TPS Should I continue pension contributions?

pbeven

Hello, I am a teacher who at the age of 60 (I am now 62) began phased retirement, reducing my work by 20% and accessing a percentage of my pension. I am still happy working and will continue to do so for at least three more years. I already have 40 years pension contributions so will be on the maximum half pay when I retire. Every month I am still contributing to the Teachers Pension from my salary - over £420 a month. I opted to do this on entry to phased retirement but now wonder what the advantage in doing this might be, given my long contribution record?
Might I be better not paying in to TPS and investing this sum elsewhere?

HappyMJ

pbeven wrote: »

Hello, I am a teacher who at the age of 60 (I am now 62) began phased retirement, reducing my work by 20% and accessing a percentage of my pension. I am still happy working and will continue to do so for at least three more years. I already have 40 years pension contributions so will be on the maximum half pay when I retire. Every month I am still contributing to the Teachers Pension from my salary - over £420 a month. I opted to do this on entry to phased retirement but now wonder what the advantage in doing this might be, given my long contribution record?
Might I be better not paying in to TPS and investing this sum elsewhere?

What I would do and what is best for you and your circumstances are totally different.

To get qualified advice relevant to you you would probably be best speaking to an IFA. It will cost you money but it will be worth every penny to get the most out of your retirement pot.

Do you know how much you will be getting when you retire? How much do you need/want then and now?

pbeven

Thanks for the reply.
I will be on half pay which is the maximum (I think) I can be paid under the TPS. I qualify for that already. So really for me the issue is whether to keep paying the monthly amount or cease and invest elsewhere as I can't see the financial benefit of keeping going with it.

edinburgher

HappyMJ wrote: »

What I would do and what is best for you and your circumstances are totally different.

To get qualified advice relevant to you you would probably be best speaking to an IFA. It will cost you money but it will be worth every penny to get the most out of your retirement pot.

Do you know how much you will be getting when you retire? How much do you need/want then and now?

Sorry, but you're getting ahead of yourself and I don't think it's helpful.

As a starter, the OP needs to talk to her scheme administrator/HR and dig out any paperwork that sets out what the point of continuing contributions is. If they can't find that, they need to get in touch with the administrator/HR and get it clarified in writing.

No need to think about anything else until that matter has been cleared up.

jamesd

Please consider using the buttons to Edit then Go Advanced on your post and change the title to include TPS or Teachers' in an appropriate place. That will do a better job of attracting the attention of those who are very familiar with the TPS, some of whom are present here.

I don't know the TPS well enough to make informed comment but if you are already entitled to the maximum it does not seem sensible to continue in the scheme. Do not act on this until someone familiar with the scheme says something.

You should make pension contributions, though. People who are aged from 55 to under 75 can make contributions to personal pensions and receive tax relief on the way in. Because they are 55 or older then can then almost immediately take out all of the money including the tax relief. It is effectively free money.

The limits for this are:

1. your earned income. This applies to only your own payments into pension schemes, those from employers are not counted. No carry forward from past years is allowed. If earned income is less than £3,600 gross then £3,600 gross, £2,880 net can be paid in.
2. £40,000 a year, reduced to £10,000 a year if you take any money out of a defined contribution (meaning mainly personal in your case) pension scheme beyond the 25% tax free lump sum. Carry forward of unused allowance from the past three years is allowed unless the reduction to £10,000 has been triggered. Employer contributions including the increase in value of a defined benefit pension like TPS count towards this limit.

Say you are earning £30,000 a year and you have ample savings to live on, so you make that as a net pension contribution to a personal pension. £7,500, 25% is added to give you basic rate tax relief of 20%, raising the amount in the pension to £37,500. You can then put the money into income drawdown, withdrawing a 25% tax free lump sum of £9,375 and leaving £28,125 in the pension. Unless you need the money best to leave the £28,125 alone so you can pay in another £30,000 next year and so on until you're ready to stop work. Then you draw the money out gradually to stay below higher rate income tax. Assuming that you pay basic rate tax, on your £30,000 net paid in you'd have out £9,375 tax free and £22,500 after tax, a gain of £1,875 for each year you do it.

If you don't have the savings to do it you could do something like seeking 0% for purchases credit cards and using them for day to day spending so you can do the higher amount for longer. Once that runs out you can start to take the taxable portion and accept the reduction to £10,000 a year.

pbeven

Thank you so much JamesD for your detailed reply.
Lots of useful ideas to research think about, then act upon.
Much appreciated.

xylophone

OP, I think you need to check with the Administrator before you take any action.

You say that you have taken phased retirement after age 60 (your NPA) which is apparently permitted in the TPS subject to certain rules - you can Google but I am assuming that all this was explained to you when you applied.

You mention that you have built up 40/80 but see

http://www.teachers.org.uk/files/active/0/2485.pdf

"The maximum amount of reckonable service that may be allowed for calculating the retirement benefits is 45 years and not more than 40 years undertaken before age 60 can count in the calculation of the pension. The lump sum payment can include more than 40 years undertaken before age 60 but may not exceed one and a half times the teacher’s average salary in respect of service before age 60."

Is the situation that you are actually building up a "second tranche" as it were of pension? Or that your post 60 contributions buy pension that is added to the percentage of pension as yet undrawn?


It seems to me essential that you read any documentation you have, log on to the TPS site and then contact the administrator/ your union rep etc.

This contributor http://forums.moneysavingexpert.com/member.php?u=52024 is very knowledgeable about TPS - you might like to PM?

pbeven

Thank you Xylophone, yes I will take advice as you suggest before making a decision.