Opting out of teachers pension. Confused!

jem16

Cobweb18 wrote: »

Yes, maybe I should throw as much as I can into mortgage over-payments to try and clear it at least five years sooner?

That would depend on your mortgage rate. It might not be the best idea.

I'm 41 and a higher rate tax payer.

Well that £350 would come down to around £210 minus a bit extra for NI.

I have seven years in teachers pension, currently worth only about £5,000 per anun, not much.

Thank you, I feel like a bit of an idiot!

If you had used a personal pension instead of the Teachers' pension, that would require a pot of £166k. Not a small amount!

Cobweb18

jem16 wrote: »

That would depend on your mortgage rate. It might not be the best idea.

It's 5.9% so probably a good idea to overpay until next year when I can renew it?

Well that £350 would come down to around £210 minus a bit extra for NI.

Oh, I didn't release it was so much!

If you had used a personal pension instead of the Teachers' pension, that would require a pot of £166k. Not a small amount!

So I think I best stay there for now and build this up to higher amount before changing. thank you for helping me out - think I'll be working forever though!

ViolaLass

You don't have to keep being a teacher though, or working full time.

I'm a teacher too and I'm saving more money on top of my pension so that I can retire/semi retire early if I want to without having to reduce the pension.

Cobweb18

Thank you, I suppose it is too much of a risk to put all my future money into my flat, I'll calm down with my 'ideas'!

While I am here I wondered if I could also ask another quick question, my partner's pension with teachers pensions is currently worth 16K a year but he opted out during a break from work. Now he's back at work should he opt back in, he has about ten more years to work, what's the best place for him to put money each month until then, teacher's pension or somewhere else? Thank you, I appreciate you taking the time to help a stranger.

somethingcorporate

That £5k guaranteed income per annum has cost you ~£18k in your pocket over the last 7 or so years (@£210 per month after tax) but has bought you something worth £150k+ on the open market. Not bad value for money if you ask me!

Now do you realise how bad your decision would be to leave such an amazing scheme?

Cobweb18

It's just waiting until I'm 68 that I am struggling with....

somethingcorporate

You can take it earlier, it just gets reduced accordingly.

The idea of retiring early is to save outside of the pension to bridge the gap between when you retire and when you can draw your pension. If you spend say £15k a year (assuming mortgage etc paid off) then to retire at 60 you'd need another £120k in savings to cover this 8 years. Sounds a lot but it soon adds up over time.

BobQ

The Pensions Policy Institute has calculated that now (prior to the reforms) the average teacher would need to earn an extra 23% of their salary to compensate for the loss of the pension.

That is if your employer just closed the pension scheme and said "you keep your contributions and we will keep ours" so go and make your own arrangements, you would need a salary increase of 23% to compensate you for what you have lost. After all the changes, (career average, later retirement date, changed contribution rates) this figure will be 14, again on average.

So your question is what ? Should you willingly volunteer to cut your pay by about 14% from now until the date you retire?

dunstonh

I have seven years in teachers pension, currently worth only about £5,000 per anun, not much.

That is equivalent to around £175,000 in a pension fund. 7 years service has got you £5k and you call that not much?

hugheskevi

If you had used a personal pension instead of the Teachers' pension, that would require a pot of £166k. Not a small amount!

That £5k guaranteed income per annum has cost you ~£18k in your pocket over the last 7 or so years (@£210 per month after tax) but has bought you something worth £150k+ on the open market. Not bad value for money if you ask me!

The OP is 41, so you can't use factors applicable to 60 or 65 year olds to value the pension and there isn't any significant open market for deferred annuities.

For a female aged 41 with a Normal Retirement Age of 65, using the Added Pension Calculator for teachers' pension suggests a factor of about 10 is appropriate which suggests the OP's pension is worth around £50,000.

Alternatively, using the Hargreaves Lansdown calculator for someone turning 41 tomorrow with a normal retirement age of 65, an existing pot of £50,551 would be needed to secure a pension of £5,000.

Even taking into account the costs of annuitisation, charges, and that the OP may have a lower Normal Pension age and the benefits are linked to final salary, that £5,000 pension isn't worth anything like £150,000.