New royal mail collective plan

poseidon1

It seems to me that one can talk until blue in the face about merits/challenges of DC schemes and indulge in erudite analysis, but the fundamental issue does not seem to be scheme designs but lack of engagement by the general population.

See below an article I have posted before on other threads concerning the vast millions of the population who have effectively walked away from Nest ( by ceasing contributions) seemingly oblivious of the implications of their actions ( inaction).

https://moneyweek.com/personal-finance/pensions/nest-pensions?utm_term=88C8D3AB-801A-4BA2-9121-A59535747136&lrh=729ccc0544986d89d4ca75a2cc0e78738e9a6c52dec9dc1d0eab4f12ebe5bf8f&utm_campaign=3854FBCB-FE1F-457E-9C9A-87C5805A0127&utm_medium=email&utm_content=7CF90AF5-2779-4F80-BBCF-8F1FB263C723&utm_source=SmartBrief


As already observed DB schemes are not returning to the private sector, so what is the solution for the widespread apathy demonstrated by the general public which now seems to be a continuing generational issue?

gm0

If lack of engagement becomes an accepted established fact.  Then a national scheme that folllows you employer to employer and takes all manage investments pain away (and some other costs and risks) has a better business case - not a worse one.  Which has no bearing on whether it could ever happen

OP is in a CDC pilot (previously callled Defined Ambition - in some of the research). Whether they like it or not

Comms union agreed this one in this context (as pilot) a way back. 

As the financial game had been up for some time for anything more generous.  The simpler DC, base contribution to minimum auto-enrollment solution would have likely been worse.

hyubh

gm0 said:

Individual DC lacks death pooling and indexation (absent appropriate annuity purchase - old school). 

CDC doesn't have real indexation either. Pensions could in principle go down! Whereas if you purchase an annuity with indexation, that's exactly what you get.

And MUCH worse since pension freedoms requires the individual to get to grips with investment management in retirement and pensions freedoms choices.

Most people just stick the default lifestyle strategy; the difference with CDC is that you have no choice in the first place. Likewise instead of being able to choose between different sorts of annuity or drawdown, taken at a date (or dates) of your choosing, you have a non-choice of a joint life annuity with conditional indexation at a specific NRD (you can take your benefits later, but there's no LRF I see with the Royal Mail scheme).

People have all sorts of ideas about what "fair" means.  

With profits (retaining some in good times to fill holes in cashflow in bad times is a desirable feature for some and an "rip off" to others.  Pay my full returns on my pot.  Or guaranteed pension (floor) element. Bonus element.  With risk and investment managed collectively by someone else.

Or even go further with some over time cohort smoothing.  This is "fairer for all" - socialised or daylight robbery of "my pot" to political taste. Not many voters have thought about it or the maths of it vs the current system.  This is niche even in pension policy and reform world.

Surely the criticisms of with profits go for CDC as well...?

What actually needs is for it to succeed.  CDC as a replacement instead of individual DC with the residual DB pushed into it. And the private sector with a mix of bullying and incentives for large employers to "join in" a "national" scheme taking the best ideas from Netherlands and elsewhere.   

Like the local government scheme consolidation but turbocharged. 

Fund consolidation <> benefit standardisation. Forced entry to the PPF would do that however, but I'm not sure that's what you're advocating...?

Specific objections and losers and lobbyists in the FS industry.  Diffuse long term benefits to citizens.

You seem to be proposing not just for a reversion to the pre-2015 position for DC though, but something actually much more constrained - remove choice of funds, remove drawdown, remove choice of annuity terms, force the young to take risk for the old...?

gm0

If interested in the DA/CDC backdrop - this is a place to start:  Commons library - 2010 on. 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/255541/reshaping-workplace-pensions-for-future-generations.pdf

https://researchbriefings.files.parliament.uk/documents/SN06902/SN06902.pdf

It's 15 years later and the discussion with the citizen outside OP and his colleagues and their novelty single scheme. i.e the broader one about the Netherlands (and others) as a model for UK - has not visibly progressed much.  

And if you did street vox pops - nobody would know there had even been a discussion about it at all.  

The little Post Office CDC scheme being practically the only egg it has so far laid.  And that recently.  Relatively little to say about the broader ambition for good or bad.

The idea employers can know their contributions at the time is good. (As with DC).  Given what has happened to most DB this seems obvious. Yet if you accept individual DC + pension freedoms has problems - as implemented today.  Then what?  That is the discussion.  Better features for the citizen, simpler to engage with, employer certainty at time of contribution.  Then you get into the weeds of actuarial design and how to make economies of scale work for the member.  You don't make it compulsory.  But you do make it the convergence target - the default.

Death pooling can be provided as standard in some manner (longevity risk covered) by a scheme (yes annuities can do this too). And yes this moves away from "my heritable pot" conceptually - the price of the guarantee - same as an annuity.  Partial assets.

Simplicity for the every man is good. And no sprawl of tiny pots per employer.

There are a great many difficult design, migration and implementation details. 
It won't happen. Or I will be long dead before it does.  

The definition of "fair" (for any pension collar/bonus cap/subsidy features - are a nightmare on stilts to get right.  Whatever you choose. Someone will hate it. Opportunity missed. Or selected design.  

If you like fully indexed DB and putting the tax charge on others kids per population demographics of working age - and would ride that horse into financial oblivion for the UK - or if you like unmolested speculative returns direct to your own individual DC pot and carrying your own speculative and longevity risks - then - it's not going to please.  

Or course, with profits fell out fashion as a fund option for reasons. Opacity, trust lost, exploitative behaviours by the companies doing it etc. Although Investment trusts doing the same thing are still a thing.  

The context is different between the little scheme OP is in, a national scheme with a pension promise, and a single fund selection. 

But I do agree in some respects this is not a new idea vs old schemes in their rich diversity. It very much depends what combinations of features you add in.  And if you bulk it up as a national scheme, at arms length to the government and muscle the bulk of people onto it.

olb81

OK so I don't want to pool my money with anyone else, which is the only option RM will offer In the new year. They won't let me stay with nest.

Based on that is there any other way I can save a pension, maybe with nest or Scottish widows/standard life who I have previous d.c. pots with?

And how would the tax relief part work as it'd always been automatically taken from my wages pre tax?

QrizB

olb81 said:

OK so I don't want to pool my money with anyone else, which is the only option RM will offer In the new year. They won't let me stay with nest.
Based on that is there any other way I can save a pension, maybe with nest or Scottish widows/standard life who I have previous d.c. pots with?

You can start a personal pension with a huge number of providers; you could even continue to contribute to Nest. However you will lose RM's employer contributions, so you might want to think *very* carefully before opting out of their scheme.

olb81

How do I go about not paying tax when making payments into a pension pot?

Dazed_and_C0nfused

olb81 said:

How do I go about not paying tax when making payments into a pension pot?

You can't.  If you are paying into a personal pension or SIPP you will be doing so using the relief at source method.

This is where you pay the net contrition and the pension company adds basic rate relief (25% of your net contribution).

For example you pay £200 and £50 is added, giving you a gross contribution of £250.

If you are running a limited company then employer contributions are an alternative, but you would get no tax relief on those.

DRS1

If you are a higher rate tax payer then you can also claim relief for higher rate tax either through your tax return or via an online form.  Essentially the pension contribution raises your higher rate threshold so you pay more at 20% instead of 40%.

But as mentioned above if you are thinking of opting out of the collective plan then find out what happens to the employer contributions.  If you lose the benefit of them then it would be unwise to opt out.  I may not be a fan of the scheme but it is still better than doing it yourself with just your own contributions.

dasherman

One thing that I don't think has been mentioned(I could be wrong), is that you also have the choice to transfer out your share of the overall pot to a DC scheme. Therefore taking advantage of the higher employer contributions and then choosing the drawdown route, instead of the upfront lump sum and pension for life you get with the RMCPP.

As an ex postie myself I know most legacy employees are paid weekly. So example weekly pensionable pay of £500 would mean a total of £96 going into the RMCPP at a combined contribution rate of 19.3%, plus another £10 if you opt into the lump sum booster.

When you factor in tax relief and salary sacrifice(which RM call PSE), that's a net cost to you of £69 or £76 with the booster, assuming RR doesn't tinker in the budget.

With Nest there will be a total of £45 going in each week, at a net cost to you of £32.

Do you really need to think twice about joining?