teachers pensions - additional pension benefit

Anomaly100

I know that the teachers pension changes in April. I can afford to put some extra money in to it as a lump sum to buy additional pension benefit. Is it worth me doing this before the changes?

frugal90

funnily enough I had the same thought - my wife moves into the new career average scheme whereas I stay in the existing one due to tapered protection - have asked the union for advice but they seem to know little tbh?

chucknorris

frugal90 wrote: »

funnily enough I had the same thought - my wife moves into the new career average scheme whereas I stay in the existing one due to tapered protection - have asked the union for advice but they seem to know little tbh?

I believe that the maximum amount of additional pension that you can buy in the revised scheme does not take into account additional pension purchased in the older scheme. But it takes the TPS a while to get organised, so you would have to do this immediately to invest a lump sum before the change of scheme date in April.

I have already bought the maximum in the old scheme, but because I am a transitional member and will not join the new scheme until August 2020, it would mean that I would have to work another 7.5 years to benefit. I was planning to retire next December and because it would take me 4 years to buy the new maximum of £6,500, I would have to work until the summer of 2024. I really don't fancy doing that, but if I wasn't wealthy, I would do it, but I am considering doing it.

Anomaly100

I phoned the teachers pension and from what they were saying I can buy additional pension benefit to a maximum of £6200. There is a calculator on the teachers pension website which explains how much it costs to buy varying levels of additional pension benefit. Sorry can't post a link yet.

I've used the calculator mentioned above and it indicates that for an extra £250 in my pension I need to put a lump sum payment of £2090 in now.

How do I know if that's a good idea?

ExBT_Bob

Anomaly100 wrote: »

I phoned the teachers pension and from what they were saying I can buy additional pension benefit to a maximum of £6200. There is a calculator on the teachers pension website which explains how much it costs to buy varying levels of additional pension benefit. Sorry can't post a link yet.

I've used the calculator mentioned above and it indicates that for an extra £250 in my pension I need to put a lump sum payment of £2090 in now.

How do I know if that's a good idea?

Well it's your money back after 8yrs (if untaxed - a little longer if taxed), so as it's CPI indexed too it sounds a great deal. Usually you have to allow for money back after about 20yrs before you start to gain from the deal.


The calculator is downloaded from here: https://www.teacherspensions.co.uk/members/resources/calculators/additional-pension.aspx

dunroving

Anomaly100 wrote: »

I phoned the teachers pension and from what they were saying I can buy additional pension benefit to a maximum of £6200. There is a calculator on the teachers pension website which explains how much it costs to buy varying levels of additional pension benefit. Sorry can't post a link yet.

I've used the calculator mentioned above and it indicates that for an extra £250 in my pension I need to put a lump sum payment of £2090 in now.

How do I know if that's a good idea?

Last time I raises this analogy it caused a lengthy pedantic row but here goes anyway ...

Assuming the £250 will be CPI adjusted so will be the "equivalent" of £250 whenever you retire (presumably at 60):

This is the equivalent of getting an inflation-protected annuity at a 12% return rate (£250/£2090), and at age 60 also, which is phenomenal.

A single-life, inflation-protected annuity at age 65, never mind age 60, would only yield around 3.3% To put that another way, you'd need £7,575. Or, for a pot of £2,090, you'd only get an income of £69.

And maybe the £250 teacher's pension would also come with spouse protection if you die(?) - I don't know about that aspect of TPS but assume so as this is common for this sort of pension. So even better.

hugheskevi

This is the equivalent of getting an inflation-protected annuity at a 12% return rate (£250/£2090), and at age 60 also, which is phenomenal.

There is an implicit assumption in there of an investment return of CPI for the next (65 minus member's age) years on the contribution.

Which is awful

That is what generates the "phenomenal" results, not the generosity of the offer (which uses an assumption of returns of CPI+3% p/a in its pricing, via the discount rate).

dunroving

hugheskevi wrote: »

There is an implicit assumption in there of an investment return of CPI for the next (65 minus member's age) years on the contribution.

Which is awful

That is what generates the "phenomenal" results, not the generosity of the offer (which uses an assumption of returns of CPI+3% p/a in its pricing, via the discount rate).

I couldn't find information on the OP's age ... presumably the closer you are to retirement age (which I think is 60 for TPS, not 65), the less the above is an issue?

jem16

dunroving wrote: »

I couldn't find information on the OP's age ... presumably the closer you are to retirement age (which I think is 60 for TPS, not 65), the less the above is an issue?

Given the amount of lump sum he's quoting, he's about 30 - assuming age 60 retiral.

TPS is also 65 for anyone who joined after 2008.

dunroving

jem16 wrote: »

Given the amount of lump sum he's quoting, he's about 30 - assuming age 60 retiral.

TPS is also 65 for anyone who joined after 2008.

I wondered why the figure he quoted seemed to be different than the one in the other thread.

So, to make a fair comparison with a commercially-available annuity (all other things being equal), you'd need to model growth of the lump sum over 30 years (net of inflation) and then compare a 3.3% annuity on that amount, in order to determine whether it beats £250 ...

(also assumes annuity rates won't go down even further as life expectancy increases, and ignores any spousal entitlement to TPS pension after the death of the beneficiary).

I suppose it boils down a lot to the OP's (a) tolerance for risk vs. guarantee, and (b) desire for flexibility (e.g., tapping into SIPP capital before drawing TPS pension).

I am glad I am closer to retirement as the number of uncertainties is less. So many changes to pension law and tax law (and FS pension regulations) in 30 years it's hard to predict.

jem16

dunroving wrote: »

I wondered why the figure he quoted seemed to be different than the one in the other thread.

There are may differences involved in the calculation;

Male/female
Age 60/65
Dependants' benefits or not
Lump sum or monthly