Benefits on ill health
and early retirement
For employee members – Section C
Normally, the benefits you build up will be paid to you when you reach Normal
Retiring Age (NRA). However, there are some circumstances where you may
take your benefits early as explained in this guide.
July 2012
Introduction
The Postal Services Act 2011 (the Act) introduced powers for the Government to
take over responsibility for the majority of the assets and liabilities of the RMPP.
The Government has established a new pension scheme (the RMSPS) which
will be responsible for paying the benefits that members of the RMPP had
built up to the end of 31 March 2012 (the cut-off date). The RMPP will remain
responsible for all pension benefits earned by members after the cut-off date
(as well as some increases applicable to benefits earned up to the cut-off
date and all Bonusplan and Flexiplan AVC accounts). This means that only
those who were active members of the RMPP on 1 April 2012 will have any
benefit entitlement from the RMPP.
Members who were already pensioners at the cut-off date will receive their
entire pension from the new Government scheme – the RMSPS – as will those
members who had left employment with the Company or opted out of the
RMPP on or before the cut-off date but were not immediately in receipt of a
pension (deferred members).
Members who were in employment with the Company on 1 April 2012 will
receive two payments when they start to receive their pension – one from the
RMSPS in respect of pension accrued up to the end of the cut-off date and
the other from the RMPP in respect of pension accrued after the cut-off date
(as well as some increases applicable to benefits earned before the cut-off
date, as mentioned above).
The way that benefits will be allocated between the RMSPS and the RMPP is
complex but the following explains broadly how it will be achieved.
kA benefit is calculated, on the same basis as if the Act had not been passed:
kCalculating what the RMPP pays
The RMPP will pay a sum which is equal to the overall benefit described
above, less what you would have had from the RMPP if this calculation
were done as at 31 March 2012;
kCalculating what the RMSPS pays
The RMSPS pays the benefits built up to the end of the cut-off date.
These calculations are carried out by the Pensions Service Centre (PSC).
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Normally, the benefits you build up will be paid to you when you reach Normal
Retiring Age (NRA). However, there are some circumstances where you may
take your benefits early. This guide explains the benefits that you may be
entitled to in the following circumstances:
kIf the Company decides that you qualify for ill health retirement with
immediate pension; or
kIf you decide to take early payment of your benefits (and the Company
agrees to this). In this situation, you will also need to read the guide ‘Flexible
retirement options and benefits’, which can be downloaded from
www.royalmailpensionplan.co.uk or is available on request from the PSC.
You will not be eligible to receive any enhancements for early payment of
your benefits on ill health grounds if any of the following circumstances applies
to you:
kYou are no longer employed by the Company and your RMPP benefits are
preserved;
kYou have opted out of the RMPP and so are no longer contributing; or
kYou have chosen a flexible retirement option which includes payment of
your NRA 65 pension.
However, you can still apply for ill health early payment and details can be
found in the guide ‘Your options on leaving the RMPP – Section C’.
The benefits detailed in this guide only apply to members who are still employed
by the Company and contributing to the RMPP on or after 1 April 2012.
This guide is intended to be a summary of the provisions of Section C of the RMSPS
and the RMPP as they relate to your benefits on ill health and early retirement.
The RMSPS is governed by formal Rules. Responsibility for managing the
scheme rests with the Manager of the RMSPS. If there is a conflict between the
Rules and this guide (insofar as it relates to benefits payable from the RMSPS),
the Rules will prevail.
The RMPP is governed by formal legal documents known as the Trust Deed
and Rules and is managed by the Trustee. If there is a conflict between those
documents and this guide (insofar as it relates to benefits payable from the
RMPP), the Trust Deed and Rules will prevail.
This guide reflects current tax laws.
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Retirement on ill
health grounds with
immediate payment of
benefits
You will be eligible for
immediate pension benefits
if the Company retires you
on grounds of ill health.
The benefits you will receive
depend on the number of years
of Company service you have at
the date of your ill health retirement.
The ill health benefits described over the
following pages assume that you retire on
ill health grounds while still employed.
If you have fewer than five years’ Company service you will receive benefits
as follows:
kThe pension (and any pension supplement) you have built up to the date
you actually retire, calculated in the same way as for retirement at Normal
Retiring Age (see pages 5 and 6 of the ‘Guide to benefits – Section C’); or
kIf your NRA 60 pension is already in payment, it will continue to be paid. If it
is not already in payment, it will be brought into payment along with your
NRA 65 pension immediately.
If you have at least five and fewer than 10 years’ Company service you will
receive benefits as follows:
kThe pension you have built up to the date you actually retire, calculated in
the same way as for retirement at Normal Retiring Age (see pages 5 and 6
of the ‘Guide to benefits – Section C’); plus
kAn additional annual pension calculated as 1/60th of your CSDB
pensionable pay over your last 12 months’ reckonable service before your
retirement, for each year (and part year) of your additional service credit;
kIf your NRA 60 pension is already in payment, it will continue to be paid. If it
is not already in payment, it will be brought into payment along with your
NRA 65 pension immediately.
You may also be entitled to a pension supplement.
4
Your additional service credit is calculated as the higher of:
k An enhancement to double your reckonable service, or if less, the
reckonable service you could have completed up to age 65; and
k An enhancement by 75% of the reckonable service you would have
completed between the date you actually retired and age 65.
If you worked part-time your additional service credit will be calculated on
a pro-rata basis (based on your actual part-time hours worked during your
actual reckonable service).
As with retirement at Normal Retiring Age, the maximum combined pension
you can get would be that calculated using 45 years’ pensionable service.
If you have 10 or more years’ Company service you will receive benefits as
follows:
kThe pension you have built up to the date you actually retire, calculated in
the same way as for retirement at Normal Retiring Age (see pages 5 and 6
of the ‘Guide to benefits – Section C’); plus
kAn additional pension calculated as 1/60th of your CSDB pensionable pay
over your last 12 months’ reckonable service before your retirement, for
each year (and part year) of your additional service credit;
kIf your NRA 60 pension is already in payment, it will continue to be paid. If it
is not already in payment, it will be brought into payment at the same time
as your NRA 65 pension.
You may also be entitled to a pension supplement.
5
Your additional service credit, in this case, is calculated as the higher of:
Basis 1
An enhancement to increase your pensionable service up to 20 years or
an additional 6 years' reckonable service (whichever is higher), or if less,
the reckonable service you could have completed between the date you
actually retired and age 65; and
Basis 2
75% of the reckonable service you could have completed between the date
you actually retired and age 65.
If you worked part-time:
k Your additional service credit will
be calculated on a pro-rata basis
(based on your actual part-time
hours worked during your actual
reckonable service); and
k The additional pension described
above will be calculated using
the full-time equivalent of your
CSDB pensionable pay over
your last 12 months’ reckonable
service (see the ‘Guide to
benefits – Section C’ for more
details of this calculation).
As with retirement at Normal Retiring
Age, the maximum combined pension
you can get would be that calculated
using 45 years’ pensionable service.
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Basis 2
Basis 1
Example:
Steve retires on ill health grounds on 30 September 2012 at age 48. He has 18
years’ full-time Company service and 18 years’ reckonable service (of which
13½ years were earned before 1 April 2008 and 4½ years on or after 1 April
2008). This total reckonable service is enhanced in whichever of the following
ways gives Steve the better result:
a
Increase your
pensionable service
to 20 years
b
An additional 6
years' reckonable
service
c
The higher of a or b
d
The reckonable
service that
you could have
completed between
the date you retire
and age 65
e
The lower of c or d
f
75% of the reckonable
service completed
between the date you
retire and age 65
The higher of Basis 1 (e) or
Basis 2 (f)
Example
You
18 years' pensionable
service
=
___ years'
pensionable service
= ___
6
2
6
= ___
At age 48
=
17
6
75% of 17
=
12 ¾
=
6
12 ¾
At age ___
= ___
= ___
75% of ___
= ___
= ___
The higher amount in this example is therefore Basis 2, 75% of Steve’s potential
future reckonable service (to age 65). Therefore his additional reckonable
service credit is 12¾ years.
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If Steve’s actual CSDB pensionable pay over the 12 months from 1 October
2011 to 30 September 2012 is £20,000 (after taking off the Lower Earnings
Deduction), his additional pension would be:
1/60 x 12.75 x £20,000 = £4,250 a year
Steve’s additional pension would be paid on top of the benefits that he
had built up based on his actual reckonable service to 30 September 2012
including any pension supplement.
Leaving the Company on ill health grounds with a lump sum payment
If you leave the Company on ill health grounds, other than those shown
starting on page 4 (permanent incapacity), you will be entitled to a preserved
pension from the RMPP together with your pre 1 April 2012 benefits preserved
in the RMSPS. You may also receive a separate lump sum payment from the
Company (not from the RMSPS and/or the RMPP).
Please note: The ill health test used by the Company for the purposes of the
separate lump sum that might be paid outside the RMSPS and/or the RMPP is
a different test from the one that is set out in the Rules of the RMSPS, the RMPP
and this guide. Please refer to the National Ill Health Retirement Agreement
between the Company and the Unions (a copy is available from your Union or
HR department).
Early retirement by the Company
If you are retired by the Company (other than on grounds of ill health) before
age 65 with at least five years’ Company service, you may (after age 55) take
your pension immediately if the Company permits this. It will be worked out
in the same way as for retirement at Normal Retiring Age, but will be based
on your final pensionable pay and the pension blocks that you have built up
when you actually retire. Your RMSPS and RMPP pension may be reduced for
early payment, on a basis certified as reasonable by the Actuary.
If you are retired by the Company (other than on grounds of ill health) before age
65 with less than five years’ Company service, you will be entitled to a preserved
pension from the RMPP, as well as your pre 1 April 2012 benefits preserved in the
RMSPS (see page 15 of the ‘Guide to benefits – Section C’ for more details and
also the guide ‘Your options on leaving the RMPP – Section C’).
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Flexible retirement
You may be able to take some or all of your benefits whilst remaining in
Company employment. These options will be available once you reach
Minimum Pension Age (which is age 55). Note that in cases of ill health
retirement there is no minimum age for receiving your benefits.
If you are interested in flexible retirement then you can find out about the
options available to you and how your other benefits (for instance death
benefits) are affected by reading the following guides, which can be
downloaded from www.royalmailpensionplan.co.uk or are available on
request from the PSC:
kFlexible retirement options and benefits
kBenefits payable when you die – Section C
General notes on early retirement
If your pension is reduced for early payment, the actual pension you receive
will depend on a number of factors, in particular how old you are when you
take your benefits and how much of your pension (before reduction) relates
to pensionable service before and after 1 April 2010, as follows:
kYour NRA 60 pension will be paid without reduction if you take those
benefits on or after your 60th birthday;
kIf you take your NRA 60 pension before age 60, it will be reduced on
a basis (calculated by the Actuary) related to the number
of years (and part years) between the date you take it and your
60th birthday;
kYour NRA 65 pension will be paid without reduction if you take those
benefits on or after your 65th birthday;
kIf you take your NRA 65 pension before age 65,
it will be reduced on a basis (calculated by
the Actuary) related to the number
of years (and part years) between
the date you take it and your
65th birthday.
9
Depending on your State Pension age, you may also receive a pension
supplement in the period up to your State Pension age, in relation to all or
part of your pensionable service. Any pension supplement will be enhanced
in a similar way to any enhancement of your RMSPS and/or RMPP pension on
early retirement, and will be reduced (on a basis certified as reasonable by
the Actuary), where your RMSPS and/or RMPP pension is reduced on early
retirement. Note that in most cases no pension supplement will be paid until
you stop working for the Company and it will stop when you reach State
Pension age.
Are there any tax consequences?
Since April 2011, the Annual Allowance has been £50,000 and is expected to
be fixed until at least 2015/16. You can carry forward any Annual Allowance
that you have not used from the previous three tax years to the current tax year.
Any benefits built up in excess of the Annual Allowance will be taxed at your
marginal rate of income tax.
Pension savings are tested against the
Annual Allowance on retirement
unless your retirement is with HMRC’s
definition of severe ill health. Usually,
that exemption only applies if you
are unlikely to be able to work at
any time up to State Pension age.
Further details about the Annual
Allowance can be accessed
via the information page at
www.royalmailpensionplan.co.uk.
10
Glossary of terms
Actuary – An expert on pension
scheme assets and liabilities,
specialising in life expectancy and
probabilities (the likelihood of things
happening) for insurance and pension
purposes. The Actuary for the RMPP
is appointed by the Trustee and the
Actuary for the RMSPS is appointed by
the Government.
Additional Voluntary Contributions
(AVCs) – Extra contributions you can
pay to increase your RMPP benefits.
You may pay up to a total of 100%
of your taxable pay to the RMPP
should you wish, including your normal
contributions of 6% of contributory
pay. However, please be aware that
if you wish to pay significant additional
pension contributions, they may have
to be restricted to ensure that any
normal regular deductions can
still be made from your earnings.
Details of the AVC arrangements
are included in the Guide to
Additional Voluntary Contributions
which can be downloaded from
www.royalmailpensionplan.co.uk
or requested from the Pensions
Service Centre.
Company
kFor the RMG section, Royal Mail
Group or any of its associated or
subsidiary companies which are
participating in the RMPP; and
kFor the POL section, Post
Office Limited.
CSDB pensionable pay – Means
‘Career Salary Defined Benefit’
pensionable pay. This is used to
calculate the part of your benefits
that relate to your service on and
after 1 April 2008 for each Plan Year.
It is equal to your annual rate of basic
pay plus any other regular amounts
stated as pensionable in your terms
and conditions of employment during
the 12 months up to and including
each renewal date (minus the Lower
Earnings Deduction).
Final pensionable pay – This is used to
calculate your pension benefits that
relate to your service before 1 April 2008
and the lump sum benefit paid to your
dependants if you die while still working
for the Company. It is either:
kYour highest pensionable pay for
any calculation year during the
last three years of your reckonable
service, ending on your last day of
reckonable service; or, if greater
kThe highest average of your
pensionable pay in any three
consecutive tax years in the last
10 years before you leave service,
take your benefits or die.
Where final pensionable pay is
determined using a calculation year
(or tax years) other than that which
ends on your last day of reckonable
service, it will be increased to take
account of the period between the
end of the calculation year and the
last pension increase date before
leaving reckonable service.
11
If you work part-time, the pensionable
pay used to calculate your final
pensionable pay for pension purposes
(but not for the lump sum benefit paid
to your dependants if you die while still
working for the Company) will first be
adjusted to its full-time equivalent.
When calculating the lump sum
death-in-service benefit, final
pensionable pay is not reduced by
the Lower Earnings Deduction.
Ill health – Means serious physical or
mental ill health (not simply a decline
in energy or ability) such that, in the
opinion of the Company, you are
permanently incapable of:
kCarrying out your current duties;
kCarrying out such other duties as
the Company might reasonably
expect you to perform for it; and
kEngaging in employment with
any other employer of a type
which, in the opinion of the
Company, would be reasonable
and appropriate for you.
However, if you:
k
ecome entitled to a preserved
B
pension; and
kYou were in pensionable service on
31 March 2000
ill health means physical or mental
incapacity that prevents you from
following your normal occupation or
seriously impairs your earning capacity.
12
The Company’s decision as to whether
you are in ill health will be final.
Confirmation will be required from a
registered medical practitioner that you
are (and will continue to be) incapable
of carrying on your occupation
because of physical or mental
impairment. In addition, if you are under
55 when you apply for a pension on ill
health grounds, you must have ceased
carrying on your occupation.
Lower Earnings Deduction – Currently
£3,328 a year for members who work
full-time (scaled down for part-time
members by reference to hours
worked and for those members with
any non-reckonable service during a
Plan Year). If you work part-time, the
Lower Earnings Deduction is reduced
in proportion to the number of hours
you actually work (compared to
the hours that you would work if you
worked full-time).
For example:
If you work 20 hours a week, and the
full-time hours for the same job are
40 hours a week, the normal (current)
Lower Earnings Deduction of £3,328 a
year will be reduced to £3,328 x 20/40
= £1,664 a year when working out your
contributory pay.
Manager – The Secretary of State
or those to whom he has delegated
responsibility for management of
the RMSPS.
Minimum Pension Age (MPA) – The
earliest age at which you are able to
begin receiving your pension benefits
(except on ill health retirement where
there is no minimum age). The MPA
changed from age 50 to age 55 with
effect from 6 April 2010.
Normal Retiring Age (NRA) – In relation
to pensionable service before
1 April 2010, this is your 60th birthday.
In relation to pensionable service on or
after that date, it is your 65th birthday.
NRA 60 pension – Pension benefits you
earned during pensionable service prior
to 1 April 2010, where the applicable
Normal Retiring Age is 60.
NRA 65 pension – Pension benefits you
earned during pensionable service
on and from 1 April 2010, where the
applicable Normal Retiring Age is 65.
Pension block – The amount of pension
you will earn at each renewal date
for pensionable service from
1 April 2008. It is equal to 1/60th of
your CSDB pensionable pay earned
each year (or part year).
Each pension block is revalued at
the end of the following Plan Year
(on the renewal date), and thereafter
on each subsequent renewal date, for
as long as you remain in pensionable
service. It will be increased in line
with the annual increase in the Retail
Prices Index (RPI), as at the previous
September, subject to a maximum of
5% and a minimum of 0% each year.
Pension supplement – An additional
amount of pension based on
pensionable service and the Lower
Earnings Deduction. It may be paid in
addition to your RMSPS and/or RMPP
pensions but ends when you reach
State Pension age. Under the rules of
the RMSPS and the RMPP, any pension
supplement due would not be paid until
you stop working for the Company.
The pension supplement is calculated
as follows:
kFor pensionable service before
1 April 2008:
1/60th of the average Lower
Earnings Deduction over the period
during which final pensionable pay
is calculated, with an additional
pro-rata amount for part years.
kFor pensionable service on or
after 1 April 2008:
The sum of the supplement
blocks that have built up for your
pensionable service after
31 March 2008 (increased in the
same way as your pension blocks
up to the renewal date before
your last day of service). The
supplement block for each Plan
Year is calculated at the renewal
date as 1/60th of the Lower Earnings
Deduction (reduced appropriately if
you work part-time or if you had any
periods of non-reckonable service
during the Plan Year concerned).
13
The maximum combined pension
supplement permitted is a pension
which would be equal to that
calculated using a maximum of
45 years’ pensionable service.
Pensionable pay – This is used to
calculate the part of your pension
benefits for your service before
1 April 2008. It is equal to your annual
rate of basic pay, plus other amounts
stated as pensionable in your terms
and conditions of employment,
minus the average Lower Earnings
Deduction during the calculation year.
If you work part-time, the pensionable
pay in relation to a calculation
year used to calculate your final
pensionable pay for pension purposes
(but not for the lump sum benefit paid
to your dependants if you die while still
working for the Company) will first be
adjusted to its full-time equivalent.
Pensionable service – The period of
your employment that is taken into
account when working out your
pension benefits. It is the same as
reckonable service unless it has been
scaled down by reference to your
hours because you worked part-time.
The maximum pensionable service
used to calculate benefits is 45 years.
14
Preserved pension – If you leave
service (or opt out of the RMPP) before
Normal Retiring Age, you will not lose
the benefits you have built up. You
will be entitled to a preserved pension
(also called a deferred pension) which
would normally be paid from Normal
Retiring Age.
Reckonable service – Includes service
as a member, service transferred
in from other pension schemes,
and additional service bought by
Additional Voluntary Contributions
(AVCs) or by additional Company
contributions. It does not include any
periods during which you opted out of
the RMPP.
RMPP – Royal Mail Pension Plan.
RMSPS – Royal Mail Statutory
Pension Scheme.
Trustee – Royal Mail Pensions Trustees
Limited – the organisation that
manages the RMPP in accordance
with its Trust Deed and Rules.
‘We’ ‘Us’ Our’ – The Manager of the
RMSPS and/or the Trustee of the RMPP.
Get in touch
For further information about benefits on ill health and early retirement or for
more general information about the RMSPS or the RMPP, you can contact the
Pensions Service Centre (PSC) using the details below.
Pensions Service Centre
PO Box 500
CHESTERFIELD
S49 1WX
0114 241 4545 or Postline network users can call 5456 4545
[email protected]
www.royalmailpensionplan.co.uk
Please quote your full name, date of birth and either your National Insurance
number or membership number when contacting the PSC.
All booklets are also available to download from the website at
www.royalmailpensionplan.co.uk.
15
2C July 2012