Teachers Pension - Faster Accrual

ExMugPunter

Now that there is more information about the new flexibilities open to teachers, I was wondering whether you guys think the Faster Accrual is worth taking?

As I have posted before, I pay into the TPS but also a SIPP that I had previously. I am thinking that if this is a great deal, I should redirect the SIPP payments into Faster Accrual.

The example they give on the new factsheet is very similar to my personal circumstances, so what do you think?

Basically £936 of payments would get me an extra £74 per year.

-I presume that the actual cost would be significantly less than £936 due to tax relief?
But even at paying the full price it would take 13 years to pay back - That doesn't seem bad. Especially if you add in inflation protection.

But, would the long term average stock market performance beat that?
Then there is the seemingly ever increasing flexibility of personal provision...

What would you do?
Any opinions welcome!

Thrugelmir

I'm in a similar position as your self. In that I pay additional monies into Civil Service scheme to boost that while continuing to fund my SIPP. When I finally decide to stop contracting I'll use the SIPP monies to fund me through to SRA. When I can draw my Civil Service pension, state pension and other DB pension schemes. This way I suffer no penalties for drawing the CS pension early.

I would prefer the security of a quantifiable index linked pension amount than be overly exposed to the whims of the stock market.

kidmugsy

Thrugelmir wrote: »

This way I suffer no penalties for drawing the CS pension early.

If a pension scheme's actuarial reduction were an accurate reflection of the average consequence of the member drawing his pension for longer than he otherwise would, why would people be so reluctant to take their DB pensions early? Do they think the reductions are deliberately designed to be too large? That they don't properly reflect the needs of the widow? Or is it that some members are so confident of their likely long lifespan that they think the penalty too high for their specific case, however reasonable it might be on average?

I ask because there must be a tax advantage for many people in drawing a DB pension early, before SPA. Mustn't there?

PeacefulWaters

I ask because there must be a tax advantage for many people in drawing a DB pension early, before SPA. Mustn't there?

I can't think of one, beyond paying less tax due to lower income.

Most who draw a DB pension early presumably do so because their health is iffy or they simply don't want to work for the employer anymore and have adjusted their spending habits to match the pension income.

hugheskevi

I can't think of one, beyond paying less tax due to lower income.

Myself and my wife will have a decent tax advantage, as neither of us intend to be working at age 50 and funding that stage of life from saved assets of one form or another. We both have DB pensions with protected minimum pension age of 50, so commencing them early will give full usage of two sets of personal allowance, worth around £4,000 p/a for about 8 years (assuming minimum pension age of 58 for other pensions). Claiming them at age 60 (the NPA) would lose that tax advantage. So that is something like £40,000 tax advantage from commencing early.

Claiming early will also lead to much lower utilisation of Lifetime Allowance, which will probably be helpful given the constant erosion of the Allowance.

PeacefulWaters

hugheskevi wrote: »

Myself and my wife will have a decent tax advantage, as neither of us intend to be working at age 50 and funding that stage of life from saved assets of one form or another. We both have DB pensions with protected minimum pension age of 50, so commencing them early will give full usage of two sets of personal allowance, worth around £4,000 p/a for about 8 years (assuming minimum pension age of 58 for other pensions). Claiming them at age 60 (the NPA) would lose that tax advantage. So that is something like £40,000 tax advantage from commencing early.

Claiming early will also lead to much lower utilisation of Lifetime Allowance, which will probably be helpful given the constant erosion of the Allowance.

Oddly, pretty close to my logic for my own retirement. Get the point now.

Thrugelmir

kidmugsy wrote: »

If a pension scheme's actuarial reduction were an accurate reflection of the average consequence of the member drawing his pension for longer than he otherwise would, why would people be so reluctant to take their DB pensions early?

Personally I take the optimistic view of life and not concern myself with when I might pop my clogs. Far more to life than the pursuit of money in the short term. After all how old one feels is one's on mind. I was lucky to have a Grandmother with a positive outlook on life. Born is 1893 she died 1993, just 4 months shy of her 100th birthday. Her mantra was simple. "Everyday I open my eyes I'm going to enjoy myself and make the most of the moments I have".