MSE News: Schools to teach teenagers about pension planning

chucknorris

redux wrote: »

Someone I know has a widow's pension from Teachers' Pensions.

A third of the amount it was when her husband was alive.

Why isn't it half? Two financial advisers have been astonished that it isn't half.

Maybe the government could start its own education with thinking up an answer to this question.

In the post 2010 changes version of the TPS scheme that I am in, my wife would get 1/160th accrual (as opposed to my 1/60th accrual, if I died). It isn't half, but what you have to understand is that if I was buying an annuity (ok you don't have to do that now, but it is still a good comparison to gauge the value), I would be paying about £30k for every £1,000 pension paid annually (based on the same terms as my TPS pension). In my TPS scheme I only pay about £6,200 for every £1,000 pension paid annual. That is how good the scheme is, it is almost 5 times better than buying an annuity with a DC pension pot!


EDIT: If it had not been for the exceptional value of the pension I would have retired a few years ago, even buying additional pension is more than twice the value of buying an annuity. So that too is great value.

gadgetmind

waspsandjam wrote: »

£11,250 a year? Gold plated? Perhaps not so much....

The security of not being exposed to unpredictable investment returns, so knowing what you'll get is by far the best thing about a defined benefit scheme.

Try this calculator.

https://www.hl.co.uk/pensions/interactive-calculators/pension-calculator

Put 1990 as DOB, so a 25 year old, and set retirement age to 55. £30k pa is £2.5k pcm, so 25% is £625 a month. After 25% PCLS, you'll get £8480 pa from an annuity (it's a brave person who retires at age 55 and plans for a 4% drawdown!)

This is with the default 5% return etc.

So, even 25% of salary can't match the DB scheme.

Compound investment returns massively benefit from an early start, so start early!

I did, and have been putting in a lot more than 25% pa!

waspsandjam

Thanks gadgetmind. Using a spreadsheet and comparing to the HL calculated pot, this looks like a real return of about 2% to me (presumably the 1.5% management fee and effect of inflation or platform charge on returns take their toll) but i do take your points about DB's, private pensions and annuities.

The advanced options in that calculator are the kind that a student could play with to see how the changes affect the outcome.

That does lead to a couple of important things to add to a possible future syllabus though:

1) Assumptions in predictive models change and model results will range from "not being completely accurate" to "being wildly inaccurate". Realise this and dont take them as the gospel truth.

2) Effects of fees and charges.

3) Compare like for like as much as possible when making decisions.

4) Annuity offers change and providers rates differ massively. At the moment on average, they are particularly poor.

Gadgetmind, it would be great to know what your motivations were for starting early and investing more than 25% if you dont mind sharing? Presumably someone, or something steered you down that path? (my "start early" comment was aimed at future students, not anyone in particular. I couldnt work out if you took that personally from your response)

I've always contributed to employers schemes when offered but ironing out my finances, learning about investments, money management and financial planning has been a "hobby" for the last 3.5 years. An explanation of why i should "start investing early" would have been just the kind of advice i could have done with when i was 13 or younger, instead of having to find out for myself in my late 20's.

gadgetmind

waspsandjam wrote: »

Gadgetmind, it would be great to know what your motivations were for starting early and investing more than 25% if you dont mind sharing?

Perhaps not the right thread, but briefly ...

My father retired at 54, and he did have some DB pension, but he's always been a frugal chap (we're both Yorkshiremen!) and also very self reliant when it comes to investing and managing money.

I will admit that I don't have all of his strengths in this department, and definitely not when younger (!), but I did realise very early on that the state wouldn't look after me in old age, so it was down to me to get saving. I was doing PEPs in the late 80s (when in my mid 20s), had a private pension even before that, and have always kept bunging money into pensions and what are now S&S ISAs.

In the early 90s, when a business partner and myself paid ourselves a nice bonus via dividends, he bought a used Porche, while I put the lot into my pension. My wife wasn't totally delighted at the time, but now understands the logic!

I wasn't putting 25% in from the start, but definitely 10%+, and over 50% as I started to cross the big 50 barrier.

Yes, it would be great to spend this money in the here and now, and have some state-funded magic money tree shower money on me in later life, but the economic reality is that this just can't work for everyone as there would be no-one left to subsidise them!

(my "start early" comment was aimed at future students, not anyone in particular. I couldnt work out if you took that personally from your response)

I take very few things personally!

An explanation of why i should "start investing early" would have been just the kind of advice i could have done with when i was 13 or younger, instead of having to find out for myself in my late 20's.

Agreed, but late 20s isn't too bad.

jem16

redux wrote: »

Someone I know has a widow's pension from Teachers' Pensions.

A third of the amount it was when her husband was alive.

Why isn't it half? Two financial advisers have been astonished that it isn't half.

Unfortunately male and female teachers were treated differently within the TPS with regards to family benefits.

For male teachers, the family benefits counted service from April 1972. For female teachers service was only counted from 1988 - service could be bought from earlier years if you did so within 6 months of getting married.

So basically a widower would get less than a widow if his wife had service in teaching before 1988.

Maybe the government could start its own education with thinking up an answer to this question.

The answer is already there and some have challenged its fairness - perhaps the person you know should do so.

Notes from TPS;
https://www.teacherspensions.co.uk/members/the-scheme/active-teacher/family-benefits.aspx ;

How much of my service counts towards family benefits?

If you have nominated a partner for family benefits your service from 1 January 2007 will automatically be used in the calculation of family benefits. You can purchase service before that date if you apply within six months of nominating your partner.

If you are married or have registered a civil partnership all your service from 6 April 1988 automatically counts for family benefits. You can purchase service that was completed before April 1988 but that must be within six months of getting married or registering a civil partnership, for the first time.

If you are a male teacher who leaves a widow who you married before leaving pensionable service, your service will count from 1 April 1972 for family benefits. If you married after leaving pensionable service your service from 6 April 1978 will count for family benefits.

waspsandjam

Gadgetmind. Thankyou for sharing. I think this is just the place for your post. If you want to motivate children to think about planning for retirement (i'm assuming this is the governments aim), the best place to look is at people who planned for retirement early and why they did.

Its not difficult to make financial information into a dry subject.
I've found that i have much more interest in investments when my own money is involved rather than just theoretically looking at returns. I'm putting £1 a week equivalent into a cash ISA, S&S ISA and pension for my young daughter so she (hopefully) wants to be more interested in learning early.

I can see how a strong role model who passes on investment / money management knowledge would help engage children.
How these would translate into a school lesson, i'm unsure. No life experiences are ever the same, so real life success case studies / visitors to schools could have potential.