can anyone explain this to us because he doesn’t want to lose out and we feel very confused.

drumtochty

Yes the final salary pension is worked out on the number of years worked x final salary times a retirement factor.


The worry is that your husband will only earn say 80% of his salary in these years, therefore the calculation above will reduce the total pension paid by 20%.


In reality a good employer gets round this by still keeping your husbands salary at it's value for working 5 days a week. They only credit the pension in the years he works 80% of the year with 80% of a year of work. The final salary keeps up wit normal wage inflation


Your thoughts or a 10k salary over 20 years but the last year at 8k that year with a rerirement factor of say 2% per year.


£8,000 x 20 x 2% equates to £3,200 a year as you assume the final salary will be reduced from £10k to £8K.


Actual from a good employer.


£10,000 x 19.8 x 2% equates to £3,960 a year as the years worked is reducedl be reduced from 20 years to 19.8 years.

fly-catchers

Since they closed the DB scheme in March 2018 the final salary part of the pension for Section C members is no longer linked to their final salary. Instead it is now linked to their salary up to the 31st of March 2018. And will be increased by RPI each year instead going forward. So if your husband is in Section C which started in April 1987 he should be alright. If he was in the earlier Section B scheme it will still be linked to the final salary he is on at 60. But even in that case they go for best year out of the last three.

Miiade

You say he is undecided as to whether to take his pension at 60 or 65? I cannot see why he would not take the NRA60 element of the plan at 60, as this is when it is supposed to pay out. Deferring the nra 60 pension will mean 5 years less pension income for your husband, with no benefit.

The money he gains from his nra60 pension at 60 should make up for the shortfall in going 4 days a week. I would even look into taking the NRA 65 element of his plan early, as although this will face a reduction, it makes up smaller % of his overall pension.

Consider all the options and I hope it all works out for him

xylophone

Has your husband obtained a new state pension forecast?

Have you?

https://www.gov.uk/check-state-pension

Re Royal Mail, information and booklets can be obtained here

https://www.royalmailpensionplan.co.uk/