Your guide to Royal Mail pension salary exchange

Transcription

1 Your guide to Royal Mail pension salary exchange

2 Contents Introduction to PSE What do I need to know? PSE - a step-bystep guide Payslip examples: before and after PSE launches Your take-home pay What do I need to consider? We and the pension trustees cannot give you financial or pensions advice. If you need financial or pensions advice, you should contact an independent financial advisor. Terms in bold are defined in the jargon buster Frequently asked questions Jargon buster More information 2 3

3 Introduction to PSE At the start of August 2015 we will be introducing pension salary exchange, or PSE. A number of large companies whose employees are based in the UK have introduced PSE. We would like to offer you the same opportunity. Both CWU and Unite/CMA support the introduction of PSE. We will seek HMRC s agreement for PSE when it launches. What is PSE? l PSE is a way for eligible employees who pay National Insurance contributions (NICs) to increase the amount of money they take home each week or month, without changing their pensionable pay, the overall level of contributions made to their pension or the Royal Mail benefits they receive. l By changing the way pension contributions are made, eligible employees who are enrolled into PSE can make a saving on their NICs. l You should receive an increase in take-home pay (also known as your net pay) equal to the NICs that you would otherwise have made on your pension contribution. l As a result of launching PSE we, Royal Mail, will also pay lower NICs. If you are a member of the Royal Mail Pension Plan (RMPP) or the Royal Mail Defined Contribution Plan (RMDCP), you will be automatically enrolled and take part in PSE from the launch date, as long as you meet the following conditions. Your pay after PSE (post-pse pay) is over the PSE participation limit (which is currently 10,000 a year, around 192 a week if you are paid weekly or around 833 a month if you are paid monthly). The PSE adjustment and any other salary-exchange arrangements that you may have, for example childcare vouchers, do not reduce your post-pse pay below the National Minimum Wage or the PSE participation limit. You are not on unpaid leave, for example a career break or seconded to another employer and paid on another payroll system. You continue to be paid from the UK. Employees of GLS and employees of our other subsidiaries and joint ventures are not eligible to take part in PSE. More information In the following pages, we explain more about PSE, how it works and the potential advantages of taking part. If you have questions after you have read this guide, you can contact us using the details on the back page. We will automatically enrol you into PSE if you meet the conditions shown here, unless you tell us you want to opt out. By doing nothing, you are agreeing to give up a portion of your basic pay that is equal to the amount you normally contribute to your pension plan. Instead, we pay an increased employer contribution, so the amount paid into your pension stays the same. If you pay NICs and take part in PSE, you can increase your take-home pay. 4 5

4 What do I need to know? l Under PSE, you stop making a personal contribution to your pension. l Instead, we pay an amount into your pension equal to the contribution you would have paid. l Your basic pay is reduced by the amount you would have paid as a contribution. This is called the PSE adjustment. l If you pay NICs, you will now pay less in NICs. So, you will have more take-home pay. Your pensionable pay stays the same, and the same amount is contributed to your Royal Mail pension. We also make sure that any other benefits we provide, such as pay reviews, overtime, bonuses and sick pay are not affected by PSE. Opting out You do not have to take part in PSE. If you choose to opt out, you will continue to pay contributions to your pension in the same way as you do now but you will miss out on the opportunity to make NICs savings on your pension contributions. For more details on opting out, please see page 20 of this guide. PSE protections We have designed PSE so that as many colleagues can benefit as possible. However, because of how certain legislation works, some employees could be financially disadvantaged if they take part. To make sure this doesn t happen, some colleagues will continue to pay pension contributions as they do now. These are employees: l whose post-pse pay will be below the PSE participation limit (currently 10,000 a year, around 192 a week if you are paid weekly or around 833 a month if you are paid monthly); l who would be brought below the National Minimum Wage by taking part in PSE and any other salary-exchange arrangements, for example childcare vouchers; l on Statutory Sick Pay with no extra payments from us; or l on unpaid leave, for example, a career break or seconded to another employer and paid on another payroll system. For information about how PSE works if you are on maternity, paternity, adoption, additional paternity or shared parental leave, turn to page 19. Level of saving you could make The table below gives an idea of the level of savings you could make, based on expected NICs rates, if you are making a pension contribution of 6% of your pensionable pay and you are currently a member of the RMDCP. The calculations in the table assume that NICs would normally be paid at 12%, up to the upper earnings limit of 42,380 (before deductions), and 2% above the upper earnings limit. Please see page 14 for full details. Pensionable pay 10, , , , , , Yearly increase in take-home pay (see note) Note: These are examples only and don t take your personal circumstances into account. 6 7

5 PSE - A step-by-step guide We pay an increased employer contribution so that the amount paid into your pension is the same The four steps to PSE Step 1 Step 2 Step 3 Step 4 If you are eligible, you are automatically enrolled into PSE, unless you tell us you want to opt out. When PSE launches, you no longer make a personal contribution to your Royal Mail pension. This means contributions coming out of your weekly or monthly basic pay stop. Your basic weekly or monthly pay is reduced by the amount equal to the contribution you currently make to your Royal Mail pension. This includes any Additional Voluntary Contributions (AVCs) you may be paying (see page 22). We pay an increased employer contribution so that the amount paid into your pension is the same as before. The payments column of your payslip starts showing your basic pay and the PSE adjustment (see example payslips on pages 10-13). Because your basic pay has been reduced, you start paying lower NICs, if you pay NICs. Your take-home pay increases by the same amount as any NICs saving you make. Because your basic pay has been reduced, you start paying lower NICs. Your take-home pay will increase If you are paid 1 monthly, you will be enrolled and start taking part in PSE from 1 August If you are paid 3 weekly, you will be enrolled and start taking part in PSE from 3 August You can find examples of what your payslip may look like before and after PSE launches on page 10 of this guide and online at myroyalmail.com/ pensions. 8 9

6 Payslip example 1 As the majority of our employees are paid weekly, we have included weekly payslip examples here. If you are paid monthly, you can find further examples of what your payslip may look like by visiting myroyalmail.com/pensions. The examples below show you how a payslip might appear before and after you take part in PSE. These are only examples to give you an idea. In example 1, we have shown an employee who is paid weekly and who earns a basic pay of a week and has worked three hours overtime. They are a member of the RMDCP who is contributing 4% each week. Before taking part in PSE After taking part in PSE You make a personal contribution to your pension. You start paying lower NICs. Here, NICs have reduced by You no longer make a personal contribution to your pension. We pay an increased employer contribution so that the same total amount is paid into your pension. Your takehome pay increases by the same amount you save in NICs, which is All amounts shown are based on figures for tax and NICs. These may change in the future in line with changes in the law. The tax paid and NICs figures used above are examples only. The exact amount of income tax and NICs you pay depends on your circumstances at the time and in the tax year as a whole, including whether you are paid weekly or monthly. We have the right to withdraw, suspend or amend PSE or any of our pension arrangements at any time. In this example, the employee would see their take-home pay increase by almost 99 a year

7 Payslip example 2 As the majority of our employees are paid weekly, we have included weekly payslip examples here. If you are paid monthly, you can find further examples of what your payslip may look like by visiting myroyalmail.com/pensions. The examples below show you how a payslip might appear before and after you take part in PSE. These are only examples to give you an idea. In example 2, we have shown an employee who is paid weekly and who earns a basic pay of a week. They are a member of the RMPP. Before taking part in PSE After taking part in PSE You make a personal contribution to your pension. You start paying lower NICs. Here, NICs have reduced by You no longer make a personal contribution to your pension. We pay an increased employer contribution so that the same total amount is paid into your pension. Your takehome pay increases by the same amount you save in NICs, which is All amounts shown are based on figures for tax and NICs. These may change in the future in line with changes in the law. The tax paid and NICs figures used above are examples only. The exact amount of income tax and NICs you pay depends on your circumstances at the time and in the tax year as a whole, including whether you are paid weekly or monthly. We have the right to withdraw, suspend or amend PSE or any of our pension arrangements at any time. In this example, the employee would see their take-home pay increase by 120 a year

8 Your take-home pay If you take part in PSE, the increase in your take-home pay depends on a number of factors: l Your basic pay, plus any other earnings such as overtime, allowances and so on, before deductions l Whether you pay NICs l Your National Insurance band l How much you pay in pension contributions Under PSE your NICs will reduce as a result of the PSE adjustment, meaning your take-home pay increases. For , NICs are expected to be 12% on earnings (your basic pay plus any other earnings such as overtime, allowances and so on) between 155 and 815 a week. NICs are expected to be 2% on earnings over 815 a week. This means the overwhelming majority of RMPP members (from April 2016) and RMDCP members should save NICs of 12% of the PSE adjustment as a result of PSE. Upper earnings limit Because of the way NICs are structured, the level of savings for someone earning more than the upper earnings limit of 42,380 a year (before deductions) is lower. This is because they are only paying 2% NICs from those earnings. This compares with 12% for people with lower earnings. Level of saving you could make The table below gives an idea of the level of savings you could make, based on expected NICs rates, if you are making a pension contribution of 6% of your pensionable pay and you are currently a member of the RMDCP. The calculations in the table assume that NICs would normally be paid at 12%, up to the upper earnings limit of 42,380 (before deductions), and 2% above the upper earnings limit. Pensionable pay 10, , , , , , Yearly increase in take-home pay (see note) Note: These are examples for an RMDCP member only and don t take your personal circumstances into account. Members of the RMPP are expected to receive the same increase from April 2016 when contracting-out ends, assuming there is no change in expected NICs rates. The information set out here is just a summary of the UK NICs position, which may change and may be affected by personal circumstances. Current RMPP NICs savings Members of the RMPP (who are contractedout) should currently make a NICs saving of 10.6% of the PSE adjustment, increasing to 12% from April 2016, when contracting-out ends. For more information on contracting-out, see page 19. We (Royal Mail) and the pension trustees cannot provide financial or pensions advice. If you want financial or pensions advice, please speak to a financial advisor or visit

9 What do I need to consider? State Pension The effect of PSE on your State Pension depends on whether you are contracted in or out of the State Second Pension. If you are a member of the RMPP, you are contracted-out and so PSE has no effect on your State Second Pension. If you are a member of the RMDCP, there may be a reduction in the State Second Pension you build up for the period August 2015, when you join PSE, to April In April 2016, the new single-tier State Pension will be introduced. Your entitlement to the State Second Pension depends on your earnings in each year of your working life. If you earn less than 15,300 or more than 40,040 a year (after the PSE adjustment is made), PSE should have no effect on your State Second Pension. If you earn between 15,300 and 40,040 a year (after the PSE adjustment is made), there may be a reduction to your State Second Pension when you reach State Pension age, because the earnings on which you pay NICs has been reduced as a result of PSE. This reduction in State Second Pension is around 15p a year for each 100 of your PSE adjustment. Example 1 RMDCP member earning 20,000 a year and who is contributing 6%. Here, if they take part in PSE, the approximate reduction in State Second Pension when they reach their State Pension age could be around 1.80 a year. However, the increase in takehome pay could be 96 for the eight-month period from August 2015 to April Example 2 RMDCP member earning 30,000 a year and who is contributing 6%. Here, if they take part in PSE, the approximate reduction in State Second Pension when they reach their State Pension age could be around 2.70 a year. However, the increase in takehome pay could be 144 for the eight-month period from August 2015 to April You should consider your own position. If you think that you will not benefit from PSE, you may want to consider opting out until April 2016 when the new single-tier State Pension is introduced. You can opt in to PSE at any time. Any reduction in your State Second Pension should be less than the amount you save through PSE. Please see the examples on this page. Student loans If you are repaying a student loan, your student loan repayments may reduce slightly as a result of PSE. This is because your repayments are worked out using your post-pse pay. This means your repayment period may be extended. If you need more information on PSE, please visit myroyalmail.com/ pensions or contact Royal Mail HR Services on

10 Frequently asked questions If you have any more questions after reading these, please see the frequently asked questions section on myroyalmail.com/pensions or contact Royal Mail HR Services on You can find full details on the back page of this guide. QDo I need to apply to take part in PSE? A No. As long as you are eligible on the launch date (see page 4 for eligibility details), you will be treated as agreeing to take part in PSE and you will be automatically enrolled. You may opt out if you want. QHow much will I save by taking part in PSE? A The amount in NICs you save depends on your basic pay plus any other earnings such as overtime, allowances, and so on, before deductions; whether you pay NICs; your National Insurance band; and how much you pay in pension contributions. For more information, please see page 14. QWill there be any change to my terms and conditions of employment? A Yes. Taking part in PSE is a change to your contractual terms and conditions because your entitlement to basic pay is reduced by the amount you normally contribute to your pension plan. Instead, we pay an increased employer contribution, so the amount paid into your pension stays the same. Your terms and conditions are not being changed in any other way by taking part in PSE. If you do not opt out of PSE, you will be treated as having accepted this change to your contractual terms which will take effect from the date you join PSE. QWill PSE affect any other Royal Mail benefits I receive? A We work out any future pay increases and all other pay-related benefits such as overtime, bonuses and sick pay on your basic pay before the PSE adjustment is made to make sure that these are not affected. Your pensionable pay is also not affected. If you currently receive other benefits that provide a NICs saving, for example childcare vouchers, and your post- PSE pay falls below the PSE participation limit, the first benefit you would be excluded from would be PSE. You would then pay pension contributions as you do now. QWill PSE affect reference letters for credit? A Credit reference letters (for mortgages, for example) should not be affected. We include details of your basic pay and other earnings such as overtime, bonus and sick pay, as well as the PSE adjustment, in such letters to highlight that you are taking part in PSE. This is the approach used by other organisations that operate PSE, which has been around for more than 10 years. Because of this, lenders, including mortgage lenders, are very familiar with the way PSE works. QWhat happens if I go on maternity, paternity, adoption, additional paternity or shared parental leave? A You continue to take part in PSE throughout paid periods of this kind of leave. The PSE adjustment continues to be applied as long as you have enough non-statutory pay available, for example if we are paying you additional maternity pay above the statutory minimum. We maintain our total pension contributions throughout paid periods of this kind of leave. There may be a change in the level of statutory pay due to you as a result of the way these payments are worked out. However, our aim is that you are no worse off as a result of PSE. QI m currently on long-term sickness absence. Can I still take part in PSE? A Our current policy is that you continue to take part in PSE in periods of long-term sickness absence as long as you have enough non-statutory pay available for example if we are paying you additional sickness absence pay above the statutory minimum and your pay does not go below the PSE participation limit. If it does, you would come out of PSE and your pension contributions would be paid as they are currently. You would automatically take part in PSE when you are again receiving enough non-statutory pay and your post-pse pay is above the PSE participation limit. QAs an RMPP member, can you tell me more about the end of contracting-out and how PSE will help? A The Government has announced that the new singletier State Pension will start from April This means contracting-out for pension schemes like the RMPP will no longer apply at this point. This means that employees who pay NICs and are currently contracted-out of the State Second Pension (and their employers) will QWill PSE affect any benefits I get from the State? A Entitlement to certain state benefits, such as Statutory Sick Pay, Incapacity Benefit and Jobseeker s Allowance are based on the amount of NICs that have been paid. So, for some lower-paid employees, PSE could affect certain state benefits as your pay is reduced by the PSE adjustment and so the NICs you pay are lower. For this reason, we have set a PSE participation limit. This is currently 10,000 a year (around 192 a week if you are paid weekly or around 833 a month if you are paid monthly). We will regularly review the PSE participation limit and we have the right to change it without notice at any time. So, if taking part in PSE would mean your post-pse pay falls below the PSE participation limit you would make pay higher NICs. Based on current rates, employees who are members of the RMPP will pay an extra 1.4% NICs on relevant earnings from April 2016 onwards. We will have to pay an extra 3.4% NICs on relevant earnings from April 2016 onwards. The NICs savings you make from taking part in PSE is expected to reduce some of the increase RMPP members and we will have to pay from April 2016 onwards as a result of the end of contracting-out. pension contributions as you do currently for that specific pay period, without any NICs saving. This is designed to avoid any potential loss of state benefits. For more information on how PSE operates during periods of maternity and family leave, please see above. QWhat is contracting-out and how does it affect NICs? A Contracting-out has been a feature of most large pension schemes since April 1978, including the RMPP. RMPP members are currently contracted-out of the State Second Pension. This is because the future benefits earned through the RMPP are higher than those received from the State Second Pension and the Government allows a reduction in NICs under legislation

11 As a result, if you are an RMPP member, you and we pay reduced NICs on the relevant earnings. Contracting-out is ending from April If you are a member of the RMDCP, you are not contracted-out and are already paying the higher level of NICs. Because of this, your NICs will not increase from April 2016, as a result of contracting-out ending. You can find more information on contracting-out at www. gov.uk/additional-statepension/contracting-out. QWhat happens if I want to opt out? A You do not have to take part in PSE. If you choose to opt out, you would continue to pay contributions to your pension in the same way as you do now but you would miss out on the opportunity to make NICs savings on your pension contributions. Once the deadline has passed, you can opt out of PSE once a year during a specific opt-out period. However, you may opt back into PSE at any time during the year. Please call Royal Mail HR Services on for more details. To opt out, you must contact Royal Mail HR Services by calling or by ing PSEopt-out@royalmail.com and asking for an opt-out form. This must be filled in, signed, dated and returned within 30 days of the date on which we posted this booklet to you. You can find the deadline date for returning your opt-out form at pensions. QWhat will happen if I do not fill in the opt-out form correctly? A The opt-out form asks for your contact details so that we can contact you after we have received it. Although we do not have to, we may use this form to contact you if anything is not clear or you have not filled in part of your opt-out form correctly. We will not accept your opt-out form if it is not signed and dated. You send the opt-out form at your own risk. We will not accept any responsibility if, for whatever reason, your form is late arriving with us. QWhat happens if I leave my pension plan? A If you leave your pension plan, PSE will stop automatically. If, when you leave, you have more than two years membership of your pension plan, PSE should not change anything. Normally, members who leave with less than two years membership are entitled to a refund of the value of their own contributions, less tax. However, under PSE, you will not have made contributions to the plan yourself. So, there will be no pension contributions to refund (for the period of time that you have been in PSE). In these circumstances, if you are eligible for a refund, our current policy (which may change) is to make a special payment to you, equal to your total PSE adjustments. This will be taxed and have NICs taken from it. QWill I save tax as well as NICs as a result of taking part in PSE? A Because your pension contributions aren t taxable, there is no other tax saving to be made from taking part in PSE. The saving is entirely from NICs. QWill I always be able to take part in PSE? A Our current policy is to continue to let RMPP and RMDCP members take part in PSE. However, we may choose to withdraw, suspend or amend PSE at any time. If this happens, we will tell you

12 Jargon buster Additional Voluntary Contributions (AVCs) Additional Voluntary Contributions are payments you can make into your Royal Mail pension plan on top of your normal contributions. AVCs qualify for tax relief and so can be a useful way of making extra savings for your retirement in a tax-efficient way. Certain rules limit the amounts you can contribute as AVCs. You should read the relevant documents relating to your Royal Mail pension plan if you are thinking of making AVCs. Basic weekly or monthly pay This is your basic rate of pay before deductions such as income tax and National Insurance contributions (NICs) have been made. This is also how we refer to your pay before the PSE adjustment has been made. Contracting-out Contracting-out has been a feature of most large pension schemes since April 1978, including the RMPP. People and companies were given the opportunity to pay lower NICs if they chose instead to pay into a pension arrangement that met minimum standards. RMPP members are currently contracted-out of the State Second Pension. This is because the future benefits earned through the RMPP are higher than those received from the State Second Pension and the Government allows a reduction in NICs under legislation. Contracting-out ends in April HMRC HM Revenue & Customs. This is the Government organisation which deals with tax and other issues. National Insurance contributions (NICs) You pay NICs to build up your entitlement to certain state benefits. Like income tax, National Insurance is paid out of the income you earn at rates, and up to limits, that are set by the Government. Pensionable pay Your pensionable pay stays the same if you take part in PSE. This is the amount of your pay that is used to work out pension contributions and pension benefits under the rules of the RMPP or RMDCP. Pensionable pay differs from basic pay depending on which plan you are a member of, and if you are an RMPP member, which section of the plan you are a member of. Post-PSE pay This is your pay after the PSE adjustment has been taken from your basic pay, plus any other earnings you may have had in that specific pay period, such as overtime, allowances and so on. PSE adjustment This is the amount your basic pay will be reduced by if you are taking part in PSE. It is equivalent to the amount you would have paid as a contribution into your pension plan. Pension salary exchange (PSE) PSE is a way for eligible employees who pay NICs to increase the amount of money they take home each week or month, without changing the overall level of contributions made to their pension or the Royal Mail benefits they receive. PSE participation limit So as not to financially disadvantage you, for example, by having a negative effect on certain state benefits, we have set a PSE participation limit. This is currently set at 10,000 a year (around 192 a week if you are paid weekly or around 833 a month if you are paid monthly). This means that if your post-pse pay is less than 192 a week or 833 a month, the payroll system will not include you in PSE for that specific pay period and you would pay pension contributions as you do currently, without a NICs saving. The PSE participation limit may be raised in the future. We can increase the PSE participation limit without notice, if we need to. Royal Mail Defined Contribution Plan (RMDCP) The Royal Mail Defined Contribution Plan has around 40,000 members. The RMDCP was set up for employees joining Royal Mail after 1 April 2008 and for other eligible employees who are not active members of the RMPP. Royal Mail Pension Plan (RMPP) The Royal Mail Pension Plan has around 100,000 members. All members of the RMPP joined Royal Mail before April State benefits These are benefits paid by the Government, generally based on your NICs record. They include Statutory Sick Pay, Incapacity Benefit and Jobseeker s Allowance. State Pension age Your State Pension age is the youngest age you can claim your State Pension. Your State Pension age is not the same as your retirement age. Retirement age is when you choose to retire, but you can still work after you reach your State Pension age. If you continue working after your State Pension age, you don t pay NICs. You can work out your State Pension age by visiting State Second Pension The State Second Pension was introduced on 6 April 2002 to replace SERPS (the State Earnings Related Pension Scheme). The State Second Pension and SERPS form the Additional State Pension benefits provided as well as the Basic State Pension. You can find details of State Pension benefits at uk/state-pension and www. gov.uk/additional-statepension Take-home pay or net pay This is your pay after the PSE adjustment and less deductions, including income tax and NICs

13 More information If you have any questions after reading this guide, please contact us in the following ways. Website myroyalmail.com/pensions Phone Royal Mail HR Services (or if you are calling from outside the United Kingdom). The helpline is open from 8.30am to 5pm, Monday to Friday (not including bank holidays). Post HRSC PSE, Royal Mail, 2nd Floor, Pond Street, Sheffield S98 6HR Royal Mail Defined Contribution Plan If you have any questions about the RMDCP, please use the following contact details. Website Phone Post Zurich Royal Mail Service Team PO Box 1073, Cheltenham, Gloucestershire GL50 9NN Royal Mail Pension Plan If you have any questions about the RMPP, please use the following contact details. Website Phone or Postline Post Pensions Service Centre PO Box 500, Chesterfield S49 1WX You may also find the following contacts useful. Tax credit helpline For more information about whether PSE would affect any of your tax credits, please call State Pension advice helpline For more information about your pension, visit or call This booklet is not giving you a right to benefits or to take part in a salary exchange arrangement. We have the right to withdraw, suspend or amend PSE or any Royal Mail pension arrangement at any time. Nothing in this guide should be taken as financial or pensions advice. We (Royal Mail) and the pension trustees cannot provide financial or pensions advice. If you want financial or pensions advice, please speak to a financial advisor or visit