TO ALL BRANCHES WITH POSTAL MEMBERS Pension Salary Exchange (PSE) – (Important Information)

Pension Salary Exchange (PSE) – (Important Information)

 

The Government is introducing changes to UK pensions in April 2016 which will have the effect of increasing National Insurance Contributions for members of Defined Benefit Schemes including the Royal Mail Pension Plan (RMPP).

 

Please find attached a Joint Statement agreed between CWU, Unite and Royal Mail Group on the introduction of Pension Salary Exchange (PSE), designed to offset the impact of the above mentioned Government changes.  We have also attached an advance copy of a letter we are sending to members’ home addresses this week explaining Pensions Salary Exchange.

 

Background

 

Members of the Royal Mail Pension Plan (RMPP) are currently contracted out of the state second pension, which means that RMPP members and the company pay reduced National Insurance Contributions (NICs) on the relevant earnings.  In April 2016 the Government is introducing a new single tier state pension and ending contracting out for approved Defined Benefit Pension Schemes.  This will mean that from April 2016 members of RMPP will face an increase in their level of National Insurance Contribution. 

 

The union has been in discussion with Royal Mailthrough the pension policy committee (PPC) established as part of the Agenda for Growth Agreement, on a change to the way pension contributions are made which will reduce the impact of the increase in NICs for both RMPP members and the employer. 

 

How Pension Salary Exchange works

 

PSE will change the way pension contributions are made for members of the RMPP and the Royal Mail Defined Contribution Plan (RMDCP).  Members will no longer make a direct contribution to the pension scheme – instead their pay will be reduced by the amount of their pension contribution and the employer’s contribution to the pension scheme will increase by the same amount: 

PSE will have no effect on pension benefits or anything pay related (such as death in service payments). Pre exchange pay will be known as “basic weekly or monthly pay”. Pension accrual will be based on this amount, as will future pay rises, pay related allowances and overtime payments (where overtime is a multiplier of hourly rates).

 

About 86% of Defined Benefits schemes now operate on a similar basis.

 

Affect for Pension Plan Members

 

Changes to National Insurance Contributions take effect in April 2016 but the intention is to introduce PSE in late summer this year, before the NIC changes take place.  The immediate effect will be to increase take home pay for both RMPP and RMDCP members.  After April 2016, when the full rate of NICs become payable for members of the RMPP, PSE will reduce the effect of the increase in NICs for RMPP members. RMDCP members will continue to enjoy an increase in take home pay after April 2016. 

 

Savings for members of different schemes 

 

The examples below have been prepared by the union’s pension advisors First Actuarial and are based on before tax earnings of £24,000 a year.

 

Scheme / Member	Annual Saving
RMPP Section A/B​	£156
RMPP Section C​	£132
RMDCP 4% Contribution	£120
RMDCP 5% Contribution	£144
RMDCP 6% Contribution	£168

 

The above example shows the immediate savings. As a result of Government changes which will increase National Insurance contributions for RMPP members from April 2016, an RMPP Section B member earning £20,000 a year before tax is projected to have to pay additional level of NIC of £199 a year – introduction of PSE would reduce this to £55. A Section B member earning £25,000 a year before tax would face an increase of £269 a year in NICs which would be reduced to £89.

 

Will PSE be automatic for everyone?

 

PSE will work on an opt out basis – anyone not wanting to change the way in which pension contributions are made will be able to choose to opt out before the scheme begins or at any time thereafter. 

 

Scheme members earning under £10,000 a year basic pay will not be eligible for PSE – this is to ensure that no one will lose out in terms of entitlement to certain income related benefits orthat pay after salary exchange falls below minimum wage. Royal Mail and CWU are continuing to discuss how this exemption would work in detail (some members might have a basic pay of less than £10,000 a year but their regular total earnings level might be significantly higher). Both parties would in principle wish to extend the savings from PSE to as many pension plan members as possible but at the same time want to ensure that appropriate safeguards are in place. 

 

Any member who is not eligible, or who opts out, will continue to pay contributions as they do now. 

 

Introduction of PSE

PSE will be introduced in late summer this year. Royal Mail is placing an insert in the Courier which is due out this week.  Both the company and the union are planning further communications closer to the launch date.  PSE is being introduced in Royal Mail Group.  The union will be holding discussions with other companies employing members of the Royal Mail Pension Plan with a view to extending these arrangements.

 

Summary

 

The introduction of Pension Salary Exchange is designed to offset the impact of unavoidable Government changes to UK pensions in April 2016, which will mean higher National Insurance Contributions for Employees and the Employer from April 2016.  There is no adverse impact from Pension Salary Exchange on the individual pension benefits and entitlements of CWU members.  There is no adverse impact from Pension Salary Exchange on any element of pay.

 

Please ensure the content of this LTB is circulated immediately to all CWU reps and our members in the workplace.  Any enquiries on the above LTBshould be addressed to the DGS (P) Department.  

 

Yours sincerely

​
Dave Ward​​​Ray Ellis

Deputy General Secretary (P)​Assistant Secretary