Here you can find information about contributions that employees can pay into the Pension Plan.
The more you save towards your pension when you are working, the more likely it is that you will have more to live on when you retire; it's as simple as that. Remember, as well, that under current law you can make payments into pension arrangements free of income tax. However, there are a number of different ways you can put more money aside, some of which have more risk than others. For illustration purposes only, you could pay into a personal pension account with an insurance Company (a defined contribution arrangement). You decide how the contributions are invested, and when you come to retire, you can use the value of the account to boost your other retirement income (such as the pension from the Pension Plan). Members of the Pension Plan can pay Additional Voluntary Contributions (AVCs). If in doubt about any investment you should consult an independent financial advisor.
For more information about ways to boost your existing pension from the Pension Plan, look on the pensions website at www.royalmail.com/pensions or contact the Pensions Helpline on Postline 54564545 or External 0114 241 4545 or discuss with a financial advisor.
Having read the communications about funding of the Pension Plan, has increasing member contributions been considered?
Increasing member contributions is something that many other employers have decided to do as part of a package of changes to defined benefit pension schemes. However, for Royal Mail, simply increasing member contributions for the same benefit does not sufficiently reduce the risk that the Pension Plan imposes for the Company and for the future security of the Plan. We need to ensure that the continuing cost to the Company for future benefits isn't so far ahead ofwhat our competitors are paying, so that we remain competitive in our market. This cannot be achieved by just changing member contributions.
I would be willing to pay the 9% extra employee contribution to take my entire pension at 60 (without reduction) and without a change to the way my pension builds up. Why not make this option available for those who still want to retire at 60? Where did this 9% come from, anyway?
Not everyone can afford to do this - and the actual cost would be different for people of different ages.
If you want to pay extra into your pension you can do so through Additional Voluntary Contributions - AVCs. Defined benefit AVCs will be re-launched later in the year. Some members may want to work on after age 60 and to build up extra pension just by paying their normal 6% level of contribution, rather than by paying AVCs.
The actuary to the Plan, Watson Wyatt, calculated the extra 9% cost.The cost in extra contributions for each individual, however, would vary depending on their age, pensionable salary and length of service. For example, it would cost a younger person less (as an additional monthly contribution) to provide the same additional pension at age 60 than for an older person, as the younger person will have more time to contribute and will get the benefit of investment returns for longer. The 9% additional cost quoted is therefore an average across the whole of the RMPP membership.
Because of the possible changes, should I pay defined contribution Additional Voluntary Contributions (AVCs) or join AddPlan?
This has to be your decision. Remember that no one who works for Royal Mail is allowed to give you financial advice.
AddPlan makes it possible to buy additional service or Added Years in the Pension Plan by making AVCs. Whether or not you are eligible for it depends on how much service you are able to accumulate at present. A new defined benefit AVC arrangement is being recommended to the Trustee with a view to a re-launch in 2008.
Defined contribution AVCs are a money purchase arrangement, which means that you build up a fund which is then used to buy a pension at the time you come to retire. How much pension you get depends on how much you put into these AVCs, the performance of the investments you choose, the cost of buying a pension at the time you retire and the type of pension you decide to buy.
Under current legislation both of these arrangements mean that you can save for your retirement out of pay before tax is deducted. This can be attractive, but like all financial investments it has to be your decision.
Can you please advise whether my existing AVC contracts will be honoured to provide additional service at age 60 and also the implications of continuing to pay AVC's between age 60 and 65. Also why can't I pay more than 9% to Addplan?
The changes do not affect existing Addplan or AVC arrangements. Your existing Addplan contract will be honoured and will provide the extra service you have been quoted at age 60 linked to your final salary using the current definition. The current Addplan contract is to age 60 so contributions would stop at that date. You could re-start contributions to the AVC arrangements available at age 60, on the terms then available, or you could take out a new Addplan contract (at the discretion of the Trustee) after 1 April 2010 linked to age 65, or before April 2010 linked to age 60. Addplan is restricted by the Plan rules to a 9% a year maximum contribution.
Will members be able to pay additional contributions to "buy back" service where they were on unpaid leave?
Periods of unpaid absence beginning prior to 1 April 2008 can be bought on the existing additional reckonable service basis (and included in pre-April 2008 benefits). Periods of unpaid absence beginning on or after 1 April 2008 can be purchased on a "block" basis (consistent with the accrual of other Career Salary benefits).
Currently, the frozen Lower Earning Deduction figure is applied to calculate a Section C member's pensionable pay. Is the same arrangement going to apply after the changes or will the prevailing Lower Earnings Limit be applied to each year in which the career salary contribution is calculated going forward?
The current 'frozen' LED of £3,328 per year will still be deducted each year to calculate the pensionable pay for a member within Section C in the same way as before. For part timers, a pro-rata LED will be deducted based on the proportion to which part time hours bear to full time hours. It is this Royal Mail specific pensionable pay definition that will be used within the career salary pension calculation and the calculation of member contributions and benefits. There is no intention to revert to the statutory Lower Earnings Limit (currently equal to £4,524 per year) for these purposes.
No change will be made to the LED and this will be deducted from your pensionable pay, as before.
The way in which Added Years might operate after the changes have been implemented has been discussed and all Added Years agreements entered into before 1 April 2008 will buy extra pension based on final salary, not average salary, and will have an effective normal retirement age of 60. A new defined benefit AVC arrangement is being recommended to the Trustee with a view to a re-launch in 2008.
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