Transfer Teachers' Pension to SIPP

SomeUser

You don't lose your employer contributions. You lose your guaranteed benefits - the present value (transfer value) is based on a whole load of guesses ("assumptions") for things like inflation. If/when those assumptions turn out to be incorrect, your pension is adjusted to take this into account.

You are guaranteed to receive a certain pension, increased with inflation. The cost of providing guaranteed benefits is huge.


If you transfer, you're not guaranteed to get a thing.

atush

tjd08 wrote: »

@magpiecottage - interesting, would you care to elaborate more on the 'cost of redressing missold transfers' please? I'm not using an IFA - I simply want to transfer a nominal TPS scheme cash value into a SIPP!

you would 100% HAVE to use an IFA if you found a platform silly enough to accept the money. The value of your pension is 100% clear (no of years x either 1/60th or 1/80th depending on when you left plus possibly an automatic LS) and rising every year with indexing. Nothing you can do yourself with the transfer value will be worth anything like what you are giving up. An IFA is required to sign off on any DB transfer, as it is 99.9% likely to be a missale and not in your best interests. So virtually honest above board advisors WILL NOT do it.

You are quite frankly mad to go down this route. Unless he was ill and likely to die and didn't have a spouse.

And do be aware that anyone who agrees to do it is most likely a scammer.

Have you not taken the 4 years and multipled it by the above (ie 1.25% for 80ths and 1.67% if 1/60ths times your average salary.

Not a maths teacher and cant do it? Put up your salary and which year they joined left the tps and someone will do it for you. Dont forget the salary figure has been indexed each year since they left so do ask what it is up to now?

Anyway, AFAIK, the govt has put the kibosh on ANYONE transferring out in the near future.

Linton

tjd08 wrote: »

@Linton - You're right, I didn't realise this. I assumed a TPS to SIPP transfer would include the Teacher's Contributions + School/Employer/LEA Contributions.

If a transfer would lose all of the employer's contributions, then we'd take a 50% (ish) hit straight away?

The employer doesnt pay a fixed amount into your pension, they pay into the pension system as a whole. But old teachers cost more than young ones (as their pension is based on a relatively higher wage and most contributions would have been made at a lower wage). Which is why determining the transfer value is impossible for you to calculate.

Perhaps if we calculated some figures it would help - what is your current transfer value as a % of the annual salary? Given this it would be possible to work out what after-inflation investment return you would need to achieve the same value pension.

hugheskevi

It also isn't inflation you have to out-perform, but the discount rate used by the scheme actuary. In your scheme's case, the discount rate is CPI+3%.

So if CPI in the long-run is 2%, you need to get 5% annual returns just to match the assumed return within the Teachers' scheme valuation of benefits. Then there is the value of the guarantees - an index linked annuity returns, on average, about 75% of the initial capital. Any increase in longevity above current projections will lead to a need for extra funding. Charges will also have to be funded (there aren't any charges to the member in DB schemes).

If you can routinely get 10% return p/a transferring will probably work out quite well. That probably won't give you any ability to de-risk as you approach retirement, otherwise that target will be completely out of reach. So the question is are you feeling lucky?

tjd08

All, I really appreciate all comments given. I didn't have any idea how complex it was; started the thread with frustrations from lack of understanding and explanation from anyone I've spoken to so far.

Thanks again. Leaving the TPS as it is.

xylophone

You say that your partner was a teacher - you are therefore discussing deferred benefits?
https://www.teacherspensions.co.uk/members/faqs/past-or-deferred-members-faqs.aspx

https://www.moneyadviceservice.org.uk/en/articles/transferring-out-of-a-defined-benefit-pension-scheme

http://www.thisismoney.co.uk/money/experts/article-2705868/I-want-transfer-deferred-defined-benefit-pension-defined-contribution-scheme-Why-a.html

According to the Pensions Policy Institute ( "PENSIONS POLICY INSTITUTE Occupational pension provision in the public sector" ) dated 2005,
the TPS is unfunded.

"Public sector schemes are - except for the Local Government scheme –
unfunded. This means that pension benefits are paid out of current income as and when they become due. All approved private sector schemes and the Local Government scheme are funded (scheme members’ pension rights should be covered by assets held under trust)."

Any receiving scheme is likely to insist that your wife obtains advice from an IFA - this is because a transfer out of a DB scheme is almost certainly not in her best interests - circumstances where it might be advisable are limited.

RichandJ

tjd08 wrote: »

All, I really appreciate all comments given. I didn't have any idea how complex it was; started the thread with frustrations from lack of understanding and explanation from anyone I've spoken to so far.

Thanks again. Leaving the TPS as it is.

Good man.

You & yr partner will be grateful for that decision one day.

magpiecottage

tjd08 wrote: »

@magpiecottage - interesting, would you care to elaborate more on the 'cost of redressing missold transfers' please?

About 20 years ago the Personal Investment Authority identified that a lot of final salary pensions had been missold.

It forced all firms who had sold them to review all such transfers.

In almost all cases they had to pay large amounts of compensation. To give you an idea, I "gave away" tens of thousands of pounds of my employer's money every day for about five years - and I only saw perhaps one in a hundred cases. The rest were dealt with by other people.

Public Sector schemes (Teachers, local government, civil service etc.) were some of the worst because they gave an absolute guarantee to always match inflation.

I'm not using an IFA - I simply want to transfer a nominal TPS scheme cash value into a SIPP!

Oh. Then you have another problem.

On 21 July the Chancellor announced that it was to become compulsory for somebody in your position to take professional advice before transferring.

Although it is not yet Law, the fact that it is widely known that it will become law means that if a SIPP accepted your money, if you later complained that it was the wrong thing to do, the Financial Ombudsman Service would force them to compensate you because, although they did not advise you, they should have known better than to accept it.

So you will not be able to do what you want.

However, because it is fully inflation proofed, you could work out the number of Mars Bars you could buy in a year with the pension and know that, when you retire you will still be able to buy that number of Mars Bars in a year no matter what the price of them then is.

I don't recommend blowing it all on Mars Bars, though.

ExMugPunter

magpiecottage wrote: »

However, because it is fully inflation proofed, you could work out the number of Mars Bars you could buy in a year with the pension and know that, when you retire you will still be able to buy that number of Mars Bars in a year no matter what the price of them then is.

I don't recommend blowing it all on Mars Bars, though.

If you do this you also need to factor in the risks highlighted by the Chocolate Bar Mass (g) Deflation Index. Anyone who had their pensions invested in Wagon Wheels took a massive 30% hit in their chocolate pension purchasing power in the 80's/90's and it still hasn't recovered.

Personally I have diversified into Skittles. Whilst the Red and Green Skittles have gone up significantly, the Blue allocation in my portfolio has dropped quite alarmingly. I am not sure whether I should sell my Blue Skittle holding or wait for the rebound?

I also have a selection of Black Jacks and Fruit Salads to stabalise volatility.

pip895

tjd08 wrote: »

@Linton - Thanks. My thinking is that if the 'transfer value' (e.g. sum to actually be transferred into the SIPP) is equal or greater than the money taken from salary payments into the scheme, then it's worth looking at.

But personally, with 30-40 years until retirement, the difference in growth potential between an inflation-linked investment vs a bond-equity investment is worth the move.

This would be a staggeringly bad deal! - I looked in to transferring out of a DB scheme a while back and the transfer value was very significantly higher than the combination of my and my employers contributions. It wasn't that much lower than what it would cost me to purchase an annuity to give me those benefits - I still didn't go for it. However I'm much closer to retirement and it was for 15 years of my working life not just 4.