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 have ever been a member of a different Royal Mail pension scheme you should be aware that the definitions of pensionable pay are different in the different schemes.

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).

The Collective Plan is designed to give you an income for the rest of your life from age 67. You build up 1/80th of all your pensionable pay earned each year while paying into the Collective Plan and the aim is to increase it to help keep up with the cost of living. However, this is not guaranteed.

What does that mean for me?

So, using an example, if your pensionable pay was £26,000 over a year, in that year you’d initially build up £325 as a yearly income, based on you getting it at age 67.

£26,000 ÷ 80 = £325

Over time, if you continue paying into the Collective Plan, your income for life will build up to provide your total income for life in retirement.

What about the cost of living?

This part’s important. The cost of living is rising, and it’s fair to assume that £325 today isn’t going to buy as much when you come to retire (which could be in many years’ time).

Each year your income for life will change, when you’re building it up and after you’ve started to get it in retirement. Everyone’s income for life is adjusted each year by the same percentage, even after you’ve retired, so that the cost of everyone’s incomes stays in balance with the value of the Collective Plan’s assets. This means your income for life could go down, or go up, or stay the same each year - to balance the cost of everyone’s incomes with the value of the Collective Plan’s assets.

The aim is to have more ups than downs and so that your income for life will keep up with the cost of living over time. However, this is not guaranteed – you could end up with more or less than the £325 shown in the example as a yearly income when you reach age 67.  

The Collective Plan is designed for you to get your lump sum at age 67, and builds up year by year, separately from your income for life. It’s paid as a one-off amount at the same time you get your income for life.

Your lump sum also builds up at a proportion of your pensionable pay - at a rate of 3/80ths of any pensionable pay earned while paying into the Collective Plan. But, unlike your income for life, the lump sum you build up won’t go down – it’s guaranteed.

But if the Collective Plan performs well, for example if the lump sum investments do well, it could go up, along with everyone else’s lump sums. Any increases will be guaranteed and cannot be taken away in the future. If you haven’t transferred out your income for life and aren’t subject to any tax restrictions, you might be able to get all your lump sum tax-free. See the Collective Plan’s Handbook for more information.

The payments you’ve made towards the Collective Plan will be refunded to you by Royal Mail, including any booster and Additional Voluntary Contributions (AVCs) that you’ve made. This will be done through Payroll if you were using pension salary exchange to pay into the Collective Plan.

You won’t get a refund of the payments Royal Mail has made into the Collective Plan.

You’ll have the option to: 

• Get a refund of the payments you’ve made into the Collective Plan, including any booster or Additional Voluntary Contributions (AVCs) that you’ve made. This will be done through Payroll if you were using pension salary exchange to pay into the Collective Plan. You won’t get a refund of the payments Royal Mail has made into the Collective Plan. 

Or

• Transfer out the full value of your income for life and lump sum, including any booster or Additional Voluntary Contributions (AVCs) that you’ve made to another registered pension scheme.

You’ll become a ‘deferred’ member of the Collective Plan. You can’t have a refund of your payments, or Royal Mail’s, but you’ll have other options instead. 

You can:

• Leave your income for life and lump sum, including any booster or Additional Voluntary Contributions (AVCs) that you’ve made, in the Collective Plan until you decide to get them,

Or 

• Get your income for life and lump sum, including any booster or Additional Voluntary Contributions (AVCs) that you’ve made, if you’re over age 55 (or 57 from 2028),

Or

• Transfer out the value of your income for life and lump sum, including any booster or Additional Voluntary Contributions (AVCs) that you’ve made, at any time before you get them.