Teachers Pension Dilemma

Snappy1983

I have a bit of a dilemma with my pension and was wondering whether anyone could give me a little advice to guide me in the right direction.

I am 28 years old and a teacher in a state school, although for the past year I have been working for a private education company and so have not been paying towards my Teachers' Pension (or any pension for that matter). For the previous four years before this, I had my Teachers' Pension Scheme payments taken directly from my wages, so have paid towards it every month other than the past year.

My dilemma is that I'm not sure that at this moment in time I can really afford to have roughly £150 taken from my wages in pension contributions (as with a mortgage, young daughter in full-time childcare and another baby on the way, finances are tight as it is), but I don't want to have a significant adverse effect on my pension when I do retire.

My current thinking is to opt out of the TPS for another year to allow me and my family to get more settled financially, especially as retirement is a good 35-40 years off anyway, but as I said I don't want to do anything rash that I may regret down the line.

Any advice gratefully received!

somethingcorporate

Don't do it. The pension you are about to withdraw from is very generous and the benefits you receive costs only a fraction of what you pay into it. To give a common cited example it would cost someone in the private sector about 25% of their salary to match your current pension provision which is costing you considerably less.

Head over to the DFW and OS forums to help cut-down your lifestyle to fit to your net income. Your 60 year old self will thank you in 32 years.

Once you opt out you will find it very difficult (financially and perhaps even contractually) to opt back in.

pandora205

I agree don't do it. There are two factors you are ignoring (or not aware of)

- your employer pays 14% in addition to your 6%. This is free money invested for your future.
- your pension comes out of your salary before tax, which means that 20% (after your basic allowance) would have gone in tax anyway, again more free money.

Of course TPS is also a very good pension scheme, based on a final salary measure until the proposed date in 2015, then career average. You'd be ill advised to opt out now even if money is tight.

atush

beg, borrow and find the money.

dunstonh

You are not getting £150 taken out of your payslip. If you opt out of the scheme then your take home pay will not go up by £150. Your NI will go up and part of that £150 is tax relief.

There are always excuses to put off paying into a pension but leaving the teachers pension scheme would be a very expensive mistake. Find other ways of cutting back. Don't cut back on something that you will regret doing many years from now.

CLAPTON

obviously you have taken into account that the the 150 is reduced by the 20% tax so it's only costing you 120
also of course you have taken into account that the 12% NI tax is reduced to 10.6% if you take the pension
and of course you have read about the financial protection your family will receive should the worst happen and you die

xylophone

Death in service benefit?
You're young but I remember the young father killed in a freak accident leaving a widow and two very young children - mercifully he was in the LGPS......

seven-day-weekend

I can't number crunch like the others, but I do know that the TPS is one of the best and you should cut down elsewhere rather than not pay into it, and as some-one else has said, your pensioner self will be pleased that your young self made the right decision to stay in it.

geoffgeofftygeoff

For the love of everything do not opt out of the TPS.

I would love to be in a scheme that [STRIKE]good[/STRIKE] ridiculously amazing.

Out of interest (any IFAs out there?) is there a product available in the market that anyone could buy (allowing for the lottery win that would be required to pay for it) with the same benefits and guarantees as this scheme? If so how much would it cost?

dunstonh

Out of interest (any IFAs out there?) is there a product available in the market that anyone could buy (allowing for the lottery win that would be required to pay for it) with the same benefits and guarantees as this scheme? If so how much would it cost?

It would cost you around 30% of your income to match the benefits of the teachers pension scheme.

It would take an uneducated person to leave the teachers pension scheme. Although I add the caveat that I have actually recently recommended someone opt out of the teachers pension scheme but that was on one of those very rare issues to to with lifetime allowance and fixed relief. Not at all a common scenario and the first time in nearly 20 years of giving advice that I have been in that position.

geoffgeofftygeoff

dunstonh wrote: »

It would cost you around 30% of your income to match the benefits of the teachers pension scheme.

It would take an uneducated person to leave the teachers pension scheme. Although I add the caveat that I have actually recently recommended someone opt out of the teachers pension scheme but that was on one of those very rare issues to to with lifetime allowance and fixed relief. Not at all a common scenario and the first time in nearly 20 years of giving advice that I have been in that position.

30%

Wow

Nothing more needs to be said.