Teachers Pension Scheme - Additional Contributions

ExMugPunter

dunroving wrote: »

I just wanted to pick up on this point. I am not in TPS (I used to be but withdrew my contributions foolishly back in the 1980s). However, I am in the USS (university equivalent) and there are advantages to paying AVCs in the USS system that, if also applicable to the TPS, wold be worth thinking of.

First is that the USS AVC scheme (run through Prudential) is directly linked to the final salary scheme in a way that at retirement it is simpler to calculate the total pension pot in order to draw a 25% tax-free lump. It is not as straightforward to do this if cash is paid into a SIPP. My plan (if my calculations are correct!) is to reverse-commute the lump sum in my USS final-salary scheme into added years pension and take 100% of my Prudential AVCs as tax-free cash.

Second is that, again because the two schemes are linked, money in the Prudential AVCs can be used at retirement to buy additional defined-benefit pension (final salary pension).

I agree with your point regarding greater flexibility and choice of funds in a SIPP, but the above "flexibility" may outweigh this.

[It may well be that TPS scheme doesn't work this way but it's worth the OP looking into]

You cant use AVC's to buy additional pension with the TPS. It clearly states so in the Frequently Asked Questions section.

With regards to converting your pension into the 25% lump sum - Most peoples TPS doesnt come with an automatic lump sum and with the conversions rates being so poor, it could be a mistake to take one.

As Jem said, the SIPP/Personal Pension route is probably superior because of its flexibility. Especially with the new rules coming into effect this year.

dunroving

ExMugPunter wrote: »

You cant use AVC's to buy additional pension with the TPS. It clearly states so in the Frequently Asked Questions section.

With regards to converting your pension into the 25% lump sum - Most peoples TPS doesnt come with an automatic lump sum and with the conversions rates being so poor, it could be a mistake to take one.

As Jem said, the SIPP/Personal Pension route is probably superior because of its flexibility. Especially with the new rules coming into effect this year.

Thanks, that's helpful, and interesting to know the TPS doesn't allow you to use AVCs to buy additional years. I think I am pretty lucky with USS because it allows a lot of flexibility between final salary pension, lump sum, and AVCs.

Re: The link between TPS lump sum and final salary pension element, my brother was in TPS in the old scheme so is due to get a lump sum when he retires in just over two years. We could only find information on commuting pension to additional lump sum but he wants to do the opposite (sacrificing the lump sum for additional pension). Do you know if that is possible? We were assuming it's not as we could only find information in the opposite direction.

jem16

dunroving wrote: »

[It may well be that TPS scheme doesn't work this way but it's worth the OP looking into]

Having been a member of the Scottish Teachers' Scheme for over 37 years I would have mentioned it had it been possible.

Unfortunately it is not, and has never been , possible.

jem16

dunroving wrote: »

Thanks, that's helpful, and interesting to know the TPS doesn't allow you to use AVCs to buy additional years. I think I am pretty lucky with USS because it allows a lot of flexibility between final salary pension, lump sum, and AVCs.

Public Sector schemes, whilst similar, also have their differences. The LGPS, until recently, also allowed the AVC pot to be used to fund the tax-free lump sum apart from the automatic lump sum which had to be taken from the main scheme. From April 2014 for new AVCs this is not possible.

Re: The link between TPS lump sum and final salary pension element, my brother was in TPS in the old scheme so is due to get a lump sum when he retires in just over two years. We could only find information on commuting pension to additional lump sum but he wants to do the opposite (sacrificing the lump sum for additional pension). Do you know if that is possible? We were assuming it's not as we could only find information in the opposite direction.

It's known as reverse commutation and is not possible. He will have to take the automatic lump sum.

jem16

ExMugPunter wrote: »

With regards to converting your pension into the 25% lump sum - Most peoples TPS doesnt come with an automatic lump sum and with the conversions rates being so poor, it could be a mistake to take one.

The scheme changed in 2007 from an 1/80ths scheme with automatic lump sum and retirement age of 60 to a 1/60th scheme with no automatic lump sum and retirement age of 65.

As such I would have expected the majority to be on the automatic lump sum scheme as the change was only 7 years ago.

dunroving

jem16 wrote: »

Public Sector schemes, whilst similar, also have their differences. The LGPS, until recently, also allowed the AVC pot to be used to fund the tax-free lump sum apart from the automatic lump sum which had to be taken from the main scheme. From April 2014 for new AVCs this is not possible.



It's known as reverse commutation and is not possible. He will have to take the automatic lump sum.

Thanks, that was what we figured but I thought I'd ask. I am lucky in the USS because I plan to use reverse commutation for my lump sum, and then use my Prudential AVCs to fund the tax-free lump sum. We're not talking huge sums (I have only been contributing to this scheme since age 48) but it's good to have the flexibility. I realise that schemes like USS and the TPS are moving to less favourable terms for newer joiners.

jem16

dunroving wrote: »

I realise that schemes like USS and the TPS are moving to less favourable terms for newer joiners.

The TPS was never on favourable terms for inverse commutation and AVCs that the likes of the LGPS, Civil Service and USS were.

All members of Public Sector schemes are about to move onto Career Average ( some already have), not just new joiners.

dunroving

jem16 wrote: »

The TPS was never on favourable terms for inverse commutation and AVCs that the likes of the LGPS, Civil Service and USS were.

All members of Public Sector schemes are about to move onto Career Average ( some already have), not just new joiners.

Yes, mine will move to less favourable terms too, but only for contributions made after the change. The USS online modeller is really helpful but I don't know if it adjusts for things like the fact new contributions will be based on a retirement age of 66, etc. Still, I consider myself lucky overall.

I guess I should have figured you were in Scotland based on your logo (duh). I'm in Glasgow.

jem16

dunroving wrote: »

Yes, mine will move to less favourable terms too, but only for contributions made after the change.

Yes accrued benefits will remain under the old rules.

raj99

Hi Guys,
Really grateful for all the useful discussion in the above and other threads on this site about TPS. I have only just started looking at pensions and it's quite a lot to take in.
The discussion around additional pension above shows that you have to put quite a lot of money in in order to get a little increase in yearly pension.

What I can't then understand is how the calculator on the TPS site is suggesting that if I start contributing to TPS scheme now (age 42), then by the time I'm 67 I should have a yearly pension of 25k?(current salary 36k)

TPS site /calculators/estimate-your-final-pension-value.aspx