Is the Teachers' Pension a good investment option?

Oliver1191 wrote: »

Hello,

I've been a member of the teachers' pension for nearly 9 years. It's currently worth between £9-9.5k income a year if I were to stop paying into it today. If my understanding is right, I can take the first 5k at the age of 65 and the remainder at 68 (as there was a scheme change). I can choose to take this earlier, but it will be reduced in value (so not really worth it). Apparently this represents around 17% of my Lifetime Allowance.

You can't take your final salary benefits at 65 and then your career average benefits at 68. The scheme rules require that you take both pensions at the same time. This is outrageous, but those are the rules. Your options, therefore, are to take both at 65 and have actuarial reduction on the 3 years missing from the career average, or wait until 68 to claim both and receive the full pension.

Don't assume that actuarial reduction is "not really worth it". You need to do the sums using the GAD figures that will show you how much the reduction will be. Then you have to decide whether the pension you would receive would be sufficient, or not.

Oliver1191 wrote: »

* Other than being at university, I've always paid national insurance, so am on track (I assume) for the state pension at 68

You might want to check that as, until April 2016, you were paying the contracted out rate of NI, whcih got you a lower state pension. The rules have changed again and I wouldn't like to comment for certain, but it is something that you need to check.

Oliver1191 wrote: »

* the Teachers' Pension costs me £380 before tax and i'm a basic rate tax payer.

Are you saying that your annual pension contribution is £380 or do you mean £380 per month? The former cannot be right.

Oliver1191 wrote: »

My question is, given my circumstances, is the Teachers' Pension really worth it? I can't take it until 68 and although it is inflation linked, it doesn't grow.

Ultimately, it's all about financial independence, so should I come out of the Teachers' Pension and invest elsewhere?

Thank you for any help!!!

I assume that you are no longer working as a teacher. The indexing your pension benefits from is CPI + 1.6%. That is quite a healthy rate. You say the pension isn't growing, but because of the indexing it actually is. If it was just indexed to CPI then it wouldn't be, but the extra 1.6% gives real terms growth. For the sake of argument, let's say inflation this year runs at 3%, your pension will be increased in value by 4.6%.

Importantly, these figures are guaranteed sums, whereas any investments are not. For you not to receive this the UK would need to cease to exist as a viable sovereign state (because your pension is underwritten by the government of the UK). If that should happen then you will have a lot more to worry about than the value of your TPS.

If I were you I'd stay in the scheme.

GunJack wrote: »

If you're still in TPS, once you're married, make sure to fill in the express of wishes or similar form, so your spouse will benefit from the death in-service and survivor's pension should the worst happen...

If he is no longer working as a teacher then she wouldn't benefit from death in service, because he wouldn't be in service.

Thrugelmir wrote: »

Where are you going to get a better return for your contributions?

Do you realise how much your employer (indirectly the taxpayer) contributes to your pension? Suggest you look it up. As my surprise you how much you'll need to save to fund an indexed linked pension yourself.

Not necessarily the taxpayer. Most independent schools are employer members of TPS. The taxpayer is not funding their employer contributions.

I agree with your main point, however.

For the benefit of the OP, the employer contribution is 16.48%.

Thrugelmir wrote: »

Independent schools benefit from their charitable status at the taxpayers expense.

Nice try, but not all independent schools are charities, and the real recipients of the tax relief are actually the fee payers because the schools would have to increase their fees to bridge the gap if charitable status was withdrawn. Furthermore, depending on the school the majority of their income is either from fee payers or from investments (primarily holdings of land). Those schools relying primarily on fee payers do not benefit nearly as greatly as those who hold investments.