DB Cargo pension options

[Dan_Gleeballs]

Firstly apologies if this conversation has already been had , tried but failed to find a thread. Recently been successful with DB , and hopefully starting in April, received a lot of pension paperwork with my welcome pack, telling me I have a option of three and must choose one. This will be my first move into the railway so it’s all slightly new, only having had A standard company pension before. The options are
1) final salary DB cargo section RPS
2) career average DB section RPS
3) defined contribution private
Now from all the paperwork , they really don’t want me joining number one , and saying the costs will increase substantially for myself under new proposals, and they seem to want me in the defined contribution pension, which I believe resembles what I currently have. Anyone have any ideas, thoughts, about all this ? I have always been told that a final salary pension is good regardless of industry, and that the RPS is a good pension to be in too. However the planned cost increase scares me somewhat , as it says increase from 11.68% to 28.3% of salary, and closure of this side will be in July . All help, however little would be greatly received in helping me steered in the right direction. All the best

 

[Atishyou]

I'm no financial advisor, but as I understand it, option 1 and 2 allow payment into BRASS, which is a railway AVC (additional voluntary contribution), where extra payments, of your choosing, come off pre tax and are invested alongside your pension. Whilst I understand option 3 would allow AVCs, I don't think they would come off pre tax.

If option 1 would be increasing so much, that'd leave me with option 2.

From what I know, you can move from option 1 or 2 to option 3, out of RPS (Options 1 and 2 are DB - Defined Benefit schemes, where you know what you get at the end, whereas option 3 is just a Defined Contribution scheme, so the pension figure could rise or fall). I don't think you can move from option 3 to option 1 or 2 at a later date.

Personally, I'd go for option 2, then I'd have access to BRASS and, if so desired, I could move to option 3 at a later date.

 

[thecrofter]

Oooh that's a tough one. As with all things pension, only you can decide which is best to suit your own circumstances and advice from an Independent Financial / Pension Advisor would seem worthwhile here. Having said that and not being part of the DB Cargo scheme, as a retired member of the Network Rail Final Salary Scheme (RPS60) I can give you a steer as to how I saw things (within NR and using that as an example below) that may put some context into a not so specific reply - I'm no financial expert.

As you say, a Final Salary scheme is seen as the defacto standard. The Railway Pension Scheme (RPS) is made up of 100+ member companies that were split off from BR in 1994. How many of those still offer the Final Salary option I couldn't say but NR now only offers that option to new entrants to the scheme (now known as RPS65) after 5 years service in the Career Averaged Related Earnings (CARE) or Defined Contribution schemes with a one and only one time option to join. If you decline at that time, you will not have the option to join later should say your finances get better. The contributions are of course similar to what DB has quoted you although I'm not aware of any immediate threat of closure. I think the RMT/TSSA/ASLEF would have been on the case by now if that's so. The Final Pension payout is roughly based on 2/3 of your section pay (not necessarily your final salary due to other skullduggery around pay rise and inflation caps) for the maximum number of years (40) in the scheme. Less than that would be pro rata e.g. 20 years would pay out 1/2 of 2/3 i.e. 1/3.

The Career Average Related Earnings (CARE) scheme does what it says on the tin. It usually attracts a lower contribution rate than the RPS60/65 - someone on here should be able to give you the current rate I'm sure - probably around 7%. Bear in mind that the employer also puts in a lot less for the other schemes compared to the Final Salary which may be why DB is discouraging (frightening off?) new entrants to RPS65. Worth bearing in mid is that once in the RPS65 or CARE scheme, in theory, it should make it easier to transfer across to other railway companies who are part of the RPS should you decide to change employer but stay in the Railway.

The Defined Contribution Scheme has the lowest contribution rate and hence the lowest expectation at/on retirement. It builds up a fund at which on retirement you then purchase a pension or annuity. NR has their own DC scheme so I assume DBC's will be something similar. I believe the benefits would be akin to a basic auto-enrolement scheme elsewhere.

In the past it was possible to transfer your previous pension pot into the RPS but that may well now have changed with legislation. Again, you should probably seek professional advice as it's such a minefield and if you see the railway as a long term career (most people do once they've joined), it pays to make the right choice now or you may regret it in future.

Have a look at https://www.railwayspensions.co.uk/home which has some useful griff.

Good luck with your new career.

 

[Dan_Gleeballs]

Thecrofter and atishyou I greatly appreciate your detailed responses, its a absolute minefield, I hope once I join DB , I have a long career on the railway and retire as a railway employee. It’s a decision I didn’t think I would have to make so soon , it’s kind of been at the forefront of everything I have received since being offered the position, and it’s incredibly daunting when I have so much to take in too regarding the job. I was always told , it’s good to be in the RPS , it’s just the case if it either collapses , your pension has gone or DB hike up the % I have to put in, to a level that living for now makes it extremely difficult. Tough decisions to be made it seems! again, absolutely appreciate your detailed responses.
All the best

 

[66250]

Personally I’d opt for option 1. As said above you can always switch to one of the other options if it becomes unaffordable but I suspect the proposed contributions of 28.3% will be reduced to somewhere more acceptable as it is still to be agreed by the trustees, and you have to wonder why it would be that the company are discouraging membership of the defined benefit final salary scheme.

 

[Cavan]

I'm no financial advisor, but as I understand it, option 1 and 2 allow payment into BRASS, which is a railway AVC (additional voluntary contribution), where extra payments, of your choosing, come off pre tax and are invested alongside your pension. Whilst I understand option 3 would allow AVCs, I don't think they would come off pre tax.

If option 1 would be increasing so much, that'd leave me with option 2.

From what I know, you can move from option 1 or 2 to option 3, out of RPS (Options 1 and 2 are DB - Defined Benefit schemes, where you know what you get at the end, whereas option 3 is just a Defined Contribution scheme, so the pension figure could rise or fall). I don't think you can move from option 3 to option 1 or 2 at a later date.

Personally, I'd go for option 2, then I'd have access to BRASS and, if so desired, I could move to option 3 at a later date.

There is a huge misunderstanding of BRASS. It was an excellent option when there was brass matching by companies (this is why many older railway workers are so enthusiastic about it). This does not happen for new entrants and hasn't for a long time. BRASS has no more tax advantages than any other pension avc/sipp and less flexibility in some ways (fund choice limited and tied to railway pension age rather than 55). If BRASS is included in salary sacrifice then there are some small NI savings, however quite a few TOCs do not include BRASS payments in their sacrifice schemes.

 

[Cavan]

To note also that the NR RPS65 shceme effectively acts as a career average scheme as promotional pay awards are only pensionable for future service.

 

[Atishyou]

There is a huge misunderstanding of BRASS. It was an excellent option when there was brass matching by companies (this is why many older railway workers are so enthusiastic about it). This does not happen for new entrants and hasn't for a long time. BRASS has no more tax advantages than any other pension avc/sipp and less flexibility in some ways (fund choice limited and tied to railway pension age rather than 55). If BRASS is included in salary sacrifice then there are some small NI savings, however quite a few TOCs do not include BRASS payments in their sacrifice schemes.

It was great when it was matched, but it's still good now. At DB, it's included in the pre tax deductions, so it's a good saving before it takes the risks of investment into account.

Personally, I didn't start BRASS until about 18 months ago. I just put the difference from payrises in, therefore I can still live for today, whilst planning for tomorrow.

 

[Atishyou]

Personally I’d opt for option 1. As said above you can always switch to one of the other options if it becomes unaffordable but I suspect the proposed contributions of 28.3% will be reduced to somewhere more acceptable as it is still to be agreed by the trustees, and you have to wonder why it would be that the company are discouraging membership of the defined benefit final salary scheme.

I've heard that the trustees don't like the proposed option 1 and 2,but I don't really know what that means.

It's a hard choice, as you don't know what to do for the best. If possible, I'd agree with others about getting independent advice. I'll dm you.

 

[Cavan]

It was great when it was matched, but it's still good now. At DB, it's included in the pre tax deductions, so it's a good saving before it takes the risks of investment into account.

Personally, I didn't start BRASS until about 18 months ago. I just put the difference from payrises in, therefore I can still live for today, whilst planning for tomorrow.

All pension payments attract tax relief at 20% or 40% dpending on if you are a higher rate payer. You would get the same relief if paying into any sipp. Yes, some people like fact this is done on their salary and they don't have anything to sort out but it is not some magical RPS only thing! (And I don't think RPS make this especially clear).

 

[Atishyou]

All pension payments attract tax relief at 20% or 40% dpending on if you are a higher rate payer. You would get the same relief if paying into any sipp. Yes, some people like fact this is done on their salary and they don't have anything to sort out but it is not some magical RPS only thing! (And I don't think RPS make this especially clear).

Yes, I'm aware of that, thanks.