New to Teachers Pension Scheme - Advice Please

FIRSTTIMER wrote: »

is it worth it?

Only you can decide that really. If you want a guaranteed, no risk pension then yes it could be.

do I get tax relief on the extra money added?

Yes you will.

do I get added employer contributions?

No.

Can I opt out if needs be?

Each election lasts a year and you have to repeat this each year. I'm not sure exactly how that works though. Fact sheet here;

https://www.teacherspensions.co.uk/~/media/Files/Reform%20member%20documents/Member%20Factsheet%2010%20Faster%20Accrual.ashx

I am reluctant to use the buy additional pension or avc option as I feel these are not as good as the options above? Am I right?

I haven't looked at the specific figures but AP is another guaranteed method of buying extra pension. AVCs are investments within the stock market so the risk is on you - wouldn't really recommend AVCs though as you're probably better opening a separate Pension altogether.

If you want flexibility over your retirement date you could choose a PP/SIPP and use the proceeds of that to fund the period between when you choose to retire and when your teacher's pension would kick in.

FIRSTTIMER wrote: »

what happens if the STPA rises again from 68 to 70?! .....will there be another buy out needed?

Quite possibly but you can't base your decision around what might happen or you would never make any decision.

If it suits you go for it but it means you will have to wait till at least age 65 to benefit.

If you think you might like to retire at age 60 (for example), contribute to a PP/SIPP. You could then use the proceeds of that pension pot to live off until you can take the teacher's pension and state pension.

Opt For Buy Out (max 3 years) AND Faster Accrual (1/45) - so I still retire at 65, I only have 6 months to choose this - is it worth it?

The cost of all the options is set actuarially, so if you have typical characteristics all of the options have the same cost and all have the same return, which is the discount rate, currently CPI+3% (so 5% in the long run).

However, you will not be average - for example, the average member might be 80% married. Faster accrual is good is you intend to stay in the scheme a long time, as then you benefit more from the higher in-service revaluation. If you thought you would leave soon after joining (eg first 5-10 years) then Added Pension would probably be better.

Buy-out is good if you think you will have below average life expectancy (but will reach State Pension age), but if you think you will live longer than average you would get better value from an option that paid until death.

Then each option will fit into your financial plans in different ways, some of which will make certain options more attractive
(eg AVC or personal pension contributions to fund retirement before age 65).

I think as a minimum I am going to definitely register for the buy out....as from reading I only have 6 months to do that and otherwise its gone for life. If I do the buy out for the full 3 years so retirement is 65....what happens if the STPA rises again from 68 to 70?! .....will there be another buy out needed?

With buy-out you are effectively purchasing a reduced normal pension age. Normal pension age is linked to State Pension age, so if State Pension age increases, normal pension age increases, and the age at which you can take an unreduced pension increases.

The maximum reduction you can purchase is 3 years, even if State Pension age increases again.

What hasn't been mentioned yet about AVCs is the possible advantage of being able to use them to fund your lump sum on retirement.

When you retire, you are allowed to take up to 25% of the value of your benefits as a tax-free lump sum. Within a DB scheme like the TPS, this usually means that you have to give up a part of your pension to convert it into a lump sum if you want to take advantage of this. The rates for converting pension to lump sum are usually very poor and mean that you don't get value for money for sacrificing the lump sum.

If you pay into an AVC linked to the scheme, you can usually take the 25% cash across the whole value of your TPS benefits from the AVC instead, meaning that you don't have to give up part of your pension and suffer that poor conversion value. That often means that you can take your entire AVC as tax-free cash. You don't get to do this if you pay into a personal pension; you would be limited to taking 25% of the personal pension itself as tax-free cash, and the remainder would be taken as taxed income in one way or another (annuity, drawdown, one-off lump sum).

You also have the right to transfer your AVC over to a personal pension at any time as well, if you don't want to keep it in the scheme, and you don't have to transfer your main scheme benefits as well if you do so.

So there are advantages to paying into an AVC over a personal pension, but you may still decide that one of the other options is still better for you - just food for thought.

"Buy-out is good if you think you will have below average life expectancy (but will reach State Pension age), but if you think you will live longer than average you would get better value from an option that paid until death.

Then each option will fit into your financial plans in different ways, some of which will make certain options more attractive
(eg AVC or personal pension contributions to fund retirement before age 65)."

Does this mean that buying out prevents pensions being paid to death? The more I read these options, the more confused I become. I hope to retire in 13 years and have been saving in a s&s isa. I hope to have enough, but wonder if contributing to a sipping would be beneficial, and if so how do I go about this. I have spoken to an IFA but neither this nor the 'flexibilities ' available were mentioned.