Gazing into the future

captainreckless · 14 February 2017 at 11:21PM

I am currently 35 years old and trying to get an accurate ideal of the pension entitlement that I've already built up. I've checked with HMRC and their website says that at the moment I'd get about £75 per week in state pension.

On top of that I've been in the teachers pension scheme since 2005 and last year's statement gave a pension income of £5240 pa with a £13.5k automatic lump sum from the old 60ths scheme. On the new average earnings pensions I accrue about £660 a year in pension income so the next time a statement is produced it should be around £6000 of income in retirement.

A few years ago I stopped buying cigarettes and lottery tickets and started putting the money into a SIPP. This is now a small fund of about £4000 - but I play about with it now and again as a hobby. It's all invested in globally diversified equity funds with a bit of a tilt towards EM. I know the general advice is not to bother with too many funds in a small portfolio but I'm mostly in it for the entertainment value. Assuming 5% pa above inflation for 30 years I guess this might be worth about £17k. Not enough for an income but nice to have. I think that the SIPP is irrelevant to this query, but I include it for the sake of completeness.

Am I right in assuming that no matter what I do from here on I have a more or less guaranteed retirement income of around £10k from state pension age? If for whatever reason I stopped paying NI contributions in two years time (for example working abroad for a long time), would this affect the state pension?

I'm toying with a few ideas for the future as I can't see myself remaining in teaching for the next 30 odd years. Most of the stuff I can think of involves living on a lot less money and I feel my decision making would be greatly improved by having certain knowledge of the pension benefits that I have already built up.

Thanks.

jamesd · 15 February 2017 at 12:44AM

Count on £8k from the state pension because it makes sense to buy the years to get to the maximum if necessary. TPS is guaranteed so the two would take you to £14k.

You don't automatically accrue state pension entitlement abroad but you can buy years for a while. If unsure whether you'll be working in the UK in the future, buy them to accumulate what you can with certainty. In some countries their retirement pension will count.

SIPP is handy for tax relieved income from 55, though maybe 60 by the time you get there if life expectancies continue to rise.

Your biggest challenge will be accumulating enough outside a pension to live on until you can get at pension money. The lower you can cut costs now while earning and accumulating, the faster you can get it done. That low cost living will also help you to refine your actual income need.

It took me about eight years to meet my first low retirement threshold with a savings ratio above 60%.

justme111 · 15 February 2017 at 1:08AM

When you calculate you teacher's pension you may want to calculate the part of it that you are accruing from 2015 (correct me if I am wrong , I believe rhat was when retirement age changed for new accruals )as if you were to take it reduced at 60 instead of full at whatever pension age will be at the time, I believe it will be about 30% reduction.

captainreckless · 15 February 2017 at 7:13PM

I think I understand about the two different NPAs from the old and new TPS schemes. It seems expensive to start taking benefits before the NPA (60 for the old scheme, 67 for the new) so I'm planning on waiting until then.

jamesd wrote: »

Count on £8k from the state pension because it makes sense to buy the years to get to the maximum if necessary. TPS is guaranteed so the two would take you to £14k.

That's something that I hadn't considered and certainly changes things somewhat. If I were to work outside the UK for a long time, I don't see why I couldn't set aside money to buy back these years upon my return. I reckon that I can get by on £14k a year in retirement.

I don't know exactly what I'm going to do, but having the facts certainly makes it easier to think things through. Thanks for the info.

jamesd · 16 February 2017 at 6:32AM

You must not wait until your return, you can only go back six years. If you're buying for safety in case you don't get enough years back in the UK, better to do it year by year. You can use the very cheap class 2 contributions.

captainreckless · 16 February 2017 at 7:05PM

Just looked up class 2 NIC - very cheap. I take it I could just contact HMRC as required to make payments? Or would I have to complete an SA return for each year?

Triumph13 · 16 February 2017 at 7:15PM

Have you factored in somewhere to live? £14k pa goes a lot less far if you have to pay rent...

jamesd · 17 February 2017 at 3:29AM

You can just contact DWP to make the payments. Whether you need a tax return will depend on your other circumstances but if you're a UK citizen you still have your personal allowance in the UK.

chucknorris · 17 February 2017 at 3:52AM

captainreckless wrote: »

I am currently 35 years old and trying to get an accurate ideal of the pension entitlement that I've already built up. I've checked with HMRC and their website says that at the moment I'd get about £75 per week in state pension.

On top of that I've been in the teachers pension scheme since 2005 and last year's statement gave a pension income of £5240 pa with a £13.5k automatic lump sum from the old 60ths scheme. On the new average earnings pensions I accrue about £660 a year in pension income so the next time a statement is produced it should be around £6000 of income in retirement.

A few years ago I stopped buying cigarettes and lottery tickets and started putting the money into a SIPP. This is now a small fund of about £4000 - but I play about with it now and again as a hobby. It's all invested in globally diversified equity funds with a bit of a tilt towards EM. I know the general advice is not to bother with too many funds in a small portfolio but I'm mostly in it for the entertainment value. Assuming 5% pa above inflation for 30 years I guess this might be worth about £17k. Not enough for an income but nice to have. I think that the SIPP is irrelevant to this query, but I include it for the sake of completeness.

Am I right in assuming that no matter what I do from here on I have a more or less guaranteed retirement income of around £10k from state pension age? If for whatever reason I stopped paying NI contributions in two years time (for example working abroad for a long time), would this affect the state pension?

I'm toying with a few ideas for the future as I can't see myself remaining in teaching for the next 30 odd years. Most of the stuff I can think of involves living on a lot less money and I feel my decision making would be greatly improved by having certain knowledge of the pension benefits that I have already built up.

Thanks.

I'm not saying don't invest in your SIPP (that would have to be your choice), but I did wonder if you had considered buying additional pension (or paying for higher accrual) in the TPS either instead of, or as well as continuing to invest in your SIPP? I am still in the old TPS scheme and I will continue to be so until August 2020, I can't buy any more additional pension in the old scheme (as I have already bought the max allowed). But when I join the new scheme I can again buy more additional pension, and I will be buying as much as I can (it won't be that much as I have just dropped down to one day per week), but nevertheless it is quite a good deal, and it is guaranteed, rather than relying upon the performance of your SIPP, so I consider it worth doing.

captainreckless · 30 August 2017 at 9:56PM

Sorry for the delay in replying, I've only just noticed the last post!

Yes, I have looked at the higher accrual rates, and I did buy some extra pension under the old scheme via increased monthly deductions (not the AVC, although I did also start one before moving the money to the SIPP). I believe that I'm still paying for the additional pension on the old scheme with my current contributions.

I decided against going for a higher accrual rate in the new scheme for a few reasons. Firstly, my NPA is currently 68 and may increase over the next three decades. The actuarial reduction for drawing a pension before then seemed steep, and (according to the highly detailed long term financial plan that I once sketched out on the back of a beer mat) I'll be wanting to get my hands on any investment gains before I'm in my seventies. In any event, the standard accrual rate works fine for me. I'm more concerned with income from my mid fifties to my NPA.

Secondly, I can't be sure that I'll be teaching in the UK for much longer. Going to a higher accrual rate from April isn't going to make much of a difference if my final contribution is in August.

I understand that the TPS is good and secure. In fact it's almost too good. I find myself spending a lot of time looking at the calculator for the pension benefits that would accrue after another thirty years of contributions and thinking 'Yeah, that's a pretty sweet deal.' But then I realise that thirty years is about as much time as it took for all the things that I can remember happening to happen.

Silvertabby · 31 August 2017 at 9:48AM

Just looked up class 2 NIC - very cheap. I take it I could just contact HMRC as required to make payments? Or would I have to complete an SA return for each year? Posted by captainreckless

Class 2 is being abolished from 2018. You would have to pay voluntary Class 3 - approx £750 per year for a State pension of approx £4.50 per week/£235 per year for life. It could still be a good deal, though, depending on how long you live post State retirement age.

Gazing into the future

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