Choosing between RMDCP and the Cash Balance Scheme
If you’ve been a member of the RMDCP for five years – and have saved 4%, 5%, or 6% for the last four – you have a choice.
You can carry on saving into the RMDCP or you can start saving into the Cash Balance Scheme instead. The choice you make could have a big effect on how much money you have in your pension pot when you retire.
You get more from Royal Mail in the Cash Balance Scheme
In the Cash Balance Scheme, you save 6% of pensionable pay and Royal Mail add 13.6%.
In the RMDCP, if you save 6%, Royal Mail add 10%.
The Cash Balance Scheme is a Defined Benefit scheme. As long as you don’t take the money in your pot until you’re 65, it guarantees that you’ll get all the money that you and Royal Mail have paid into it – no matter what happens to investments. Every year, you might get a bonus added to your pot too, which you’d also be guaranteed to get.
Defined Contribution schemes, like the RMDCP, don’t give you these guarantees – the money you get depends on how your investments perform.
Read the video transcript
You’re saving into the Royal Mail Defined Contribution Plan – known as the “DC Plan”.
You’re building up a pot of money you can use anytime after you’re 55
Once you’ve been a member of the DC Plan for five years – and have saved at the standard amount for the last four – you have a choice – which could affect how much money you have in your pension pot when you retire.
You can carry on saving into the DC Plan… or you can start saving into the Royal Mail Cash Balance Scheme instead.
Which is best?
Well, the Cash Balance Scheme is likely to be the best choice. There are two reasons for this. Firstly, for nearly everyone, it means more money going into your pension pot.
You save 6% of your pensionable pay, Royal Mail puts in 13.6% In the DC Plan, if you save 6%, Royal Mail put in 10%
Although the two plans work out pensionable pay a bit differently… for everyone earning more than about £10 an hour, the cash balance scheme means more money going into your pot.
Secondly, The Cash Balance Scheme gives you more security.
As long as you don’t take the money in your pot until you’re 65, the Scheme guarantees you’ll get back all the money that you and Royal Mail have put in – no matter what happens to investments. Each April, you might get a bonus added to your pot. If you do, that’s guaranteed too.
But the Cash Balance scheme might not be right for everyone.
That’s because the DC Plan gives you more flexibility about how much you save and more choice about how your money is invested.
In the Cash Balance Scheme, you have to save 6% of your pensionable pay. In the DC Plan, you can choose to save 4, 5 or 6%, but if you save less than 6% Royal Mail will put in less too. Both plans invest your money to give it a chance to grow.
But while neither plan can guarantee it will grow, the DC Plan can give it a chance to grow by a bigger amount than the Cash Balance Scheme.
However, that would mean taking more risk with it. The risk is that it could go down in value.
So, how do you choose which plan is right for you?
First have a look at this letter. You can download a copy from this website. It asks you some questions which will help you choose what’s right for you.
And show you how saving into the schemes affects your take home pay.
You could then have a look at the booklets about the scheme – they’re on the Royal Mail website. If you choose to start saving into the Cash Balance Scheme, complete and return the ‘Joining the Defined Benefit Cash Balance Scheme’ form. You can download one of these from this website too.
If you choose to carry on saving in the DC Plan, and want to save 6% of your pensionable pay, you don’t need to do anything at all.
But if you want to save less than 6%. – which means getting less from Royal Mail too – complete and return an ‘RMDCP Contribution Level’ form . Again, you can download one from this website.
Remember, if you don’t choose, you’ll carry on saving in the DC Plan. You’ll automatically start saving 6% and Royal Mail will add 10%.