Pensions saving in a cost of living crisis
Hello again!
Many of us are facing a cost of living crisis – the increase in our take-home pay has not kept up with the increase in food bills and energy bills.
You may be considering temporarily reducing your pensions saving … or even opting out of the RMDCP.
Reducing your pensions saving
As a reminder, most of you are saving 6% of your pay and Royal Mail are adding 10% of pay to your pot.
You have the option to elect for one of the two alternative standard tiers:
- Tier 1 – you save 4% of your pay and Royal Mail add 8% of pay to your pot
- Tier 2 - you save 5% of your pay and Royal Mail add 9% of pay to your pot.
There is no impact on your salary-related death in service benefit … and, when Royal Mail launch the Collective Plan, you will start saving into that.
Diverting pension contributions to pay bills is not ideal – over the longer term we need to save more, not less, for retirement – but during a cost of living crisis it may be better to have an imperfect pension contribution record than a bad credit rating!
If you do decide to reduce your pensions saving, you’ll need to fill in a CHOICES FORM.
Opting out of the RMDCP
There are several long-term disadvantages if you were to elect to opt out of the RMDCP;
- You lose the salary-related death in service benefit of four times pay (six time pay if you were to leave a dependent).
- When Royal Mail launch the Collective Plan, you will not ever be eligible to join it and would not benefit from the generous contributions that Royal Mail will make to the Collective Plan.
- You would (at the relevant time) be automatically enrolled in NEST and you would save 5% of your pay but Royal Mail would only add 4% of your pay.
Summary
If you are struggling to pay the bills, you might consider it helpful to step down to a lower contribution tier. However, opting out completely is unlikely to be in your best interests.
All the best, Tim
(Tim Spriddell, Trustee Executive)