How safe is my pension?
This section covers questions about the security of members' pension benefits.
You say that pensions built up before any changes are put into effect are protected as long as Royal Mail continues as a commercial business. What would happen if Royal Mail didn't continue as a commercial business?
If a company became insolvent and its pension scheme is under-funded and there are no assets left in the company to pay all of the debts, members may not get all the benefits they have built up. The Pension Protection Fund (PPF), which was introduced by the Government in 2005, aims to provide some compensation for members of UK pension funds who are in that situation. Members of the Pension Plan would be eligible for compensation if the Pension Plan met the qualifying conditions for PPF compensation at the relevant time.
Under the PPF, compensation is paid at the following levels:
- members who have reached the scheme's normal pension age (or who are receiving a pension as a dependant or because of ill health), will get PPF compensation of 100% of their pension;
- members who are below the scheme's normal pension age, whether they are contributing or deferred members, will receive 90% of their pension, up to an overall monetary cap, currently worth around £24,400 a year at age 60.
Once the PPF starts to pay pensions, the rate at which they are increased year on year is lower than the Plan's current rate of increase.
Royal Mail, along with all other companies that offer defined benefit pension schemes, pays a levy into the PPF. All money paid to the PPF is looked after and invested by an independent board.
The Company's decision on changes to the Plan, together with the plan to transform the business, will help to protect the Company and members against this possibility.
No, the pensions being paid to existing pensioners will not be affected by the changes to the Plan. Last summer we wrote to pensioners and deferred members to confirm this.
After the Plan's normal retirement age is raised to age 65 ,you will still be able to take your pension earned before that change at age 60. The change to retirement age will only affect pension earned from the date the change is implemented (1 April 2010) The pension you have already earned, based on service and salary up to 1 April 2010, is still payable without a reduction for early payment at age 60, but the pension you build up from the date of change will be reduced by an ‘early payment factor' for each year before the new normal retirement age of 65. You will not suddenly have to work until you are 65 before being able to take any pension. You can choose to take your pre 1 April 2010 pension at age 60 without reduction while continuing to work and at the same time you will be able to earn more career salary based benefits for service after 1 April 2010, which you could take unreduced at age 65.
What happens if I want to take my pre 2010 pension at age 60, but I don't want to continue to pay towards the Plan to 65?
You have a once only option from age 60 onwards to either:
- take your entire pension (with an early retirement reduction on pension earned after 1 April 2010). You would not be able to build up further benefits in the RMPP if you did this; or
- take your pre 1 April 2010 pension (with no early retirement reduction) and defer taking your post 1 April 2010 pension until you leave service, or reach age 65, if later. If the pension is taken before age 65 there would be an early retirement reduction. You would be able to receive your pre 1 April 2010 benefits at 60 and also continue contributing and building up benefits (by reference to NRA 65) if you stayed in service after 60, but you don't have to build up extra pension benefits if you don't wish to.
Can I take the pension I have built up post-April 2010 after 60 and build up a third layer of pension before 65?
No, the changes do not offer the option to take your pre 2010 pension at 60, then take part or all of your post 2010 pension before 65 and to continue earning more pension in the RMPP for a third period. Your post 2010 pension can only be taken when you leave service (or reach age 65 if later) at one time and in its entirety, with no future build up of pension thereafter. If post 2010 pension is taken before age 65, then there would be a reduction for early payment.
Members of Sections A and B will still have a separate lump sum benefit based on three times the annual pension that they have built up to date. Similarly, members of Section C will still be able to 'commute' some of their retirement pension in exchange for a lump sum.
The calculation of your cash sum will still be done in the same way as before. Under Section C you build up pension on a 1/60th basis for each year of your pensionable service. The only change will be that for service after 1 April 2008 you will now be earning pension at a rate of 1/60th of your pensionable pay for that year revalued as explained in the Proposal booklet (rather than 1/60th of your final pensionable pay when you leave or retire). You can still exchange that pension when you retire to receive a lump sum. Please see your member's booklet for further details.
Yes, all Section C members will continue to accrue a supplement which is payable only where the individual's state pension age is higher than the normal retirement age.
The calculation of your cash sum will still be done in the same way as before. Section C members, please see the question above. Section A/B members will continue to earn a lump sum on the 3/80ths basis. The only change is that for service after 1 April 2008 you will be earning your lump sum at a rate of 3/80ths of your pensionable pay for that year revalued as explained in the Proposal booklet (rather than 3/80ths of your final pensionable pay when you leave or retire).
Yes, if you leave the business and are currently aged 50 or older. Any pension taken before age 60 will be reduced for early payment. The Government is however changing the minimum pension age to 55 in 2010.
Royal Mail's pension costs are simply too high - and are very difficult for the Company to afford. The pension problem is the biggest financial risk facing the Company and the costs mean that it would be even more difficult to compete. With the stock market so volatile, the degrees of risk we now see would also pose more threat to the security of the Plan if changes were not made.
What would happen if a member changed their hours of work before any changes were implemented and then changed them back afterwards? Would this affect their pension?
The effect of changing hours of work after the changes will be implemented would be the same as it now. Your pension would be calculated in the same way as for full-time employees, except that:
- your pensionable pay will be calculated using the full-time pay for your grade not your part-time pay
- your pensionable service counts as a proportion of full-time service
For example, if you work 21 hours a week for 10 years and the full-time hours for the same job are 42 hours a week, your pensionable service will be halved as:
21 hours ÷ 42 hours x 10 years = 5 years' pensionable service.
Isn't there some similarity with what is happening to our pension with the 'endowment mis-selling' over recent years?
Royal Mail is not going to make any changes to the benefits that members have built up to date. The benefits you have built up from your service and contributions to date are protected as long as Royal Mail doesn't go bust.
The changes to be implemented will affect the pension you build up in future.
It is true that the Plan has had a shortfall for some time but the Company was able to meet the cost of future pensions and the shortfall payments. The increase in life expectancy, the lower expected return on investments in the future and the legal changes to pension funding means that the Company can no longer afford to pay around 30% of pensionable pay - £850 million this year - whereas competitors are paying at most 9%. Change must be made now to protect pensions that have already been earned. The Company has already lost some big contracts because it cannot beat the competition on price and the gap needs to be narrower to protect jobs.
The Pension Plan is currently paying all of the benefits members expect to receive in retirement, and it is expected that future payments will be made. The Plan has many billions of pounds in assets and, as the Plan's assets exceed its outgoings, the Plan is able to meet benefit payments as they fall due. The changes are being made to ensure that this remains the case as more and more of us draw our pensions.
Royal Mail accepts that it needs to deal with the shortfall. That is why it has worked with the Trustee of the Plan and agreed a funding plan to remove the shortfall over 17 years at a cost of £260 million a year plus inflation from 1 April 2006. This year's payment is around £270 million, which is 10p for every £1 of pensionable pay.
In addition, Royal Mail has set up an escrow account worth £1 billion. This money enabled Royal Mail to reach agreement to the shortfall from the latest funding valuation being paid off over 17 years. Most companies and trustees aim to make good shortfalls over a considerably shorter period (for example, 10 years).
The contributions that Royal Mail is required to pay into the Plan are a significant burden, particularly when you add to it the cost the Company has to pay for the pensions that people are continuing to build up for the future. This means we all need to work together to make Royal Mail profitable so that we can make future investments to build a sustainable business and to secure our pensions.
Why can Royal Mail not be honest and do the right thing and at the very least honour the benefits already earned by its loyal employees?
The benefits you have earned to date will not be taken away. The changes will only affect future service. The pension that you have earned for years of service up to 31 March 2008 will continue to be linked to your final pensionable pay when you leave or retire. Royal Mail is committed to continuing defined benefit pension provision for existing Plan members for the future.
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