Understanding your pension

Main content

Tax relief

The Government wants to encourage people to save for the future. So it gives you tax relief on the money you save in a pension as long as you don’t exceed:

  • the Annual Allowance which allows tax relief on a certain amount of money each year (currently £40,000)
  • the Lifetime Allowance which relates to amount of money across your whole lifetime (currently just over £1 million).

What’s the Annual Allowance?

The Government looks at a period of time called the Pension Input Period, to see how much the value of your  benefits (except for funds arising from Additional Voluntary Contributions) have increased (in excess of inflation as measured by the Consumer Prices Index).

If you paid Additional Voluntary Contributions, during the Pension Input Period, these contributions also count towards your Annual Allowance.

If you are thinking about the Annual Allowance, it’s helpful to know about:

  • Managing peaks: If you exceed the Annual Allowance in any tax year, you don’t necessarily have to miss out on tax relief. You can carry forward any unused Annual Allowance from the previous three years
  • The Pension Input Period: This is the period of time the Government used to measure your Annual Allowance.  Different members may have different Pension Input Periods. Please get in touch if you want to know more.
  • Exemptions: Benefits you build up are normally subject to the Annual Allowance – except if you die or you retire in serious ill health – this means where you have a life expectancy of less than one year.

What’s the Lifetime Allowance?

The Lifetime Allowance is what your pension benefits – from all of your different pension schemes – can be worth before you have to pay any tax charges. The Lifetime Allowance is currently just over £1 million and therefore does not affect the majority of members.


Your Benefit Illustration

It’s important that you know what to expect from your benefits. This way, you can plan ahead - and get the retirement you really want.

To keep you up to date, we regularly send you information about your benefits. Each year we send you a Benefit Illustration, which shows how your benefits are building up. Members of the RMPP stopped earning benefits on a Career Salary Defined Benefit basis on 31 March 2018. So, your Benefit Illustration this year (like last year’s) will look different from previous years – it will only show benefits that you have earned to the date of the statement. Please read your illustration for more details.

Still unsure about your benefits? We have listed answers to some of our frequently asked questions to help you understand your pension.


How your pension benefits are calculated

When calculating your pension benefits, we add up the following parts:

  • Your final salary pension: This is the pension you’ve built up to 31 March 2008. It’s based on the number of years and days you worked up to then, and your current pensionable salary.
  • Your CSDB pension: This stands for ‘Career Salary Defined Benefit’, and is the pension you’ve earned based on your service from 1 April 2008 to 31 March 2018. Each year you earned another ‘block’ of this, and the blocks are revalued over time.
  • Your Cash Balance benefit: This means the lump sum you’ve earned on or after 1 April 2018.

This gives you the total amount of pension benefits you’ll get when you retire. We’ll show you what these are worth in your Benefit Illustration.

The contribution rates – for your own contributions and those paid by your employer – could change in future.

Benefits earned to 31 March 2012 are paid from the RMSPS. However, any increase in pre 2012 benefits in excess of statutory increases, attributable to increases in pensionable pay, will be paid by the RMPP. 


How your pension increases

Once you’ve started taking your benefits, your pension will increase each year if there is inflation. The measure of inflation your benefits are linked to is called the ‘Consumer Prices Index’. 

When it increases

Your pension increases in April each year (if there is inflation in the previous September). We’ll send you a letter at the end of March to tell you how much you’ll get.

What if I’ve just started taking my benefits?

If you started taking your pension within two weeks of the start of a new Plan Year, you might not be eligible for your first yearly increase until the following Plan Year. Or, if you started taking your benefits later in the Plan Year, your first yearly increase might be lower to reflect this. 

What happens when I die?

When you die, your spouse or civil partner will get a pension. If you don’t have a spouse or civil partner and are a Section B member, we may agree to pay a pension to someone who was financially dependent on you. If we pay a pension to any of these people, their pensions are also increased each year in line with inflation.


How your pension benefits build up – and how they get paid

How your benefits build up

The Cash Balance scheme guarantees a minimum cash sum payable at your normal retirement age (which is age 65).  It also targets, but does not guarantee, discretionary increases each year that your funds remain in the Cash Balance scheme (whether as an employee member or deferred member).

You pay 6% of your pensionable pay towards your benefits.

You will build up a cash lump sum at a rate set by Royal Mail.  Currently, the rate is 19.6% of each year’s pensionable pay with further discretionary increases to the lump sum being targeted each year.

Royal Mail (not the Trustee) sets the policy regarding discretionary increases and may revise it from time.  The policy is currently to target annual increases in excess of inflation as measured by the Consumer Prices Index.

We’ll show you how your benefits are building up, in your annual Benefit Illustration.

Who pays my pension benefits?

The Pensions Service Centre pays the benefits due from the Royal Mail Pension Plan. (Capita pays any benefits due from the Royal Mail Statutory Pension Scheme.)

Could some people be in a different pension scheme?

Yes. Our original pension scheme closed to new members on 31 March 2008. So, if you started paying into a pension after this point, you will have joined the Royal Mail Defined Contribution Plan (RMDCP) instead. On 1 April 2018 the RMPP reopened.  It is only open to members of the RMDCP who have more than four years of pensionable service at the standard rate.

How your benefits get paid

Under current legislation, up to 25% (a quarter) of the total value of your benefits can be taken as a tax-free cash sum.  For the purpose of this calculation, annual pensions are multiplied by 20, and the Cash Balance fund and other lump sums are taken at face value.

Could some people be in a different pension scheme?

Yes. Our original pension scheme closed to new members on 31 March 2008. So, if you started paying into a pension after this point, you will have joined the Royal Mail Defined Contribution Plan (RMDCP) instead. On 1 April 2018 the RMPP reopened.  It is only open to members of the RMDCP who have more than four years of pensionable service at the standard rate.

How your benefits get paid

Under current legislation, up to 25% (a quarter) of the total value of your benefits can be taken as a tax-free cash sum.  For the purpose of this calculation, annual pensions are multiplied by 20, and the Cash Balance fund and other lump sums are taken at face value.