How is the railway pension calculated?

The Railway Pension Scheme commonly known as the RPS, is one of the UKs largest pension arrangements. It has more than 350,000 members and represents more than 150 railway companies.

It replaced the old British Rail Pension Scheme (BRPS) during the privatisation of the railway industry.

Sections

The RPS is divided into different arrangements and sections. The main ones are:

Shared cost arrangement - This is a defined benefit scheme (DB), these are mostly final salary schemes giving you a guaranteed income for life based on your salary and years’ service rather than how much you have contributed. If you are a DB member you can decide to pay additional voluntary contributions (AVC) these will go into defined contribution arrangements known as British Rail Additional Superannuation Scheme or BRASS or AVC extra and are kept separate from your main pension.

Industry-wide defined contribution scheme (IWDC) – This is a defined contributions scheme made up of contributions from you and your employer. The final pot size depends on contributions made and the growth of the investment.

1994 Pensioners Section – Anyone was a retired or preserved member of the BRPS at the point of privatisation was entered into this section.

Railway pension calculator

As the RPS is a DB arrangement your pension benefits are calculated using a fixed formula and are not reliant on contributions and investment returns.

Your RPS pension benefit is based upon your final average pensionable pay, this is your pay over the last 12 months you were in the scheme, multiplied by your total time enrolled in the scheme divided by the benefit accrual rate.

There are 2 DB schemes the RPS60 and the RPS65. There is a slight difference in calculation for the schemes.

Railway pension calculator - RPS60

Before your benefits are calculated there is a basic state pension deduction applied to your final average pension pay. In RPS60 this is 150% of the basic state pension for the tax year 2024/2025 this is £13,221. If you had a final average pension pay of £40,000 you would deduct £13,221 giving you a final average pensionable pay of £26,799. If you had 20 years’ service, the calculation would be:

£26,799 * 20   /   60       =      £8933

Final average pensionable pay * years’ service / accrual rate = annual pension payable.

With the RPS 60 you will also be entitled to an automatic tax-free cash lump sum. This is calculated based on your time in the scheme, divided by the lump sum accrual rate and then multiplied by final average pensionable pay:

20 / 40 * 26,799 = £13,399.50

Years service / lump sum accrual rate * final average pensionable pay = lump sum payable.

Railway pension calcculator - RPS65

Before you benefits are calculated there is a basic state pension deduction, this is 75% of the basic state pension, for the tax year 2024/2025 this is £6,610.

So, a final average pension pay of £40,000 – 6,610 = 33,390, meaning your RPS65 would be calculated as follows:

33,390 * 20 / 60 =   11,130

Final average pensionable pay * years’ service / accrual rate = annual pension payable.

With the RPS65 you don’t automatically accrue a tax-free lump sum, however you can exchange some of your pension into a tax-free lump sum.

Can I transfer out of the Railway Pension Scheme?

You may be considering transferring your scheme for a few reasons, including consolidation and to take your benefits in a different way than offered by RPS including drawdown or to buy an annuity. You can transfer your RPS to another scheme or provider is you wish however they must be registered with HMRC.

It’s very important to take financial advice before making any decisions because once a transfer is final you cannot go back on your decision.

If you want to transfer you will need a guaranteed transfer out quote, also known as a cash-equivalent transfer value (CETV). You can only get 1 free CETV in a 12-month period so think carefully before requesting one.