2018 Pension Review Q&A

Frequently asked questions about our pension agreement and the transitional arrangements in place since April 2018, whilst we seek to introduce a CDC pension scheme.

2018 Pension Review Q&A

Frequently asked questions about our pension agreement and the transitional arrangements in place since April 2018, whilst we seek to introduce a CDC pension scheme.

Latest update

The Government formally announced in the Queen’s Speech on 19 December 2019 its intention to introduce a Collective Defined Contribution (CDC) pension scheme into UK law. CDC is a key part of the new pension plan agreed between Royal Mail and the CWU. We have worked closely and jointly with our unions at all levels on this and will continue to do so.

The Bill has to have readings in both the House of Lords and House of Commons before it can become UK law. This process is underway. If passed, the Bill will make CDC pensions available in the UK for the first time.

Royal Mail’s proposed 'Collective Pension Plan' is a single scheme for employees that will provide a tax-free lump sum when you reach retirement and a monthly income during it. 

What happens next?

There are many stages of the Bill to progress through Parliament. We will keep you updated on the passage of this important legislation.

While we seek a CDC scheme, from 1 April 2018 members are building up retirement benefits under our transitional arrangements. They will continue to provide good quality retirement benefits for members of the Royal Mail Pension Plan (RMPP) and the Royal Mail Defined Contribution Plan (RMDCP).

Questions

The drop-down sections below include frequently asked questions and answers on our pension agreement, grouped into topic areas:  

New pension agreement

Collective defined contribution scheme

Transitional arrangements

Royal Mail Pension Plan (RMPP)

Defined Benefit Cash Balance Scheme (DBCBS)

Improved RMDCP

Click on the sections below

What is the new pension agreement?

Royal Mail and the CWU have agreed to work together to introduce a Collective Defined Contribution (CDC) scheme – subject to the necessary legislative and regulatory changes – with a Defined Benefit Lump Sum scheme (DBLS) sitting alongside it.

This would provide one scheme for all Royal Mail employees. It would be the first of its type in the UK.

The new CDC and DBLS arrangements would target, but not guarantee, a similar level of retirement benefits as provided by RMPP (which closed to future accrual in its current form on 31 March 2018). Risk would also be shared between the members and the Company.

These are significant moves from the Company’s original Defined Contribution proposal, where Company contributions were less and risk rested only with members.

While we seek a CDC scheme, we have implemented transitional arrangements: a new Defined Benefit Cash Balance Scheme (DBCBS), which is set up as part of RMPP, and an improved Royal Mail Defined Contribution Plan. 

Does this pension agreement apply to Unite members?

Yes it applies to all employees. We concluded discussions with Unite on pay and pensions in May 2018 and Unite members voted to accept the pension deal.  

Are the arrangements agreed the best option, or should members look at other schemes offered by other financial institutions?

We have worked hard with our unions to continue to provide sustainable, good quality retirement benefits for our employees.

Of course members are able to consider other schemes offered in the wider market. The Company cannot provide financial advice. You are advised to speak to the Pensions Review Helpline and seek independent financial advice before opting out of the Company’s pension arrangements, as the Company will not contribute to other pension arrangements.

For RMPP members who join a different scheme, you will be considered to have left the RMPP and your benefits will be calculated accordingly. Please see page 13 of your home mailing sent to you in February 2018 for more information.

What is a Collective Defined Contribution (CDC) scheme?

The Collective Defined Contribution (CDC) is a new type of pension offering to be made available in the UK.

CDC schemes are collective, meaning contributions are paid into a pooled fund for all members and invested on their behalf.

Under the proposed Royal Mail scheme, the CDC pension will build up at 1.25% (1/80th) of member’s pensionable pay. The benefits are adjusted each year based on the scheme’s performance and may go up or down – a risk member’s bear.

The other key difference is that when you retire you’ll be paid an income directly from the scheme’s pooled assets, rather than having to buy an annuity or draw down your pension fund.

What would the Company’s contribution be under a CDC scheme?

Royal Mail would pay in 13.6%. Members of the pension scheme would pay in 6%. Members can also make extra contributions for additional benefit during retirement.

How likely is it that the Government will enable CDC schemes?

The Government formally announced in the Queen’s Speech on 14 October 2019, and then again on 19 December 2019, that it intends to introduce a Collective Defined Contribution (CDC) pension scheme into UK law. The Bill has to have readings in both the House of Lords and House of Commons before it can become UK law. If passed, the Bill will make CDC pensions available in the UK for the first time.  

When will the new CDC scheme be available?

The timetable for doing this is a matter for Government. We hope that it passes the necessary legislation quickly to enable us to introduce a CDC scheme at the earliest opportunity. Meanwhile we are continuing our work on the detailed CDC scheme design.

Will you be sending out personal illustrations of the possible effect of CDC?

We understand that people want to see how the agreement will affect them personally. But, CDC is a completely new type of scheme and we are not clear yet on how the regulations will require us to show benefits at an individual level.

We included several example illustrations in the RMPP and RMDCP booklets, which we sent to members’ homes in February 2018. These illustrations seek to show how the target benefits under the proposed CDC scheme, with the Defined Benefit Lump Sum (DBLS) sitting alongside it, might (based on certain assumptions) compare variously with the RMPP, the RMDCP default contributions prior to 1 April 2018, the improved RMDCP from 1 April 2018, and the DBCBS. They cover a broad range of ages and lengths of service.

As we’ve said, the new arrangements will target, but not guarantee, a similar level of benefits to those currently provided by the RMPP. 

Is the retirement age increasing to 67 under the CDC scheme?

The retirement age under the CDC scheme would be 67. This is in line with the increase in the State Pension age set by the Government, which is currently expected to be 67 by 2028.

As now, employees would be able to take their pension from the Minimum Pension Age, which is currently 55, reduced for early payment.

The retirement age under our transitional arrangements – the DBCBS and the improved RMDCP – will remain at 65. 

And the retirement age for the benefits that members built up to 31 March 2018 remains unchanged.

Will the pension benefits I have built up in previous Royal Mail pension schemes be transferred into the new transitional arranagement (the DBCBS) or the future CDC scheme?  

No. The retirement pots that members built up prior to 1 April 2018 have not been transferred into our new retirement schemes.

RMPP members’ benefits built up until April 2012 are backed by Government under the Royal Mail Statutory Pension Scheme. Benefits built up between 1 April 2012 and 31 March 2018 are backed by the RMPP’s assets. Those benefits will remain in the RMPP. RMDCP members’ benefits built up prior to 1 April 2018 will remain in that scheme. Members will be able to take them when they retire. 

Who would be responsible for managing the investments in the CDC scheme?

The scheme would be set up as a trust, like the current RMPP. The board of trustees would be responsible for setting the investment strategy and managing the scheme’s investments.  

Who is accountable if the scheme doesn’t deliver its target?

Under a CDC scheme, the amount that the employee receives in retirement is not guaranteed. The actual benefit payable will depend on the scheme’s investment performance (and once in payment can go down as well as up) and other factors such as average life expectancy of members. We would expect the trustees of the CDC scheme would be responsible for setting the investment strategy and managing the scheme’s investments, but ultimately there is no guarantee as to the benefits that members will receive.

What is the governance under the CDC scheme to ensure that decisions around revaluations are appropriate?

We would expect matters such as how target benefits will be communicated to members and how increases are awarded (or not) to be set out in the scheme documents, but until the necessary legislation is in place we will not know what the actual requirements will be. 

How will the CDC arrangements aim to target a similar level of benefits to the RMPP, when contributions remain at £400million rather than rising to £1.26bn had changes not been made to the RMPP?  

The new arrangements are designed to provide on average, although not guarantee, a similar level of member benefits as the RMPP, while significantly reducing the risk to the Company. CDC schemes can do this by taking a more return-seeking investment strategy both up to retirement and after, allowing higher potential returns. The RMPP has a very low risk approach to investment, which materially increases the contributions required to fund the benefits.

How can you be sure you won’t need to make further pension changes?

The pension arrangements we have agreed are more sustainable than the current RMPP. The Company will not have to face the unsustainable financial risks associated with a DB pension scheme. Under the RMPP, if we hadn’t made changes, annual contributions were expected to increase from £400 million to £1.26 billion. That increase is simply unaffordable.

Will employees take on all of the risk under the future CDC/DBLS scheme?

Royal Mail and the CWU have committed in principle to the future introduction of a Collective Defined Contribution (CDC) scheme - subject to the necessary legislative and regulatory changes - with a Defined Benefit Lump Sum (DBLS) sitting alongside it. The Company would bear the risk of guaranteeing a minimum lump sum at normal retirement age under the DBLS.

How will the CDC/DBLS target benefit be calculated?

Together, the CDC scheme and DBLS sitting alongside it would target, but not guarantee, a similar level of benefits to those currently provided by RMPP. The target CDC income would be the 1/80th of pensionable pay for each year of pensionable service, plus RPI revaluation each year. The guaranteed DBLS lump sum would be 3/80ths of pensionable pay for each year of pensionable service, plus any revaluations once credited.

Will members receive annual statements showing their expected benefits?

Yes, we would expect that members would be sent an annual statement showing how their target benefits have built up. However, we do not have the details about how benefits will be shown yet.

Is there an option to remain in the DBCBS after the CDC scheme is introduced?

No. The DBCBS is a transitional arrangement that we are have put in place while we seek the necessary legislative and regulatory changes to enable a CDC scheme to be introduced. Assuming the necessary regulatory and legislative changes are made, the intention is that once the new arrangements are set up, members of the RMPP and RMDCP would automatically join the CDC scheme.

Would members who are over 60 and already drawing their pension automatically join the CDC/DBLS scheme?

All active members of RMPP and RMDCP would automatically become members of the CDC/DBLS scheme when it is established. Other employees with 12 months' or more Company service would be able to opt to join the scheme if they wish. 

Under CDC, could a member’s pension change while they are in retirement? What is the notice period for this?

Yes. Under a CDC scheme, there is a target for what the employee will receive in retirement, but this target is not guaranteed. The actual benefit payable will depend on the scheme’s investment performance, and once in payment can go down as well as up. It will also depend on other factors such as average life expectancy of members.

CDC is a completely new type of scheme, and we do not know what the legislative requirements will be. However, we expect clear rules to be put in place around how we communicate any changes to members’ target benefits.

How are payments smoothed out so that the assets are shared appropriately between current and future beneficiaries?

CDC is a completely new type of scheme, and we do not know what the legislative requirements will be. However, we expect clear rules to be put in place to ensure fairness between generations within the scheme. This would include rules around when increases can be granted, and when benefits would have to be reduced.

Are members forced to take a cash lump sum under the CDC scheme with the Defined Benefit Lump Sum scheme sitting alongside it?

Royal Mail and the CWU have committed in principle to the future introduction of a CDC scheme - subject to the necessary legislative and regulatory changes - with a Defined Benefit Lump Sum scheme (DBLS) sitting alongside it. This means all members would receive a guaranteed lump sum at retirement. At present, 97% of RMPP members choose to take a lump sum at retirement. The DBLS would provide a lump sum at retirement but it would be up to members whether they take that as cash, or use it to buy an alternative product, such as an annuity.

What are the transitional arrangements?

The Company has put in place transitional arrangements from 1 April 2018, while it lobbies Government to make the necessary legislative and regulatory changes to enable a CDC scheme.

As part of these transitional changes, the Company has implemented a new scheme within the RMPP, called the DBCBS, and an improved Royal Mail Defined Contribution Plan (RMDCP).

For RMPP members:

Unless they instructed us otherwise, RMPP members automatically started building up DBCBS benefits on 1 April 2018. If preferred, they can instead opt to join the improved RMDCP. They can do this at any time by returning the 'Joining RMDCP' form sent to them in their home mailing in February 2018. The form is also available here.

For standard level RMDCP members:

Unless they instructed us otherwise, standard level RMDCP members were enrolled into the top contribution tier of the RMDCP from 1 April 2018. This means that members contribute 6% of RMDCP pensionable pay into their pension, while the Company puts in 10%.

RMDCP members with more than 5 years’ service with the Company (including 4 years’ continuous service at the standard contribution level in the RMDCP) can choose to join the RMPP to build up DBCBS benefits. They can do this at any time by returning the ‘Joining DBCBS’ form sent to them in their home mailing in February 2018. The form is also available at here.

I want to choose a different transitional arrangement, but I didn’t return the form by 19 March deadline. What should I do?

Unless members returned a form prior to 19 March 2018, they were automatically enrolled into one of our transitional arrangements from 1 April 2018. Members can still choose a different option at a later date by returning the form sent to them in their home mailing in February 2018. Forms are also available here. Their choice will then come into effect from the next available payroll date after the form is received.

If I am an RMPP member, what should I do?

RMDCP and DBCBS benefits work in different ways. It is important that RMPP members do not make the decision whether to build up DBCBS or RMDPC benefits based only on contribution levels. (These are detailed in the letter and booklet sent to RMPP members at the end of February 2018.) Other factors, such as age and attitude to risk, should be considered.

The DBCBS guarantees that at age 65 members will get a lump sum of at least the 19.6% of pensionable pay that has been paid on their behalf each year.  The DBCBS also aims to provide increases to a member’s lump sum. This is dependent upon the scheme’s investment performance each year. These increases cannot be guaranteed. Each year, the scheme’s investment performance will be reviewed and, if appropriate, discretionary increases to the lump sum will be awarded and shared across members. Once credited, any discretionary increases are also guaranteed.

The DBCBS will seek to smooth the discretionary increases that are awarded.  That means that if investment performance is very good, some of the returns may be held back, and awarded in later years. But if investment performance is poor, then increases may be lower than inflation, or no increase may be credited at all.

If, however, you would prefer to have your investment performance directly linked to the underlying investments then you may want to consider opting to join the improved RMDCP.  Investment performance can do down as well as up, and you may get back less than the contributions paid on your behalf. But you would get the full benefit if investment performance was good. If you are unsure about which scheme is right for you, you may wish to speak to an independent financial adviser. The Company cannot provide you with financial advice.

If I am in the RMDCP, with more than 5 years’ service with the Company (including 4 years’ continuous service at the standard contribution level in the RMDCP), what should I do?

RMDCP and DBCBS benefits work in different ways. It is important that RMPP members do not make the decision whether to build up DBCBS or RMDPC benefits based only on contribution levels. (These are detailed in the letter and booklet sent to RMPP members at the end of February 2018.) Other factors, such as age and attitude to risk, should be considered.

The DBCBS guarantees that at age 65 members will get a lump sum of at least the 19.6% of pensionable pay that has been paid on their behalf each year.  The DBCBS also aims to provide increases to a member’s lump sum. This is dependent upon the scheme’s investment performance each year. These increases cannot be guaranteed. Each year, the scheme’s investment performance will be reviewed and, if appropriate, discretionary increases to the lump sum will be awarded and shared across members. Once credited, any discretionary increases are also guaranteed.

The DBCBS will seek to smooth the discretionary increases that are awarded.  That means that if investment performance is very good, some of the returns may be held back, and awarded in later years. But if investment performance is poor, then increases may be lower than inflation, or no increase may be credited at all.

If, however, you would prefer to have your investment performance directly linked to the underlying investments then you may want to consider opting to join the improved RMDCP.  Investment performance can do down as well as up, and you may get back less than the contributions paid on your behalf. But you would get the full benefit if investment performance was good. If you are unsure about which scheme is right for you, you may wish to speak to an independent financial adviser. The Company cannot provide you with financial advice.

If I am in the RMDCP, but have less than 5 years’ service with the Company, what should I do?

If you would like to put 6% of your pensionable pay into your RMDCP retirement account so that you get the top amount (10%) from the Company, you do not need to do anything.

If you would prefer to put less into your RMDCP retirement account and receive smaller contributions from the Company, you should complete the RMDCP Contribution Level form which was included in your letter and booklet.

The Company will write to you when you are eligible to join the RMPP and build up benefits in the DBCBS.

What happens to current AVC deductions under the Transitional Arrangements?

For RMPP members, any Bonusplan or Flexiplan benefits would continue unchanged if you join the DBCBS. For RMPP members choosing to join the RMDCP, any Bonusplan or Flexiplan contributions you currently make to RMPP would cease. Added Years contributions ceased for all RMPP members on 31 March 2018.

For RMDCP members remaining in the RMDCP, any AVCs you are paying will continue unchanged.

For RMDCP members joining the DBCBS, your AVCs would cease. You cannot add to your RMDCP benefits if you move to the DBCBS, but you can pay extra to the DBCBS via “Bonusplan” or “Flexiplan”, the DBCBS AVC arrangements. After you have started contributing 6% of pensionable pay to the DBCBS you can then apply to pay extra contributions to Bonusplan or Flexiplan. To do this, please call the Pensions Helpline on 0114 241 4545 and ask about AVCs, or email Pensions Additional Benefits at pensions.additional.benefits@royalmail.com and ask for an application form to join Bonusplan or Flexiplan.

In the meantime you can find out more information on Bonusplan and Flexiplan at https://www.royalmailpensionplan.co.uk/section-c/planning-your-future/topping-your-pension-avcs

The AVC guide can be downloaded here

I am a RMDCP member paying AVCs. Can I keep paying into my RMDCP AVCs if I move to the DBCBS or can I transfer my AVCs to the DBCBS (or to a SIPP)? What happens to my RMDCP AVCs if I don’t transfer?

Your RMDCP AVCs are part of your overall RMDCP benefits and you cannot transfer them to the DBCBS. However, your RMDCP benefits will still remain invested in the RMDCP in their current investment funds. These benefits will still be administered by Zurich. You can take your benefits from the RMDCP separately to your DBCBS benefits at any time after minimum pension age (currently age 55). Alternatively you can transfer your RMDCP benefits to a personal pension policy/SIPP if you wish. 

You cannot add to your RMDCP benefits if you move to the DBCBS, but you can pay extra to the DBCBS via “Bonusplan” or “Flexiplan”, the DBCBS AVC arrangements. After you have started contributing 6% of pensionable pay to the DBCBS you can then apply to pay extra contributions to Bonusplan or Flexiplan. To do this, please call the Pensions Helpline on 0114 241 4545 and ask about AVCs, or email Pensions Additional Benefits at pensions.additional.benefits@royalmail.com and ask for an application form to join Bonusplan or Flexiplan.

In the meantime you can find out more information on Bonusplan and Flexiplan at https://www.royalmailpensionplan.co.uk/section-c/planning-your-future/topping-your-pension-avcs

The AVC guide can be downloaded here

Will I be able to access pension flexible drawdown as a DBCBS member or as an RMDCP member?

Neither the DBCBS nor the RMDCP permits pensions flexible drawdown.  If, after taking independent financial advice, you decide that you would like to use pensions flexible drawdown you will need to transfer your pension benefits to a provider who offers pensions flexible drawdown.

How can I transfer my benefits?

If you are an RMDCP member, please contact the Zurich Royal Mail Service Team for more information.

If you are a DBCBS member, please contact the Pensions Service Centre.  Please note that if your DBCBS/RMPP transfer value is greater than £30,000 you will need to take independent financial advice before transferring your pension benefits.  Generally, benefits must be transferred six months before Normal Retirement Age (65).

Have Sections B and C of the RMPP now closed to accrual on a Career Salary DB basis?

Yes. Unfortunately we had to announce that, following Trustee approval, the RMPP would close to future accrual in its current form on 31 March 2018. This was a very hard decision to make. But the increase in the cost of keeping RMPP open in its previous form means it was just not affordable. If we didn’t make changes, contributions were expected to increase from around £400 million to £1.26 billion per annum.

What happens to the benefits members had already built up under the RMPP until 31 March 2018?

RMPP members’ benefits built up until April 2012 are backed by Government. Benefits built up between 1 April 2012 and 31 March 2018 are backed by the RMPP’s assets. Those benefits will remain in the RMPP. RMPP members can get those benefits when they come to take their pensions.

How can I find out if I am a member of the RMPP?

You can find out if you are a member of the RMPP by looking at your payslip. RMPP members will see the code “RMPP DBCBS C” or “RMPP DBCBS A/B” alongside their PSE pension deduction on their payslip.

How were RMPP members’ benefits revalued from 1 April 2018?

From 1 April 2018, Section C members’ pre-April 2008 benefits are linked to increases in RPI (up to 5% a year) from that date until they leave Royal Mail employment or take their benefits, rather than to Final Salary pensionable pay at the date they leave.

These benefits will be increased in line with the Retail Price Index (up to 5 per cent a year), subject to certain exceptions.

  • Benefits between 1 April 2012 and 31 March 2014 include Career Salary Defined Benefit, Normal Retirement Age of 65 and ongoing Final Salary link from 1 April 2012
  • Benefits between 1 April 2014 and 31 March 2018 include Career Salary Defined Benefit, Normal Retirement Age of 65, increases in basic pensionable pay (Final Salary and Career Salary Defined Benefit) capped at Retail Price Index up to 5 per cent per annum

Section A/B members’ pre-April 2008 benefits continue to be linked to the greater of:

  • increases in RPI (up to 5% a year) and;
  • Final Salary pensionable pay at the date they leave.

The Final Salary link is required under the Section A/B rules in order to maintain increases at RPI (up to 5% a year) in the Royal Mail Statutory Pension Scheme. This is not a requirement under the Section C rules. 

For more details on how Final Salary pensionable pay is calculated, please see the decision booklet on the 2014 pension changes. 

 

What is the DBCBS?

The DBCBS guarantees a minimum cash sum payable at normal retirement age (65).

It also targets, but does not guarantee, discretionary increases each year. These increases are based on investment performance (which can go down as well as up) and expectations of future investment returns. Once awarded, these discretionary increases are guaranteed and not subject to market conditions.

What is DBCBS pensionable pay?

DBCBS pensionable pay has the same definition as RMPP pensionable pay. In more detail:

  • Pensionable allowances and bonuses are included
  • The Lower Earnings Deduction (LED) for Section C members and for joiners continues
  • Annual pensionable pay indexation at RPI up to 5%
  • Promotional increases (following the changes introduced from April 2014) can still count for future pension benefits
  • Note: final salary benefits for service up to 31 March 2008 for Section C members will be increased after 1 April 2018 by increases in RPI only up to 5% a year
  • There is no change to the increase in final salary benefits for Section B members

What are the contribution rates for the DBCBS?

The Company contributes 15.6% of DBCBS pensionable pay (which has a different definition from RMDCP pensionable pay overall) to the scheme. Of this, 13.6% goes to the member’s guaranteed lump sum. The remaining 2% of the Company’s contribution goes to the cost of other member benefits including death in service and ill-health benefits (which are provided outside the scheme).

Members will contribute 6% of DBCBS pensionable pay towards their retirement lump sums.

The table below summarises the contribution rates:

Company contribution

(DBCBS pensionable pay)

Employee contribution

(DBCBS pensionable pay)

15.6% (including 2% for other member benefits including death in service and ill health)

6%

Why is the Company defaulting RMPP members into the DBCBS?

We believe that the DBCBS will be the best option for the majority of RMPP members.

If RMPP members would prefer to opt out of the DBCBS and join the RMDCP, they must complete the ‘Joining RMDCP’ form. This is enclosed with the letter and booklet that RMPP members received at their home addresses from 28 February 2018. A copy of the form can also be found here www.myroyalmail/pensions

RMPP members can do this at any time. Members whose forms were received by 19 March 2018 started building up benefits in the RMDCP from 1 April 2018. Members can still return their form at a later date and will leave the DBCBS to join the RMDCP from the next available payroll date after their form is received.

Members should note that by doing this, they are leaving the RMPP and their benefits will be calculated accordingly. In particular, they should note that from the date of opting out their benefits built up to 31 March 2018 will increase in line with CPI up to 5% a year instead of RPI. You are advised to seek independent financial advice before opting out of the DBCBS to ensure that joining the RMDCP is the best option for you. Neither the Company nor the Trustees can provide financial advice.

Why do we need Government approval for rule changes to the Royal Mail Statutory Pension Scheme in relation to the DBCBS? Are we starting DBCBS on the basis that we will or will not get Government approval?  

At retirement, the vast majority of RMPP members take the maximum 25% lump sum, which is currently tax-free. To do this, they give up some of their pension. These members will be able to use their DBCBS benefits to fund part or all of their lump sum. This is possible because the DBCBS is a scheme within the existing RMPP.

In order for the DBCBS benefits to work more efficiently for members, by allowing them to take their retirement lump sums in the most tax efficient way, the Company needs Government approval for some rule changes to the Royal Mail Statutory Pension Scheme (RMSPS). This is the scheme that has responsibility for members’ benefits built up to March 2012. As the DBCBS is a transitional arrangement, with these rule changes, we expect most members would be able to take their DBCBS lump sum entirely tax-free.

If Government does not agree to make the RMSPS rule changes, the DBCBS will still operate. However, some members would be able to take less of their DBCBS benefit entirely tax-free.

The way the scheme is designed means that members with pre 31 March 2018 benefits in the RMPP or the RMSPS would not need to give up some, or even any, of their pension built up to March 2018 to get the same lump sum. So members would build up a lump sum for service after 31 March 2018, but the outcome is more pension. Members would also have the option to:

  • take the DBCBS lump sum as taxable cash, where the lump sum is above the 25% tax-free limit
  • transfer it to an external pension arrangement for drawdown
  • or purchase an annuity

What do RMPP members need to do if they would like to join the RMDCP?

If RMPP members would prefer to opt out of the DBCBS and join the RMDCP, they should complete the ‘Joining RMDCP’ form enclosed in the booklet which landed at members’ home addresses from 28 February 2018. They can also download the ‘Joining RMDCP’ form here www.myroyalmail/pensions

RMPP members can still opt to join the RMDCP at any time. Members whose forms were returned by 19 March 2018 started building up benefits in the RMDCP on 1 April 2018. Members can still return their forms after this date, and would leave the DBCBS to join the RMDCP from the next available payroll date after their form is received.

Please note that by doing this, RMPP members are leaving the RMPP and their benefits will be calculated accordingly (see page 13 of the booklet). In particular, you should note that from the date of opting out your benefits built up to 31 March 2018 will increase in line with CPI up to 5% a year instead of RPI.

RMPP members, who wish to opt out of the DBCBS, are advised to seek independent financial advice to ensure that this is the RMDCP is the best option for them. Neither the Company, nor the Pension Review Helpline nor the Trustee, can provide financial advice. 

When can RMDCP members opt to join the RMPP and build up DBCBS benefits?

RMDCP members with more than 5 years’ service with the Company (including 4 years continuous service at the standard contribution level) can choose to join the RMPP and build up DBCBS benefits at any time from 1 April 2018.

If they would like to start building up benefits in the DBCBS, they will need to return the ‘Joining the DBCBS’ form, enclosed with their booklet. They can also download a copy of the form at  www.myroyalmail/pensions. Members whose forms were returned by 19 March 2018 started building up DBCBS benefits on 1 April 2018. 

Members can still return this form after this date. They will continue building up benefits in the RMDCP from 1 April 2018 and will join the DBCBS from the next available payroll date after their form is received.

I am an RMDCP member, but I do not know whether I am eligible to build up DBCBS benefits. What do I do?

RMDCP members with more than 5 years’ service with the Company (including 4 years’ continuous service at the standard level of contribution in the RMDCP) can choose to join the RMPP to build up DBCBS benefits.

The Company will write to you to let you know when you are eligible to build up DBCBS benefits.

How much are DBCBS contributions?

The Company contributes 15.6% of DBCBS pensionable pay to the scheme. Of this, 13.6% goes towards the member’s guaranteed lump sum. The remaining 2% of the Company’s contribution goes to other member benefits including death-in-service and ill-health benefits (which are provided outside the scheme).

The member contributes 6% of DBCBS pensionable pay to the scheme. This will also go to the guaranteed lump sum.

How much does a typical member contribute to the DBCBS scheme?

RMPP members:

Please see page 12 of the RMPP booklet (sent to RMPP members’ home addresses in February 2018), which can be found here www.myroyalmail/pensions for typical Section B and Section C members’ contributions whose pensionable pay ranges from £20,000 - £40,000.

For example:

  • A typical Section B member earning £25,000 pensionable pay, will contribute £29 a week (or £125 a month) to the guaranteed lump sum while the Company will contribute £65 a week (or £283 a month). 
  • A typical Section C member earning £25,000 pensionable pay, will contribute £25 a week (or £106 a year) to the guaranteed lump sum while the Company will contribute £56 a week (or £241 a month).

For RMDCP members with more than 5 years’ service with the Company (including 4 years’ continuous service at the standard contribution level in the RMDCP):

Please see page 19 of the RMDCP booklet (which the Company sent respectively to RMDCP members’ home addresses in February 2018, which can be found here [link]), for typical members’ contributions whose pensionable pay ranges from £20,000 - £40,000.

For example:

  • A typical RMDCP member who, opts to build up DBCBS benefits and is earning £25,000 pensionable pay, will contribute £25 a week (or £106 a year) to the guaranteed lump sum while the Company will contribute £56 a week (or £241 a month).

I am an RMPP member and am currently making Additional Voluntary Contributions (AVCs) to RMPP. Does this change with DBCBS?

There is no change to Bonusplan or Flexiplan arrangements. Whatever arrangements you have set up in these respect will continue.

However, if you want to pay more than 6% of DBCBS pensionable pay, you can increase your AVCs to the RMPP’s Bonusplan or Flexiplan arrangements. If you would like to do this, please call the Pensions Helpline on 0114 241 4545 or email pensions.additional.benefits@royalmail.com.

Contributions will cease to Addplan on 31 March 2018.

I am an RMDCP member and am currently making Additional Voluntary Contributions (AVCs) to RMDCP. I want to join the RMPP to build up DBCBS benefits. Will these AVCs continue when I join the RMPP?

No. The DBCBS is a separate scheme and the AVCs you are making to the RMDCP will cease. If you would like to make AVCs, please contact the Pensions Helpline on 0114 241 4545 or email pensions.additional.benefits@royalmail.com

I am an RMDCP member (with more than 5 years’ service with the Company, including 4 years’ continuous services at the standard contribution level in the RMDCP) and want to join the RMPP to build up DBCBS benefits. Will I be able to transfer my RMDCP retirement account to the DBCBS?

No. RMDCP members will not be able to transfer their RMDCP retirement account to the DBCBS. RMDCP and DBCBS benefits will have to be taken separately.

What is the difference between the DBCBS and the improved RMDCP, and how should members choose which one to join?

RMDCP and DBCBS benefits work in different ways. The booklets we sent to RMPP and RMDCP members explains more about both schemes. Members are advised to read the booklets carefully. (Please note only RMDCP members with more than 5 years’ service with the Company (including 4 years’ continuous services at the standard contribution level in the RMDCP) are eligible to join the DBCBS.)

It is important that RMPP and eligible RMDCP members do not make the decision whether to build up DBCBS or RMDPC benefits based only on contribution levels. If you are unsure about which scheme is right for you, you may wish to speak to an independent financial adviser. Neither the Company nor the Trustees can provide you with financial advice.

How do I find an independent financial adviser?

There are a number of ways to find an independent financial adviser including going to: www.unbiased.co.uk.

Who is responsible for managing investments under the DBCBS?

The Trustees are responsible for setting the investment strategy within the provisions set out in Rules and managing the scheme’s investments.

What is a standard level member of the RMDCP?

Standard level RMDCP members pay 4%, 5% or 6% of pensionable pay to the RMDCP.

How can I find out if I am a standard level member of the RMDCP?

You can find out if you are a member of the RMDCP by looking at your payslip.

Standard level RMDCP members will see the code “RMDCP” and either “4%”, “5%” or “6%” alongside their pension deduction on their payslip. (The percentage or % indicates the employee contribution level they are paying).

What improvements has the Company made to the RMDCP?

From 1 April 2018, we increased the Company contribution to the RMDCP by 1% in each tier, up to a maximum of 10%, as the summary table below shows. On top of this, the Company also pays the cost of other member benefits, including death-in-service and ill-health benefits.

From 1 April 2018, the Company moved standard level RMDCP members into the top contribution tier (10% from the Company and 6% from the member), unless members told us they did not want to be enrolled at this level. Future members of the RMDCP will also be enrolled at the top contribution tier unless they tell us they do not want to be enrolled at this level.

 

Your contribution

(paid via PSE)

Improved Company contribution

Total contribution

RMDCP members contribute at this rate unless you tell the Company you do not want to

6%

10%

16%

RMDCP members could opt to contribute at these levels

5%

9%

14%

4%

8%

12%

What is RMDCP pensionable pay?

RMDCP is your basis salary or wage (excluding allowances, overtime, bonuses or any other items) if you are employed on a full time contract.

If you are contracted to work less than full time it means:

  • Your basic salary or wage for your contractual hours, plus
  • The salary or wage that you earn for non-contractual hours worked each pay period (which is a week if you are a weekly-paid employee and a month if you are a monthly-paid employee).

Earnings for hours of work that are in excess of the number of hours normally scheduled for someone working full time in your role are not counted for the purpose of RMDCP pensionable pay.

Allowances, bonuses and other items are not counted for the purpose of RMDCP pensionable pay.

What do RMPP members need to do if they would like to join the RMDCP?

If RMPP members would prefer to opt out of the DBCBS and join the RMDCP, they should complete the ‘Joining RMDCP’ form enclosed in the booklet which landed at members’ home addresses from 28 February 2018. They can also download the ‘Joining RMDCP’ form here www.myroyalmail/pensions

RMPP members can opt to join the RMDCP at any time. Members who returned their forms by 19 March 2018 started building up benefits in the RMDCP on 1 April 2018. Members can still return the completed form after that date. Those members will have started building up DBCBS benefits in the RMPP on 1 April, but will leave the DBCBS from the next available payroll date after their form is received.

Please note that by doing this, RMPP members are leaving the RMPP and their benefits will be calculated accordingly (see page 13 of the booklet). In particular, they should note that from the date of opting out their benefits built up to 31 March 2018 will increase in line with CPI up to 5% a year instead of RPI.

RMPP members, who wish to opt out of the DBCBS, are advised to seek independent financial advice to ensure that this is the RMDCP is the best option for them. Neither the Company, nor the Pension Review Helpline nor the Trustee, can provide financial advice. 

I am an RMDCP member, with more than 5 years’ service with the Company (including 4 years’ continuous services at the standard contribution level in the RMDCP) and am currently making AVCS to RMDCP.

-          Will these AVCs continue if I opt to stay in the RMDCP?

Your AVCS continue after 1 April 2018 at the current level until you change them. To change your AVCs, please contact the Pay Services helpline on 0345 60 60 603 (pressing Option 1, then Option 1 again)

-          Will these AVCs continue if I opt to join the RMPP to build up DBCBS benefits?

No, if you opt to join the RMPP and build up DBCBS benefits, the AVCs you are making to the RMDCP will cease. If you would like to make AVCs, please contact the Pensions Helpline on 0114 241 4545 or email pensions.additional.benefits@royalmail.com

How can the Company move me to the highest RMDCP contribution tier without my permission?

If you would prefer to put less into your RMDCP retirement account and receive smaller contributions from the Company, please complete the ‘RMDCP Contribution Level’ form included with the letter and booklet sent you to members’ at their home addresses. You can also download the form here www.myroyalmail/pensions

For members who returned the form by 19 March 2018, their contribution choice will take effect from 1 April 2018. Members who return their completed form after 19 March 2018, will have their instructions applied from the next available payroll date after their form is received.

How much will I be contributing to the RMDCP when the Company moves me to the highest RMDCP contribution tier?

The examples below show the contributions that would go to the retirement account of an RMDCP member, earning between £20,000 and £40,000 a year:

 

Your contribution (6%)

Royal Mail's contribution (10%)

Total contribution (16%)

Pensionable pay1

 

Annual

 

Monthly

 

Weekly

 

Annual

 

Monthly

 

Weekly

 

Annual

 

Monthly

 

Weekly

£20,000

£1,200

£100

£23

£2,000

£167

£38

£3,200

£267

£62

£25,000

£1,500

£125

£29

£2,500

£208

£48

£4,000

£333

£77

£30,000

£1,800

£150

£35

£3,000

£250

£58

£4,800

£400

£92

£35,000

£2,100

£175

£40

£3,500

£292

£67

£5,600

£467

£107

£40,000

£2,400

£200

£46

£4,000

£333

£77

£6,400

£533

£123

On top of this, the Company also pays the cost of other member benefits, including death-in-service and ill-health benefits.

I am earning £25,000 pensionable pay and was previously contributing 4% pensionable pay to the RMDCP. How much have my contributions increased by now that I am contributing at the 6% contribution level?

This member’s contributions increased by £10 a week or £42 a month. At the same time the Company’s contribution to this member’s retirement account increased from by £5 a week or £21 a month. There is more information on sample illustrations, including with respect to tax relief, in the letters and booklets sent to RMDCP members. 

I am earning £25,000 pensionable pay and was previously contributing 5% pensionable pay to the RMDCP. How much have my contributions increased by now that I am contributing at the 6% contribution level?

This member’s contributions increased by £5 a week or £21 a month. At the same time the Company’s contribution to this member’s retirement account increased by £5 a week or £21 a month. There is more information on sample illustrations, including with respect to tax relief, in the letters and booklets sent to RMDCP members. 

I am earning £40,000 pensionable pay and was previously contributing 4% pensionable pay to the RMDCP. How much have my contributions increased by now that I am contributing at the 6% contribution level?

This member’s contributions will increase by £15 a week (or £67 a month). At the same time the Company’s contribution to this member’s retirement account will increase by £8 a week or £33 a month. There is more information on sample illustrations, including with respect to tax relief, in the letters and booklets sent to RMDCP members. 

I am earning £40,000 pensionable pay and was previously contributing 5% pensionable pay to the RMDCP. How much have my contributions increased by now that I am contributing at the 6% contribution level?

This member’s contributions increased by £8 a week (or £33 a month). At the same time the Company’s contribution to this member’s retirement account increased by £8 a week or £33 a month. There is more information on sample illustrations, including with respect to tax relief, in the letters and booklets sent to RMDCP members. 

What assumptions have been used to calculate the annual retirement income and maximum tax-free cash figures in the RMDCP consultation booklet?

The key assumptions underlying the RMDCP examples are:
• 13% (current) or 16% (improved) of pensionable pay is assumed to be paid into a member’s RMDCP fund each year;
• Pensionable pay remains unchanged (in real terms) over time;
• Investment returns are in line with the benefit illustrations provided to RMDCP members by the RMDCP Trustees, which are broadly 3% a year (above inflation) until age 55, and then reducing down until the investment returns are 1.1% a year (above inflation) at age 65.
• It’s assumed that RMDCP members will take 25% of their fund at retirement to give them the maximum tax-free cash sum. The remaining 75% is converted into a pension in line with the assumptions in the benefit illustrations provided to RMDCP members by the RMDCP Trustees.

How our pensions agreement affects colleagues who have been at Royal Mail less than a year and are therefore an interim level members of the Royal Mail Defined Contribution Plan (RMDCP)

Following our 2018 Pension Review, interim level members of the RMDCP, with less than 12 months’ service at Royal Mail, received a letter and booklet at their home addresses.

This is to help them understand what our agreement in principle could mean for them when they become a standard level member of the RMDCP. They become a standard level member after completing 12 months’ service.

What happens before members reach 12 months’ service at Royal Mail?

Before they reach one year’s service at the Company, members previously contributed 1% of pensionable pay to the RMDCP and the Company contributes 1% on their behalf.

From 1 April 2018, companies were legally required to increase these contribution rates. Interim level members with less than one year’s service now therefore automatically contribute 3% of pensionable pay and the Company contributes 2%. From April 2019, interim level members with less than one year's service will contribute 5% of pensionable pay and the Company will contribute 3%. Please note that these increases are unrelated to the Company's 2018 Pension Review.

What happens when members complete 12 months’ service?

The Company will write to members when they are eligible to become standard level members of the RMDCP. At that point, members’ contributions will increase to 6% and the Company’s contribution to 10%, the top standard level contribution tier, unless they tell us that is not what they want. Details of how to tell us if this is not what they want will be included in the letter members receive as they approach 12 months’ service.