15 December 2019
myroyalmail is updated daily

PSE jargon buster

Here we look at some key terms we use in explaining pension salary exchange.

Additional Voluntary Contributions (AVCs)

Additional Voluntary Contributions are payments you can make into your Royal Mail pension plan on top of your normal contributions. AVCs qualify for tax relief and so can be a useful way of making extra savings for your retirement in a tax-efficient way. Certain rules limit the amounts you can contribute as AVCs. You should read the relevant documents relating to your Royal Mail pension plan if you are thinking of making AVCs.

Basic weekly or monthly pay

This is your basic rate of pay before deductions such as income tax and National Insurance  contributions (NICs) have been made. This is also how we refer to your pay before the PSE  adjustment has been made.

Contracting-out

Contracting-out has been a feature of most large pension schemes since April 1978, including the RMPP. People and companies were given the opportunity to pay lower NICs if they chose instead to pay into a pension arrangement that met minimum standards. RMPP members are currently contracted-out of the State Second Pension. This is because the future benefits earned through the RMPP are higher than those received from the State Second Pension and the Government allows a reduction in NICs under legislation.

Contracting-out ends in April 2016.

National Insurance contributions (NICs)

You pay NICs to build up your entitlement to certain state benefits. Like income tax, National  Insurance is paid out of the income you earn at rates, and up to limits, that are set by the Government.

Pensionable pay

Your pensionable pay stays the same if you take part in PSE. This is the amount of your pay that is used to work out pension contributions and pension benefits under the rules of the RMPP or RMDCP. Pensionable pay differs from basic pay depending on which plan you are a member of, and if you are an RMPP member, which section of the plan you are a member of.

Post-PSE pay

This is your pay after the PSE adjustment has been taken from your basic pay, plus any other earnings you may have had in that specific pay period, such as overtime, allowances and so on.

PSE adjustment

This is the amount your basic pay will be reduced by if you are taking part in PSE. It is equivalent to the amount you would have paid as a contribution into your pension plan.

Pension salary exchange (PSE)

PSE is a way for eligible employees who pay NICs to increase the amount of money they take home each week or month, without changing the overall level of contributions made to their pension or the Royal Mail benefits they receive.

PSE participation limit

So as not to financially disadvantage you, for example, by having a negative effect on certain state benefits, we have set a PSE participation limit. This is currently set at £10,000 a year (around £192 a week if you are paid weekly or around £833 a month if you are paid monthly). This means that if your post-PSE pay is less than £192 a week or £833 a month, the payroll system will not include you in PSE for that specific pay period and you would pay a personal contribution to your Royal Mail pension plan, without a NICs saving. The PSE participation limit may be raised in the future. We can increase the PSE participation limit without notice, if we need to.

State benefits

These are benefits paid by the Government, generally based on your NICs record. They include Statutory Sick Pay, Incapacity Benefit and Jobseeker’s Allowance.

State Pension age

Your State Pension age is the youngest age you can claim your State Pension. Your State Pension age is not the same as your retirement age. Retirement age is when you choose to stop working, but you can still work after you reach your State Pension age. If you continue working after your State Pension age, you don’t pay NICs. You can work out your State Pension age by visiting www.gov.uk/calculate-statepension

State Second Pension

The State Second Pension was introduced on 6 April 2002 to replace SERPS (the State Earnings Related Pension Scheme). The State Second Pension and SERPS form the Additional State Pension benefits provided as well as the Basic State Pension.

You can find details of State Pension benefits at www.gov.uk/state-pension and www.gov.uk/additional-statepension

Take-home pay or net pay

This is your pay after the PSE adjustment and less deductions, including income tax and NICs.