Very confused on Teacher's Pension option

eastofeden

I would be very grateful for any thoughts on my pension situation. I am a teacher and intend to retire early next summer when I will be 58 and 8 months. That means I get a reduced pension. I will have about 32 years service by then.

My question is this. Is it better financially to live from savings until I reach 60 and then draw my pension, or to begin drawing it in September next year?

I have used the calculators on the TP website, but am still unsure of the better option.

Any constructive advice would be much appreciated.

jem16

eastofeden wrote: »

My question is this. Is it better financially to live from savings until I reach 60 and then draw my pension, or to begin drawing it in September next year?

I have used the calculators on the TP website, but am still unsure of the better option.

Any constructive advice would be much appreciated.

How much does the calculator say you will lose on both your pension and lump sum if taken early?

eastofeden

About 1200 pa pension and 3600 lump sum

SeekTruth

eastofeden wrote: »

I would be very grateful for any thoughts on my pension situation. I am a teacher and intend to retire early next summer when I will be 58 and 8 months. That means I get a reduced pension. I will have about 32 years service by then.

My question is this. Is it better financially to live from savings until I reach 60 and then draw my pension, or to begin drawing it in September next year?

I have used the calculators on the TP website, but am still unsure of the better option.

Any constructive advice would be much appreciated.

Suggest you try and estimate how much income you need long-term to cover your lifestyle. If your teacher's pension plus predicted state pension is comfortably above your desired income then it probably doesn't matter which option you go for. If, on the other hand, your predicted income is lower than you desired income then converting savings to income could be desirable and delaying your TP to age 60, in effect, is probably one of the best ways available to you to achieve this.

kidmugsy

If you live off your savings for 16 months, does this mean that your Personal Allowance against income tax can be neatly exploited?

Thus: in 15-16 you'll get earnings in, say, April, May, June and part of July. Will they use up your £10,500 personal allowance?

Then in 16-17 will pension in (approx) Nov - March be enough to use the personal allowance?

If so, there might indeed be a case for deferring drawing the pension until age 60, because if you draw on retirement you'd have to pay tax on it in that first 16 months of retirement whereas if you defer you will reduce your tax bill. Eventually you'll be paying tax on the larger pension, but you will still end up "in profit" at least in the short term.

atush

Another idea is to live on your reduced salary now, and put every extra penny into a DC pension. Which you could then withdraw to live on while delaying taking your TPS pension.

using the 25% TFLS with savings could then hold you off til the next tax year when you could take the 75%.

eastofeden

Thanks for the replies. Kidmugsy- I will get salary for April, May June, July and August in 2015, so will be above the non taxable salary, but not even something I had considered, so thanks for that, need to think on!

Atush, have been saving half my salary into my 123 account, as this leaves me about my projected pension income to live on. Can you explain more about the private pension idea? Would that accrue more in 15 months till I retire than just my bog standard 123 account?

Thanks to others too, very helpful thoughts!

jem16

eastofeden wrote: »

Atush, have been saving half my salary into my 123 account, as this leaves me about my projected pension income to live on. Can you explain more about the private pension idea? Would that accrue more in 15 months till I retire than just my bog standard 123 account?

If you pay into the PP you will gain tax relief. You can then take the 25% tax-free with the other 75% taxed as normal income. (assuming pension changes for April 2015 go through)

This would have been very good if you were unlikely to use your personal allowance but that looks unlikely from what you say.

However if you pay higher rate tax just now it could still be a good idea as you would be gaining 40% tax relief but only paying 20% tax. What is your tax status just now?

I'm thinking along similar lines at the moment. I'd be losing around £979pa and £2939 lump sum. Not a great deal as I'm fortunate to have other income so tempted to take it and enjoy life now as I'm getting pretty fed up of teaching.

atush

It does give you an immediate uplift of BRT (and HRT if you pay that) so 100 into a pension costs you only 80 (or 60 if you pay HRT).

So this % would infact give you more over those months than saving into a current acct. And as you pay tax on those savings, paying tax on the 75% DC pension drawdown after taking the 25% tax freewill not be a hardship as you have to pay tax on your savings at present.

Add that to the uplift in your DB pension by not taking it as early and that looks pretty good to me.

eastofeden

That is exactly where I am coming from, Jem 16, with all the changes etc etc I don't hate my job, but a lot of the joy has gone from it now. Yes I pay 40% tax at present. I have an ISA with about 50 k in it. I am in good health so I figure why not go early and enjoy myself? I love travelling etc etc and could go out of school holidays at last!!

So you are suggesting some form of private pension for the next 25 months? Wouldn't know where to start, so any pointers?

jem16

eastofeden wrote: »

That is exactly where I am coming from, Jem 16, with all the changes etc etc I don't hate my job, but a lot of the joy has gone from it now. Yes I pay 40% tax at present.

Do you still pay 40% tax after taking your current pension contributions into account?

I have an ISA with about 50 k in it. I am in good health so I figure why not go early and enjoy myself? I love travelling etc etc and could go out of school holidays at last!!

Exactly my thoughts too! I was thinking about finishing in summer 2015 but my friend (also a teacher) are now looking at a great repositioning cruise in April which is outwith our main holidays - we're both seriously tempted.

So you are suggesting some form of private pension for the next 25 months? Wouldn't know where to start, so any pointers?

It's a consideration but only if you're comfortable with it. Although I assume it would only be for 15 months if you're looking at retiring next summer?

Cavendish Online may be a starting point or even HL's SIPP as it's not bad for small pots.

I do already have a SIPP which could be used but I'm more interested in the breakeven point as you're giving up income for that 16 months if you don't take the pension.