Teachers Pension Dilemma

MiddyMum

Stay in the pension scheme, you need to get out of the mindset of spending every penny you earn.

maginot

I would not recommend leaving the teachers pension scheme. As long as the government doesn't change it again in another 5 years.

Although you are likely to be paying 7.6% (after this years changes) rather than 6% and it is a big chunk of income, the employer contributions are significant and as mentioned, would be very, very expensive to get in the private sector.

As you have only been teaching for 4 years, you should automatically move to pay scale M5 and the pay increase should cover the majority of your pension contributions.

It may seem like a long way away, but just 1 or 2 years of non payment can make a big impact on the eventual pension received

thegirlintheattic

Stay in.

pandora it is 7% and is set to rise in the next few years.

dunstonh

although remember that the figure quoted on your contribution is gross. You get tax relief against that as well as paying a lower rate of NI.

tanith

Move heaven and earth to stay in it.. You WILL regret it in the future if you choose to leave now..

zagubov

Snappy1983 wrote: »

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!

I pretty much made the very mistake you're considering doing. It has cost me an arm and a leg to put it right. Do me a favour and benefit from my bad experience. I was a mug. you don't have to be.

Everybody is giving you the same good advice, and they're all correct to do so. For the love of all that's holy stay in the scheme!

Zero_Sum

thegirlintheattic wrote: »

Stay in.

pandora it is 7% and is set to rise in the next few years.

depends on how much you get paid
if they've been a teacher for 4 years, they'll be on M5, which means conts are 7.3%. If there are any TLR/SEN payments wil be higher

real1314

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.

How have you arrived at a figure of 30%?

What sort of investment return is it based on, and what sort of annuity rate? :cool:

hugheskevi

How have you arrived at a figure of 30%?

What sort of investment return is it based on, and what sort of annuity rate?

I've done calculations such as this in the past.

The calculations are very sensitive to how long an individual remains employed, what their salary increases are, and what you assume about investment returns.

Using reasonable assumptions, at the bottom end, a young person who only stays for a few years needs a contribution rate only a bit above 20% to fund their pension (combined - both employer and employee contributions), whereas at the upper end (long-stayer, with decent salary escalation) you are talking more like 40%. For everyone in-between, 30% is about right, perhaps even a bit low.

That was based on investment returns of something like 6% p/a, calculating what the DB benefit would be for a particular career path, using market annuity rates to calculate the pot size needed to buy that pension, then working back using the career/salary path to calculate the required contribution rate.

In particular, I'd argue the public service pension contribution rates, which are usually reported as being about 25% to provide a CPI linked pension from age 60, look quite optimistic.

dunstonh

real1314 wrote: »

How have you arrived at a figure of 30%?

What sort of investment return is it based on, and what sort of annuity rate? :cool:

There have been a number of calculations done by people or firms over the years.

The 30% figure is typically one that is for the average scheme taking on an average level of investment risk. If you wanted to use guaranteed investments (i.e. cash) then that figure would shoot up.