The Royal Mail Collective Pension Plan
Please see below for the most common questions you are asking so far in the consultation:
Increases and decreases to incomes apply in the same way to all members whether they are building up benefits; they have left Royal Mail but not yet taken their benefits; or they are receiving their income in retirement. So, yes, incomes can fall during retirement.
Increases or decreases would happen once a year (it is expected that they will happen on 1 April) and the Trustees would write to you at least six weeks before this to let you know what the change will be.
Because increases are spread out over the future lifetime of the plan, even significant falls in the value of the investments wouldn’t necessarily mean that incomes will be reduced. For example, if the Plan could afford increases to incomes of 3% one year but the value of investments then fell by 20%, that might mean that a lower increase of 2% could be afforded the following year. But a decrease wouldn’t necessarily be needed. Please note that this example is illustrative in nature and has been simplified - actual Plan experience could differ.
In some circumstances, a decrease may be needed to balance the expected value of the benefits with the assets in the income section. If that happened, a decrease of up to 5% would be made on 1 April (with at least six weeks’ notice). If a decrease of more than 5% was needed, this would be spread over 2 or 3 years.
It is simplest to consider these questions separately for the income and lump sum sections.
The increases/decreases awarded in the income section depend on the performance of the assets in that section and on other factors such as how long members live. Royal Mail pays fixed contributions to this section, therefore the increases or decreases are not dependent on the performance of Royal Mail.
If Royal Mail could no longer support the Plan, it would have to close to the build-up of new benefits. However, the modelling that our advisors have done indicates that, even in this scenario, the benefits built up already would not be expected to be significantly impacted and increases/decreases would continue to be applied in the same way.
The Trustee of the Plan is likely to consider winding up the Plan once the number of members reduced over time.
Lump sum section
Similarly to the income section, the increases awarded in the lump sum section depend on the performance of the assets in that section. The main difference is that any lump sums built up and increases awarded already are guaranteed by Royal Mail. The Plan has been designed so that it is unlikely that the assets would not be enough to meet this minimum lump sum but, if this happened, Royal Mail would pay in additional contributions.
If Royal Mail was unable to make these contributions, the Plan qualifies to enter the Pension Protection Fund (PPF). If this happened, the PPF would pay members their lump sum. However, this might mean that members who had not reached Normal Pension Age would get a smaller lump sum than they have built up. The smallest amount they could get is 90% of what they have built up.
The Trustees of the Collective Pension Plan will be responsible for the Plan’s investments. They have not yet been appointed so it is too soon to provide detailed answers on investments. However, the income section of the Plan will be subject to the “charge cap” which limits the total amount of investment manager fees and other expenses so it will be a key priority of the Trustees to ensure members are getting value for money from the investment managers (and other suppliers). And certainly, for a Plan of this size, future time horizon and high-profile nature, we would envisage the future Trustees will be highly likely to embed ESG into their investment strategy.
During the negotiations in 2018, one of the key ambitions of the CWU and Royal Mail was to have one plan for all our people. The Collective Plan achieves this - Royal Mail would pay the same contributions into the same plan for everyone with at least a year’s service. We believe this is fairer. The RMDCP and the Royal Mail Pension Plan (RMPP) would therefore close.
During the negotiations in 2018, one of the key ambitions of the CWU and Royal Mail was to have one plan for all our people. The Collective Plan achieves this - Royal Mail will pay the same contributions into the same plan for everyone which we believe is fairer. A transition period would be impractical as it would be costly to maintain and, as many people do not take their benefits at their Normal Retirement Age, it would not work for everyone. It has therefore been decided that there would not be transition arrangements for people nearing retirement.
It is worth noting that members who retire after only a short period in the Collective Plan may have options other than taking a small income for life. It would be possible to transfer the benefits into another arrangement. Or, if the total value of benefits in the Collective Plan are small enough, it is likely that they could be taken as a cash lump sum. The first 25% would be tax free, the remainder would be taxed.
No – the introduction of the Collective Plan would not affect your options for how and when you take your benefits in RMPP or RMDCP. More detail is provided on page 12 of the booklet you were sent in the post.
The decision as to whether transfer values would be accepted by the new Collective plan is the responsibility of the Trustees of the Collective Plan, who have not yet been appointed. So it is too soon to say whether transfers into the Plan would be allowed. More detail would be provided in communications in the run up to the launch of the Plan.
Around three months before the launch of the Collective Plan, further communications would be sent to employees to explain how they can join the Plan if they are not eligible to be automatically enrolled into it (you can find out if you will join automatically on page 13 of the booklet you were sent in the post).
Of course, you can also choose to join the RMDCP any time before then. If you wish to do so, you need to complete a "Choices form" which can be obtained from the Scottish Widows Royal Mail Service Team at:
• Telephone: 0800 092 8263; or
If you are currently making Additional Voluntary Contributions (AVCs) into RMPP or RMDCP, these would automatically stop when the Collective Plan launches. They would remain invested as they are now until you take your benefits or choose to transfer them out.
You would be written to around three months before the new Collective plan starts to give you further information on the new AVC arrangements and how you can make AVCs into the Collective Plan. You would have two options – the Lump Sum Booster and defined contribution AVCs.
More detail about AVCs can be found on pages 11 and 12 of the booklet you received in the post.
When you retire early, your income is reduced to reflect the fact that is will be paid for longer. And your lump sum is reduced to reflect the fact that it will not remain invested for as long. The early retirement factors used to work out the reductions in the Collective Plan would be produced by the future Plan Actuary and would be calculated on a “central basis” which means the total value of your benefits is expected to be the same whether you retire at your Normal Retirement Age or early.
No – Normal Retirement Ages in RMPP and RMDCP are not changing. More detail can be found on page 11 of the booklet you received in the post.