Teachers Pension 'Buy out' the standard reduction

captainreckless

Hi folks,

I've been a member of the TPS for ten years. As far as I can tell, my NPA for the contributions that I made up to April this year is 60. My NPA for the career average scheme is 68. I understand that when the time comes I have to take both of these at the same time. I currently have over 30 years to go before I get to 68 but I am planning on retiring early - ideally before I hit sixty.

Reading the TPS website, I have discovered that I have until the end of this month to decide if I want to buy out up to three years of actuarial adjustment for commencing the career average scheme early.

I've read through the Government Actuary's guidance notes and I understand that buying out 3 years of reductions will cost 2.25% of my pensionable earnings. However, since I plan on commencing earlier (the online TPS calculator allows ages from 55) I won't be making contributions up to the age of 65 and therefore not buying out the full three years. The information from the actuary is that when the buy out is revoked (i.e. the pension is commenced) the original buy out value will be revised "in a proportional manner based on...the number of years for which a member made contributions and... the number of years a member was expected to make contributions..."

I have previously bought a small additional amount of pension under the final salary scheme and I am considering increasing the accrual rate for the average salary scheme from 2016. There's no rush to make a decision on this as the rate can be set year by year (I think).

If it helps, I also have a small SIPP that I invest into each month that I plan on taking at 57 (or whenever they'll let me when I get there) and a S&S ISA that I save into each month.

Given all the above, how should I calculate if I'd be better off buying out (some fraction of) three years of actuarial reduction for early commencement or simply bunging the same amount of cash into the SIPP?

Sorry if there's too much information here, or if the answer is obvious!

jem16

captainreckless wrote: »

I understand that when the time comes I have to take both of these at the same time.

No you don't. You can take the final salary one at age 60 and leave the other till age 68 to avoid the reduction provided you are out of service at the time.

https://www.teacherspensions.co.uk/reform/members/member-faqs/what-are-the-changes-to-my-benefits.aspx

Final salary benefits can be taken without career average benefits when you reach your NPA in final salary provided that you are out of service. You will be able to claim benefits from final salary, without having to claim benefits from career average.

If it helps, I also have a small SIPP that I invest into each month that I plan on taking at 57 (or whenever they'll let me when I get there) and a S&S ISA that I save into each month.

Given all the above, how should I calculate if I'd be better off buying out (some fraction of) three years of actuarial reduction for early commencement or simply bunging the same amount of cash into the SIPP?

As you're planning on retiring by age 60 then there is no need to suffer any actuarial reduction as you can leave that part till it's due. Instead you can take your final salary benefits at age 60 and use the proceeds of your SIPP to make up the income till age 68 when your Career Average benefits and state pension start.

I think I'd pay into the SIPP.

captainreckless

Thanks for that. For some reason I'd missed the fact that I won't be in service at 60. This puts a whole new spin on things as it seems that it's a better idea investing any extra money outside the Teacher's scheme rather than increasing the accrual rate so as to have it available earlier in retirement.