Pensions - whats the truth about changes to public sector pensions?

chucknorris

jem16 wrote: »

Presumably then you would have expected more than £5,500pa AP?

How does the AP compare with the likes of putting the same money into S&S ISAs or another pension scheme?

Much better because I know what I will be getting, I just want some pension income but it will not be my main income in retirement.

I can't get anymore into an isa anyway, I already use my max allowance for the cash and stocks and shares isa's + use my wife's stocks and shares isa allowance (in her name) too

hugheskevi

Please correct me if I am wrong but I believe it would be calculated by:

Normal pension from salary of about £667
+
Additional purchased £5,600 of pension / 3 years = £1,867

= £2,534 x multiplier (which I believe is less than 20) so £50k not exceeded

Yep, that's right, looks like you're fine (multiplier is 16)

I've seen some public service scheme with non-tax year Pension Input Periods which might complicate the calculations a bit, but it looks like you would have enough carry-forward whatever the date of the PIP might be.

How does the AP compare with the likes of putting the same money into S&S ISAs or another pension scheme?

Based on my own calculations, the effective rate of return is about CPI+3% (which is very similar to SCAPE rate of return used to value public service pension, so quite possible that the same methodology is used).

Given long-run CPI of 2%, that is a 5% rate of return, nothing to write home about, but given there is an investment guarantee, inflation guarantee, and no costs of annuitisation I'd say it is a reasonable investment proposition, although not so much so that it is a clear winner over alternatives. Particularly as some forms of Added Pension don't come with automatic lump sum, in which case they have a poor commutation factor, which effectively removes the benefit of tax free lump sums.

chucknorris

hugheskevi wrote: »

Yep, that's right, looks like you're fine (multiplier is 16)

I've seen some public service scheme with non-tax year Pension Input Periods which might complicate the calculations a bit, but it looks like you would have enough carry-forward whatever the date of the PIP might be.



Based on my own calculations, the effective rate of return is about CPI+3% (which is very similar to SCAPE rate of return used to value public service pension, so quite possible that the same methodology is used).

Given long-run CPI of 2%, that is a 5% rate of return, nothing to write home about, but given there is an investment guarantee, inflation guarantee, and no costs of annuitisation I'd say it is a reasonable investment proposition, although not so much so that it is a clear winner over alternatives. Particularly as some forms of Added Pension don't come with automatic lump sum, in which case they have a poor commutation factor, which effectively removes the benefit of tax free lump sums.

Thanks, I couldn't remember if the multiplier was 14 or 16, but knew it was under 20.

I'm happy enough with the return, I wasn't going to bother buying additional pension but I suddenly realised very recently that a pension is valuable to me, as a hedge against living too long. I realised when when my wife and I were saying that we will have to try and spend most of our money (no children) later in life. But of course the danger is that you spend too much.

a1mistert

Thanks for the info thus far, the rumour mill indicates that whilst lower earners will pay no more, higher earners will pay greater contributions to make up for this>
Additionally, given the ongoing pay freeze in the public sector (although1% increase in April, whoopee) and the fact that (and I know some will disagre) public sector employees are generally not as well paid as private sector when the overall package is considered, the potential increases are, as you have all mentioned, going to have an impact.

mcdermott_c

Its really a personal choice as everyones circumstances are different.

My 2 cent....

If the government can make these changes, they can make any changes (and I mean any as the flood gates are opened) so it would leave me unsure what you would actually get out of it at the end, especially if like me you a quite a way away from retirement.

Yes the pension at present is a good one and even after the changes may still be better than a lot of private pensions but if it was me I would pull out, speak to a good investment adviser, look at all the options and invest my money somewhere else, where I can get to it easier if needed, and let me choose how long I want to work.

By my reckoning as long as you have a reasonable amount of money between 60-70 (if you want to retire at 60) to go on holidays, pay for cars etc that should be enough. After 70 I don't envisage me spending a great deal of money so I could get by on a much more modest income.

Quite a few people have shared their experience of being really careful with their money (which is a good idea) but for me I can't see the point of struggling all through your working life so you
secure your retirement. You only get one life so I for one would rather enjoy it a bit more and maybe have a bit less in my retirement, im not advocating a spend spend spend approach, but somewhere in the middle, save and plan for retirement for sure but enjoy life too !

Where could you invest ? Im no expert but how about buy a holiday home and rent it out some of the year and live in it some of the year - that way you get an income, but also get the benefit of nice holidays. If you speak to a good accountant they can help with reducing tax on rental income ! Also look at how you could use the rent a room scheme to give you a tax free income (upto a maximum of £4250 i think)

Any a few of my thoughts which I am sure many will disagree with so don't slate me lol just giving another angle to the debate.

Oh by the way - I am a youngish teacher who is seriously considering pulling out of the pension scheme should the changes go ahead

Meeper

mcdermott_c wrote: »

Oh by the way - I am a youngish teacher who is seriously considering pulling out of the pension scheme should the changes go ahead

That would be one of your worst possible decisions. I hope you don't teach anything finance or maths related.

mcdermott_c

thanks for comment meeper

Care to elaborate how given you do not know everyone's circumstances and personal outlook on life ?

Meeper wrote: »

That would be one of your worst possible decisions. I hope you don't teach anything finance or maths related.

atush

Yes the pension at present is a good one and even after the changes may still be better than a lot of private pensions but if it was me I would pull out, speak to a good investment adviser, look at all the options and invest my money somewhere else, where I can get to it easier if needed, and let me choose how long I want to work.

this is completely foolhardy, and dare I say w/o offending, stupid.

You need to go back to teachers pension 101. and realise that yes, they can make more changes in future, but EVERY YEAR you accrue under the current system will stay fixed by that system. So only FUTURE years of accrued service would be affected.

To take your money out now, like a child taking his football home, will deprive you. AS there is no way you can buy anything approaching what you have w/o the govt contribution. If you are putting in say 7% of your salary, to get the same (but not better ) you would have to put in 25% or more. So how are you going to be better off effectovely losing 18% of your salary?????? I know this to be true as we are putting in 27% of my OH's salary at present but with current annuity rates and gilt yields we would not be able to buy what you can on less than half the salary.

We don't need to know anything about your personal circumstances to understand you would be making the biggest mistake of your life. So please do look at the maths (and not the union talk) and make the best decision for your future.

And yes, we do hope you aren't teaching maths or economics. Because your stated decision to pull out of a great scheme due to what might happen 15-20 years down the line is unfathomable.

Linton

mcdermott_c wrote: »

Yes the pension at present is a good one and even after the changes may still be better than a lot of private pensions but if it was me I would pull out, speak to a good investment adviser, look at all the options and invest my money somewhere else, where I can get to it easier if needed, and let me choose how long I want to work.

By my reckoning as long as you have a reasonable amount of money between 60-70 (if you want to retire at 60) to go on holidays, pay for cars etc that should be enough. After 70 I don't envisage me spending a great deal of money so I could get by on a much more modest income.

Quite a few people have shared their experience of being really careful with their money (which is a good idea) but for me I can't see the point of struggling all through your working life so you
secure your retirement. You only get one life so I for one would rather enjoy it a bit more and maybe have a bit less in my retirement, im not advocating a spend spend spend approach, but somewhere in the middle, save and plan for retirement for sure but enjoy life too !

Where could you invest ? Im no expert but how about buy a holiday home and rent it out some of the year and live in it some of the year - that way you get an income, but also get the benefit of nice holidays. If you speak to a good accountant they can help with reducing tax on rental income ! Also look at how you could use the rent a room scheme to give you a tax free income (upto a maximum of £4250 i think)

.....

Oh by the way - I am a youngish teacher who is seriously considering pulling out of the pension scheme should the changes go ahead

I dont think you have really looked into this. Suggest you put together a speadsheet model. You will find that costs of retiriement provision outside the cosy Final Salary world are staggering. Roughly speaking you need to multiply the annual income you need for what you consider a reasonable standard of living by 30 to get the lump sum you need to retire. And its not 30 times the current income, its the income after say another 30-40 years of inflation.

I believe you will find that if you want to retire early at 60 (or earlier) it will be far cheaper to ensure that you have the teachers pension from whatever age it is paid and to save/invest separately to fill the gap years than to invest to support your full retirement. So you would have more money to play with now, not less.

Look at the life expectancy tables. I know it seems a long way off, but to retire at 55 means that you will be working for significantly less than half your remaining life and retired for more.

Finally people these days do not become decrepit and house bound at 70. Many people now are remarkably healthy into their 80s, by the time you reach that age it could well be later.

mcdermott_c

I appreciate you taking the time to reply and yes some of your comments were a tad offensive (like a child taking his football home - not really needed lol).

all i was trying to do was offer an alternative and possibly more rounded view of how to look at the changes. Money is not the be all and end all ! and pensions are certainly not the only option !

I wasn't suggesting pulling out of the scheme on the basis on what might happen 20 years down the line as you suggest. I was looking at the radical changes taking place now and suggesting that this could possibly be just the start - it isn't inconceivable that they could end up as bad as private sector pensions ! or that the government could stop contributing to them altogether ! Once these changes come in anything could (and will) happen but one thing is certain they will only get worse not better !

I am suggesting looking at what you may want in retirement and planning for it. Keeping things simple and just working off today's prices for simplicity, lets say you wanted 20000 a year for the period 60yr to 70yr
if you invested in property, rented it out to cover mortgage, and by 60 you sold the property for 200000 that would give you your 20000 a year for ten years. Now if I took my £400 a month and just stuffed it under bed. £400 a mth for 30 years = £144000 (obviously you would be looking to invest it to increase the return) that would still give me £14400 between 70yr - 80yr

During this time I could use the 2nd property for holidays with family and have enjoyment out of it and still retire at 60 !

My point - pensions are not the only option and money isn't the be all and end all - enjoy life too !

atush wrote: »

this is completely foolhardy, and dare I say w/o offending, stupid.

You need to go back to teachers pension 101. and realise that yes, they can make more changes in future, but EVERY YEAR you accrue under the current system will stay fixed by that system. So only FUTURE years of accrued service would be affected.

To take your money out now, like a child taking his football home, will deprive you. AS there is no way you can buy anything approaching what you have w/o the govt contribution. If you are putting in say 7% of your salary, to get the same (but not better ) you would have to put in 25% or more. So how are you going to be better off effectovely losing 18% of your salary?????? I know this to be true as we are putting in 27% of my OH's salary at present but with current annuity rates and gilt yields we would not be able to buy what you can on less than half the salary.

We don't need to know anything about your personal circumstances to understand you would be making the biggest mistake of your life. So please do look at the maths (and not the union talk) and make the best decision for your future.

And yes, we do hope you aren't teaching maths or economics. Because your stated decision to pull out of a great scheme due to what might happen 15-20 years down the line is unfathomable.