Teachers Pension Scheme

bournefree · 4 December 2016 at 10:19AM

Hi,

I am 58 next month (January). My Normal Pension Age is 60 (Jan 2019) on the old Teachers Pension scheme (/80ths). I have 34 years continuous service in the TPS. I have £11,000 in a Stocks and Shares ISA. These are my entire savings. My State Pension age 66. I plan to retire at 63.
I have a projected TP of £23,863 and tax free lump sum of £71,590 at 60. I'm currently on 54.8% of my Lifetime Allowance. I've looked at the TPA website, but the changes kicking in make it all pretty confusing in this respect.
I have a mortgage of £18,500 which I aim to clear by December 2017. This is because redundancy is a possibility.
Once the mortgage is out of the way, all being well I will be able to save £20,000 pa, from Dec 2017 (when I will still be 58, to before my NPA at 60. I may be able to buy additional pension after my NPA, but probably just save into an ISA or something like that.

Is it worth buying £1000 of additional pension, which would cost just under £20,000 for 1 year before my NPA of 60? I could possibly manage 2 years, so £2000 of additional pension.

Fermion · 4 December 2016 at 11:49AM

My DW was in a similar situation a few years ago, so we have some experience of this situation.

You imply that you would like to draw your Teachers Pension at 60 (NPA) but go on working until you are 63 but at the same time same save circa £20,000/annum from Dec 2017 into some sort of "supplemental pension scheme" which might include the option of buying additional years from TPS.

A few key points:

1. If you draw your TPS when you reach 60 (NPA) you need to be careful that you reduce you working hours to make sure your pension isn't reduced. Under the old TPS rules if you continue working after drawing your teachers pension, the sum of your teachers pension and teachers salary is not allowed to be any more then your TPS reference salary (the average TPS salary that they used to calculate your Teachers Pensions). Depending on your individual circumstances this may mean dropping to a 0.5FTE after you draw your pension but it could be significantly lower if you pension calculation uses a hypotherical calculation (mainly for those teachers who reduce responsibility later ib their teaching career). Either way you will need to produce regular Certificate of Re-employments from your employer to confirm this.

2, You need to bear in mind that after you draw your pension and are re-employed there must be a gap in service of at least 1 day so that you start your post retirement employment on a new contract. Please bear in mind that the TPS pension for this element is under the new TPS rules and you will not be able to draw this pension until you reach normal state retirement age.

3. You may find that the best (and most tax efficient) supplemental pension is to open a SIPP - you can save gross contrubition (including 20% HMRC rebate) of up to 100% of you employment earnings (but not your TPS pension income). You can even continue to save after you finally retire from all employment age 63, but at that point the max you can save is £3600 gross per annum. (my DW did this and although she finally retired fully last Aug she does intend to draw from her SIPP until next year).

4. If you are able to save circa £20K/annum in a SIPP for 5 years then you should have in excess of £100K in your SIPP when you finally retire (hopefully more if you invest well) which will give you £25K+ of additional tax free lump sum and various options available for the £75K+ balance (either Income Drawdown or Annuity)

5. When the time comes to draw our TPS pension talk to TPS (Capita) about what your reference salary is and what is the maximum salary you can draw as a teacher if you decide to continue teaching. You will also need to check with you current employer that they are prepared to offer you a part-time role of no more than the max FTE allowed under TPS rules.

Hope this helps

bournefree · 4 December 2016 at 1:40PM

Hi Fermion,

Thanks for your reply, which is very useful depending on how things turn out.
At the moment my average salary is £56,800.
I don't intend working in teaching once I retire. I'm trying to keep going until 63 unless I am made redundant. So for now the aim is to continue to work for the next 5 years full-time (which for me will give me the 40/80ths of TPS), and not draw my pension until then. In the mean time I need to get rid of the mortgage (which I can do in a year), maximise my savings (say 2 years or 40K), and also my pension (say 2 years of additional pension which would increase the final pension by 2K pa.

bournefree · 10 December 2016 at 3:28PM

If I pay for additional pension in TPS through my monthly salary, how will this affect my tax code? Do I get 40% tax relief on what I pay in? Does this take ages to set up? Do I do it via the TPS website? If I get the tax relief now, I actually pay in less don't I?, so this sounds like a cost-effective and safe way of maximising my eventual pension. Is it best to start paying in now before I am 58 (i.e is it calculated based on my age, so will be cheaper if younger), or to before the next tax year? I have only just over 2 years to go before my NPA of 60. Another question, with 18K to pay off on my mortgage, is it better to pay for additional pension or pay the mortgage off first? Do I have to get the pension payments in before NPA arrives?

liviboy · 10 December 2016 at 5:14PM

I'm in Scotland but assume the same applies for the English & Welsh TPS. As your pension contribution is taken from your gross salary you receive tax relief at source so no changes are required to tax codes etc.

Again in a Scotland, the cost is based on your age that you take out your APB agreement.

Regarding timescales, mine was set up within a month but the SPPA are my administrators, may be different with the TPS.

bournefree · 10 December 2016 at 5:25PM

The TPS website says it can take up to 3 months to make the change. Is it better to go for 1K pension over 1 year, or 2K pension over 2 years?

bournefree · 17 February 2017 at 7:18AM

Update folks, any advice gratefully received!
The severance scheme has opened at work for a couple to months, to be followed by redundancy. The scheme offers:
□ Severance payment*
OR
□ Severance payment* and Pension (pension may be available from age 55)
OR
□ Early retirement on efficiency grounds (without severance payment)
*on designated voluntary enhanced redundancy terms
My preferred leaving date is (day/month/year): …..…………………………………………………………………………………
Their preferred leaving date is 31 July. I applied last year for severance and pension and they offered me severance of 30K (the maximum) but no pension. I decided not to take it then, but to overpay the mortgage so I would have more freedom. A year down the road and the work situation is more serious, but the mortgage will be just 3K.

I will be 58.5 in July. I am on the old TPS Scheme, with an NPA (Normal Pension Age) of 60. I'm ready to go. I might be able to get another job, but could just retire and have done with it.

My TPS projection is showing as:
Reduced annual pension of £23,115 and lump sum of £69,345 at 58.5 years
Full annual pension of £24,748 and lump sum of £74,245 at 60

I'm not sure how many boxes I tick on the application form, maybe I can the second and third one? I need to weigh up the differences between severance and pension, or early retirement. I understand that if it is early retirement they make up the difference to my NPA of 60. I'd be happy with that.

As I'm over 55, I understand that if I had compulsory redundancy they would have to make up my pension to 60 anyway, and that I would get the statutory maximum severance of £14,370. There is also a cap of £95K total on employers.

What do employers prefer and why?

Any advice on this please? I will be seeing an IFA but wonder whether anyone else has been through this.

BF

bournefree · 17 February 2017 at 10:50AM

Just had another thought. Say I was granted early retirement, but then got another job, am I right in assuming that my Teachers Pension would not need to be told, and that my TPS would be unaffected so long as I didn't return to that scheme? So, say I got a new job in the Local Government scheme or anything else, that would be fine, although I realise that any pension accrued would not be payable until my State pension age of 66.

bournefree · 26 February 2017 at 11:54AM

Is there anyone out there who has gone through severance / early retirement who was in the Teachers Pension Scheme?

BF

bournefree · 7 October 2017 at 9:52AM

Update - I am in the TPS and have decided to take voluntary severance next July. I will defer claiming my TPS pension for 6 months until I am 60 to avoid any reduction; I am a protected member on the old scheme. This should provide a pension of £26K pa, a lump sum of £78K and redundancy pay of £31K (I'll probably need to use half of this to live on over the 6 months). I will set aside an amount to pay each year (around £750 pa?) until I am 66 towards maximising my State Pension as I was previously opted out of SERPS. Any advice please on how to maximise income based on what is left (the lump sum)? Stocks and Shares ISA vs SIPP vs Prudential AVC, avoiding recycling?

BF

Teachers Pension Scheme

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