Teachers Pension - should I top up?

KatieJo

I am 53 and have paid into the teachers pension scheme for 8 years; hence my estimated retirement package is very low. I am a widow without a pension from my husband but I do have a lump sum of money circa £90.000, which I have invested, safely, in various investments. Some of these are due to mature in May and I stand to have access to about £70,000. I am in a position to contribute to my teachers pension, but I really don't know the terminology or procedures for this.


From initial enquiries with the teachers website I believe I can contribute £6000 a year to my pension, and on this I will get 20% tax relief. I will be in position to do this, and my future plan was to then pay £200 a month from my salary towards my pension over the next 5-10 years.


Can anyone advise me whether it is wise to do this? I own my home and my children are all adults working, but not in greatly paid jobs so I do support them when I can. Also, I know that I will be asked by Santander how I wish to re-invest my money. I always play safe and do not shop around, and I have been happy with Santander, although I did invest £12,000 with the national savings organisation as my youngest child was 16 at the time so I could take advantage of their offer.


I just want to make the most of what savings I have in readiness for my retirement. Advice is greatly appreciated as I really uninitiated in the world of finance and pensions

Freecall

Whether it is right for you I can’t really say as there are many variables although for most people additional contributions to the TPS are very good value in my view.

You can also buy additional pension without spousal benefits if you want which may offer you good value.

I note that you say that your contribution limit is £6,000, is that because you are part time and therefore only have limited salary or have you miss-understood the benefit limit for additional contributions?

The TPS currently allows up to a total of £6,200 in additional benefits to be purchased in £250 lumps which you can buy over whatever time period suits you (provided you have the income to do so).

Freecall

Further to my earlier response I decided to check the figures on the TPS website and I can see where the confusion arises on the additional pension.

The website says :

'For the Scheme year 1 April 2014 to 31 March 2015 the total maximum APB that can be purchased amounts to £6,200 per annum.'

which in my view is misleading at best. The addition of the last two words 'per annum' could give the impression that you can make this amount of purchase every year.

Either way it does not refer to the contribution but rather the benefit being purchased.

KatieJo

Yes, I had read it as being allowed to deposit £6,200 per year. I will have to investigate this more. I think it is worthwhile making additional contributions as I only have 8 years full time service. As long as I'm not wasting my money then I will be happy. Thankyou for your advice.

chucknorris

KatieJo wrote: »

Yes, I had read it as being allowed to deposit £6,200 per year. I will have to investigate this more. I think it is worthwhile making additional contributions as I only have 8 years full time service. As long as I'm not wasting my money then I will be happy. Thankyou for your advice.

Are you getting confused about that £6,200 (you don't 'deposit' that much, that is how much annual pension that you would be buying)? Or is it just coincidence that £6,200 also happens to be the current max additional pension that you can buy in the TPS? It will cost around £80k to buy that £6,200 additional pension (it will vary depending on a few factors, the main one being your age), you can find out how much by downloading and using the additional pension calculator from the TPS website.


I am buying the max (or it was when I started about 28 months ago) allowed additional pension in the TPS, I consider it a very good deal. I will finish paying for that £5,600 additional pension this December and because of inflation rises I will also be able to buy an additional £750 in the next tax year, assuming that it will rise by at least £150 (it went up £200 this year).

KatieJo

Hi. Yes, I am really confused. My plan is to pay about £200 a month more into my pension but because I had some savings I thought I could pay £6000 as a lump sum, which I thought was 'buying back' years. The wording is mis-leading. I have been on the calculator and £273 a month will give me a lump sum of just over £19,000.


Can you simplify it for me? What is the £6,200per annum referring to? Is it the extra amount you would receive, annually, as part of your final pension? For example, I stand at present to retire with a lump sum of £3000 and if I wanted to increase it to £9000 a year I would, as you say, be paying over £80,000.


All I want is someone to give me an idea of what £200-£250 a month will give me when I retire at either 60or 65. The calculator has helped a lot.


Sorry, for being ignorant.

KatieJo

Hi.


I have been back on the calculator and I realise that if I pay £205 a month for the next six years I will get £2500 a year pension in addition to my TPS.


Does anyone know if there is lump sum in addition, or is that a choice later on when the pension comes into play? Also, what is the advantage of the APB over the TAVC?


Thanks again

jem16

KatieJo wrote: »

Hi. Yes, I am really confused. My plan is to pay about £200 a month more into my pension but because I had some savings I thought I could pay £6000 as a lump sum, which I thought was 'buying back' years.

Buying back years is no longer an option within the TPS. What is available is buying Additional Pension.

I have been on the calculator and £273 a month will give me a lump sum of just over £19,000.

You are still reading this wrongly.

if you pay £273pm till you retire at age 60 - ie 6 years approximately - it will cost you £273pm or a lump sum payment of £19,612.

What you will get for £273pm is £1000pa Additional Pension each year on top of what you will get with your current contributions.

Can you simplify it for me? What is the £6,200per annum referring to?

It means that each year you are able to buy £6200 of Additional pension to supplement your pension.

Is it the extra amount you would receive, annually, as part of your final pension? For example, I stand at present to retire with a lump sum of £3000 and if I wanted to increase it to £9000 a year I would, as you say, be paying over £80,000.

You're mixing up the terms lump sum and annual pension so I'm not sure which you are referring to.

If you stand to receive an annual pension of £3000pa then buying £5900 (maximum at the moment) of Additional Pension would then give you £8900pa. However this would cost you over £116,000 over 5 years.

All I want is someone to give me an idea of what £200-£250 a month will give me when I retire at either 60or 65. The calculator has helped a lot.

At age 60 around £750/£1000 extra pension each year.

jem16

KatieJo wrote: »

Hi.


I have been back on the calculator and I realise that if I pay £205 a month for the next six years I will get £2500 a year pension in addition to my TPS.

No you won't. You will pay £205pm or £2500 per year. You will get £750 a year extra pension.

Does anyone know if there is lump sum in addition, or is that a choice later on when the pension comes into play?

There is no lump sum in addition to that. You may be able to commute some of this extra £750pa but you would be ill-advised to do that as the commutation rate is dire.

Also, what is the advantage of the APB over the TAVC?

APB is guaranteed index-linked income just like your current TPS pension. AVCs are linked to the stockmarket and have no guarantees of performance.

KatieJo

Thankyou everybody for your help. I think I understand it now. Apologies for my confusion. I'm not usually so dense but this has left me bewildered.