There’s a starting point for joining the Collective Plan
But if you want to pay more, you can do that too.
Saving more towards your future is great if you can afford it
And the Collective Plan’s designed to give you the flexibility to pay more towards your future if that's right for you.
What happens if I’m ill, my hours change or I take family leave?
How the Collective Plan works if your circumstances change.
The minimum you have to pay into the Collective Plan is 6% of your pensionable pay.
But, you can pay 1% more with the lump sum booster or pay Additional Voluntary Contributions (AVCs). There are some limits on how much you can save and still receive tax relief.
To start, you’ll pay in 6% of your pensionable pay.
You can also get tax relief on your contributions, which means the cost to you could be even less.
Royal Mail pays in 13.3% of your pensionable pay.
Almost all of that goes towards your income for life and lump sum, but a small amount of it goes towards running the Collective Plan and into reserve funds.
The money you and Royal Mail pay in is pooled with everyone else’s money into each of the two main sections. It’s then all invested together, within each section.
Plus, Royal Mail pays in a further 0.3% of your pensionable pay towards your ill health premiums.
Anything left over from the 0.3% is paid into the Collective Plan.
Your pensionable pay is your basic pay, plus other payments such as allowances and bonuses that may count towards your pension, depending on the terms of your employment.
If you work part-time, overtime will also count as part of your pensionable pay, up to the point that your hours reach the same as they would be for someone in a full-time contract for your role (provided that those hours are paid at the same rate as basic pay).
What does that mean for you?
Pensionable pay | The 6% cost to you after tax relief* | Tax you would have paid | + Royal Mail’s 13.3% | Total paid into the Collective Plan |
|---|---|---|---|---|
£12,500 a year | £14.42 a week | + £0.00 a week | + £31.97 a week | £46.39 a week |
£25,000 a year | £20.77 a week | + £9.23 a week | + £63.94 a week | £92.79 a week |
£40,000 a year | £33.23 a week | + £12.92 a week
| + £102.31 a week | £148.46 a week |
*The values shown are worked out based on what you would pay less the tax you would otherwise have paid if it was taken as pay. Your entitlement to tax relief depends on your personal tax circumstances, such as other taxable income you might receive, and so could be different to the figures shown.
The ‘Tax you would have paid’ has been worked out using England, Wales and Northern Ireland income tax and National Insurance bands as for the 2024/25 tax year and assumes your pensionable pay is equal to your total taxable income and that you are not making any other pension contributions. If you’re based in Scotland, the amount of tax you’ll pay will be different to what’s shown here.
How you pay
If eligible, the payments you make into the Collective Plan are made through something called pension salary exchange (PSE) (sometimes known as salary sacrifice).
The way that works is that your wage is reduced, and your employer pays the equivalent amount your wage is reduced by into the Collective Plan on your behalf. By agreeing to reduce your wage under PSE, you can save on Income Tax and National Insurance compared to making pension contributions directly from your wage without any PSE reduction. For more information about PSE and to check if you’re eligible, contact Royal Mail’s HR Services.
Page last updated 1 May 2024
There are two different ways to pay more into the Collective Plan:
Boost your savings
You can pay 1% more towards your lump sum.
As well as the tax relief you can get, Royal Mail will also pay in 1% more, matching the amount you pay in and boosting your lump sum.
Currently, these extra payments will boost your lump sum by 2.2% of your pensionable pay, though this could change in the future.
This means that if you paid £100 towards your lump sum booster, you’d get £220 as a lump sum, payable at age 67. You’d also get any increases awarded before age 67. In this example you could also get tax relief on your £100, bringing the actual cost down to about £72 if you're a basic rate taxpayer and paying by pension salary exchange.
Pay Additional Voluntary Contributions (AVCs)
You can also pay Additional Voluntary Contributions, or ‘AVCs’, into a separate pot that is held just for you – it doesn’t count towards your income for life or lump sum, and it won’t be matched by Royal Mail, but you can get tax relief on what you pay. This means if you paid £100 into your AVC account, you could get tax relief on your £100, bringing the actual cost down to about £72 if you’re a basic rate taxpayer and paying by pension salary exchange.
Remember that there are limits on tax relief – you can find more about that below.
If you pay AVCs into the Collective Plan, those payments will build up in a separate pot. And they’ll have different rules about how you can take them. You can find out more in the AVC Handbook.
Here are some examples of how Option 1 'Boosting your savings' works
Pensionable pay | The 1% cost to you of your booster after tax relief* | Extra lump sum built up, payable at age 67 |
|---|---|---|
£12,500 a year -> about £240 a week | £2.40 each week | £5.29 each week |
£25,000 a year -> about £481 a week | £3.46 each week | £10.58 each week |
£40,000 a year -> about £769 a week | £5.54 each week | £16.92 each week |
*The values shown, are worked out based on what you would pay less the tax you would otherwise have paid if it was taken as pay. Your entitlement to tax relief depends on your personal tax circumstances, such as other taxable income you might receive, and so could be different to the figures shown.
The ‘Tax you would have paid’ has been worked out using England, Wales and Northern Ireland income tax and National Insurance bands for the 2024/25 tax year and assumes your pensionable pay is equal to your total taxable income and that you are not making any other pension contributions. If you’re based in Scotland, the amount of tax you’ll pay will be different to what’s shown here.
Page last updated 1 May 2024
What happens if...
If you change your hours during your employment, you’ll still pay into the Collective Plan.
The income for life and lump sum that you’ve already saved towards your retirement will not be affected.
The income for life and lump sum you build up in the Collective Plan is based on your pensionable pay. Any changes to your pay will affect the amount you build up each year, so if your pensionable pay goes down, the amount you build up each year in the Collective Plan will go down in line with this – but you’ll still be saving towards your retirement.
If you work part-time, overtime will also count as part of your pensionable pay, up to the point that your hours reach the same as they would be for someone in a full-time contract for your role (provided that those hours are paid at the same rate as basic pay).
If you’re away from work for a short period of time and receive contractual or statutory sick pay and will be returning to work, you’ll continue to pay into the Collective Plan based on your actual pensionable pay received in the period.
During both ordinary family leave and any additional family leave whilst you’re getting either statutory maternity, adoption, shared parental leave pay or contractual pay, you’ll continue to be a member of the Collective Plan.
You’ll continue to build up your income for life and lump sum as if you were working normally. This means that your pensionable pay for the purpose of calculating how much income for life and lump sum you build up will be based on the pensionable pay that would have applied had you not been absent. However, the actual payments you make into the Collective Plan during this time will be based on the actual pensionable pay you receive.
If you're in ill health
Everyone who works for Royal Mail is covered for an ill health benefit - if they meet certain criteria. For more information, please contact Royal Mail’s HR Services.
If you’re a member of the Collective Plan and you’re in ill health, you could get your income for life and lump sum from the Collective Plan early if you meet the criteria for ill health, even if you’ve stopped working for Royal Mail.
How much you'll get will depend on if you’re paying into the Collective Plan or not.
If you qualify for an ill health benefit and are paying into the Collective Plan, you’ll get your income for life and lump sum that you’ve saved so far, normally, without any reduction for early payment, even if you’re under age 55 (or age 57 from 2028).
If you qualify for an ill health benefit after you’ve stopped paying into the Collective Plan, you can get your income for life and lump sum, even if you’re under age 55 (or age 57 from 2028) - but it will be a reduced amount if you’re under age 67.
If you’ve made any AVC payments into the Collective Plan, and qualify for ill health, you’ll also be able to get the current value of your AVC savings pot, even if you’re under age 55 (or age 57 from 2028).
If you’re paying into the Collective Plan, Royal Mail will be responsible for deciding if you meet the ill health criteria, taking into account medical advice.
If you’re not paying into the Collective Plan, we (the Trustee of the Collective Plan) will be responsible for deciding if you meet the ill health criteria, taking into account medical advice.
Explaining pensionable payYour pensionable pay is your basic pay, plus other payments such as allowances and bonuses that may count towards your pension, depending on the terms of your employment. If you work part-time, overtime will also count as part of your pensionable pay, up to the point that your hours reach the same as they would be for someone in a full-time contract for your role (provided that those hours are paid at the same rate as basic pay). |
Page last updated 1 May 2024
The tax rules can be complicated and how they apply to you will depend on your own personal circumstances. As an overview, tax limits will usually apply if:
If you and your employer have paid more than a total of £60,000 (or more than 100% of your earnings) into your pension over the course of the tax year, you will have gone above the Annual Allowance tax limit.
The Annual Allowance is the total amount that you can save across all you pension arrangements (including money paid in by Royal Mail or any other employer) each tax year, without paying a tax charge.
This includes any pensions you might have paid into each tax year, such as personal pensions or other Royal Mail pensions. The Annual Allowance tax limit is currently £60,000 for most people, though it may be less if you:
have a significant amount of annual income (high earners with income over £200,000 could have a lower Annual Allowance)
cash out a pension in a certain way, known as taking flexible retirement income (such as receiving benefits as a type of lump sum called an “uncrystallised funds pension lump sum”)
The £60,000 limit is the total amount that applies across all your pension savings (but not your State Pension), including any other Royal Mail or personal pensions you have. Any amount you pay above the Annual Allowance will be added to your other taxable income for that tax year and will be taxed based on the income tax rates which apply to you.
You can find out more about the Annual Allowance on MoneyHelper.
If you’re a high earner you could be impacted by something known as the Tapered Annual Allowance. This is only likely to impact you if you earn over £200,000 a year, so for most people, you don’t need to worry about it. If you think you could be impacted, you can find out more about the Tapered Annual Allowance here.
If you start to take money from a defined contribution pension pot in a certain way, known as taking flexible retirement income, the amount that of tax relief you can get from payments into your other defined contribution pensions (like the income for life section in the Collective Plan) might reduce.
If you’ve started to take money from another Royal Mail pension plan, you could be impacted by this. Usually, it would be when you’ve taken any taxable cash.
This is known as the Money Purchase Annual Allowance or MPAA.
If you’ve taken money from another pension pot in this way, and the MPAA applies to you, then you’ll need to contact us to let us know.
You can find out more about the MPAA on MoneyHelper.
As of 1 April 2024, the government have introduced two new tax free allowances to replace the Lifetime Allowance:
The Lump Sum Allowance (LSA) which limits the total amount of tax free lump sum you can take. With this, you are allowed to take up to 25% of the value of your pension benefits or £268,275, whichever is lower, from your pension arrangements as a tax free lump sum.
The Lump Sum and Death Benefit Allowance (LSDBA) which limits the total amount of tax free lump sum that your beneficiaries can receive to £1,073,100. The LSDBA applies to payments that use up your Lump Sum Allowance, as well as other tax free elements of serious ill health claims and other non-taxable lump sum death benefits.
These new limits are per person and apply to all your pension benefits across all your registered pension schemes. If your lump sum allowance exceeds these new limits, it will be taxed at your marginal rate.
If you have lifetime allowance protection, your lump sum allowance may be different.
If you think you might be affected
If this feels complicated – it’s not just you! This is one of the most complex areas of pension saving, but it won’t affect everyone.
If you think you’ll be affected or if you just want to know more, we’d recommend speaking to a financial adviser.
As this is a new type of pension scheme in the UK you will need to think carefully about finding the right financial adviser who can help you understand what the impact of any decisions you make mean for you. It will take time for financial advisers to become ready to advise people on this type of pension scheme.
Page last updated 1 May 2024