Is it worth moving my Old Penson to the Teachers Pension Scheme

OMAR

Hi,


I am just starting my first teaching year this year and will be paying into the TPS.


I have 10 Years service prior to this where I was paying into a Company Defined Benefit Scheme.


Is it worth transferring it in and buying extra service from the TPS?


How do I figure out if it is...I only have a deadline of 1 year to transfer in...

dunstonh

You will need to do a cost/benefits analysis to see if you gain or lose. Its not easy. However, in simplified terms, to start it you will need a transfer value from the existing scheme and when that arrives you need to ask the TPS what benefits they will give you for that transfer value. Then you compare the two.

xylophone

And do you reach NRD in your deferred pension earlier than you will in the TPS?

OMAR

My NRA is 65 in my current scheme...with early retirement from 55...


I am presuming pretty standard and presume similar to TPS....?

jem16

OMAR wrote: »

My NRA is 65 in my current scheme...with early retirement from 55...


I am presuming pretty standard and presume similar to TPS....?

At the moment yes for those that joined after 2006.

However it's changing to a CARE scheme from 2015 where retirement age will be your state pension age.

OMAR

ah right...but will there be an ability to retire early with TPS and also pay more into it...without having to do a separate AVC?

jem16

OMAR wrote: »

ah right...but will there be an ability to retire early with TPS

At the moment yes. However there has been no mention of it changing with the CARE scheme so it should still be age 55 onwards with actuarial reduction.

and also pay more into it...without having to do a separate AVC?

There are two ways to pay extra - Additional Pension and AVCs.

OMAR

Which is the better option to pay AVC into, in your opinion

jem16

OMAR wrote: »

Which is the better option to pay AVC into, in your opinion

AVCs are really only worth considering if you can take your tax-free lump sum from the AVC pot. You can't do this with the TPS so no real advantage.

You can of course use a Personal Pension or SIPP, it doesn't have to be an AVC.

As to whether it's better to use Additional Pension or AVC that depends on your attitude to risk and what you're trying to achieve - ie if thinking of retiring early neither might be the best option.

It may be that using a S&S ISA is better than any further pension contribution.

OMAR

thanks jem...so If I want to retire early, is it not worth buying additional pension (option 1) /avc prudential (option 2) if ur part of the TPS scheme....just to clarify...?

jem16

OMAR wrote: »

thanks jem...so If I want to retire early, is it not worth buying additional pension (option 1) /avc prudential (option 2) if ur part of the TPS scheme....just to clarify...?

Additional Pension will suit many people who want a guaranteed income. It will normally be paid with the main pension so if you decide to retire early there would also be a reduction with that.

AVCs with the TPS would cost somewhere between 0.65% and 1% in charges and there's not a lot of choice. You could probably do better with a PP or SIPP. You can take your AVCs from age 55 just like any pension. However, as with all pensions, you can only take 25% tax free with the rest providing an income.

If you are a higher rate taxpayer then a pension of some description is definitely the way forward. 40% tax relief if you pay basic rate in retirement is an obvious advantage.

If you are a basic rate taxpayer the choice is not so clear. With the new scheme having a retiral age in line with the state pension age, the actuarial reduction is going to be huge if you wanted to take your pension when you retire. I believe it will be 3% per annum from age 65 and 5% per annum from age 55 to age 65.

Your other option is to retire from teaching at age 55 but defer your pension until the normal scheme date. However you would need something to live on which would either mean a different job or living off other investments/savings. That's where a S&S ISA May come in useful because unlike a pension where you're limited to a certain amount of income each year, you can draw how much you like.

Only you can decide what option is best for your circumstances.