6 December 2019
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Defined Benefit Cash Balance Scheme (DBCBS) FAQs

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.