Voluntary Severance and pension.

lakelady

I am 58, and have around 18 years in the Teacher's Pension Scheme. I have no other pension funds apart from a tiny amount in AVCs.

My State Pension forecast shows 35 years of NI contributions, but some of that was contracted out, so my estimate up to April 2016 is £125.72, with the option to pay more NI contributions to bring it unto the maximum £155.

My State pension will kick in in 2024, so there is quite a lot of time to make up.

Anyway, there is a chance that I will be offered Voluntary Severance from work, with a payout of around £36k. The first £30k will be tax free, and the rest taxed. I am a HR tax payer; but if the severance goes ahead, my last working day would be 31 July, so I won't have earned enough in the tax year to pay 40%.

My thinking was to use the payout to get me from being 58.5 to 60, and claim my Teachers Pension then (there is also an option to use the money to buy years in the pension and get it early). Assuming that I clear £30k, that should be more than enough, as the house is paid for, and I have modest savings.

My questions are:
1. Will I be able to make further contributions to my pension? If not, is there any point in leaving it until I am 60? Do Final Salary pensions continue to grow if no contributions are made?
2. Are there advantages in taking my lump sum when I leave, or should I keep it in the pension until I take it at 60?
3. Will I need to make NI contributions until I am 66, in order to get the full State Pension, or just until I have covered the years I was contracted out? The Government site seems to be working on the assumption that I will be working until SPA, and I can't find any information about how many years I owe. If it helps, my COPE sum is £54.76 a week.
4. Have I missed anything?

Thank you so much in advance if you can help. I find all of this very confusing, and it would be so easy to make an expensive mistake.

marlot

The state pension changed in April 2016. You're in the sweet spot, in that you can build towards a pension of £155 per week. My advice is to stop thinking in terms of historic years, but in terms of the 'starting amount' - the amount you had in April 2016 - and buying extra from there forward.

>> my estimate up to April 2016 is £125.72
You'll have an extra year to April 2017, so an extra £4.45 a week.

>> my last working day would be 31 July
If you then sign on for Jobseekers Allowance, I believe you'll accumulate enough NI credits for 2017/18, so another £4.45 a week.

So that takes your pension up to about £134 a week. If you're not going to carry on working, you can buy extra years, to take you all the way to the £155 if you want.

https://www.gov.uk/new-state-pension/how-its-calculated

lakelady

Thanks . Yes, I understand that I am in a good position as regards buying more NI - what I don't know is how many more years I will need. Actually, if each year adds £4.45, I should be able to work that out - it will be around 5 years.

I won't be able to sign on, as I will be leaving voluntarily (if I am offered VS, which is not guaranteed), so I'll have to fund them myself; but as you say, it is good value, so I will definitely do so.

What I am not clear about is whether it makes sense to live on the payoff and defer the pension until I am 60, or whether I can (or should) add contributions. Obviously, my employer won't contribute after I go; but if it will mean a better pension, I would be prepared to do it if it is affordable. I can't afford to buy extra years outright, but could make monthly payments between leaving and retiring if it makes sense to do so and this is an option.

brewerdave

lakelady wrote: »

Thanks . Yes, I understand that I am in a good position as regards buying more NI - what I don't know is how many more years I will need. Actually, if each year adds £4.45, I should be able to work that out - it will be around 5 years.

I won't be able to sign on, as I will be leaving voluntarily (if I am offered VS, which is not guaranteed), so I'll have to fund them myself; but as you say, it is good value, so I will definitely do so.

What I am not clear about is whether it makes sense to live on the payoff and defer the pension until I am 60, or whether I can (or should) add contributions. Obviously, my employer won't contribute after I go; but if it will mean a better pension, I would be prepared to do it if it is affordable. I can't afford to buy extra years outright, but could make monthly payments between leaving and retiring if it makes sense to do so and this is an option.

I believe that its still worth your while signing on, as even if you don't get JSA , you will get NI credits.

bigadaj

You would generally be able to sign on after taking voluntary redundancy, soem have reported being able to sign on and not claim but just get the NI credit.

I took voluntary redundancy three years ago and signed on immediately despite a substantial pay off, basically teh rule is you haven't made yourself unemployed but the business hasn't needed your services.

marlot

lakelady wrote: »

...I won't be able to sign on, as I will be leaving voluntarily...

As others have said, don't assume this. When I was made redundant, the jobcentre wanted to scrutinise my compromise agreement, but my claim was allowed (4 years ago). Even if you don't get JSA, you may be able to get the NI credits.

lakelady

Thanks again. I will look into signing on; but my immediate concern is about deferring the Teachers' Pension, whether or not I can add to it, and whether or not it will accrue if I don't claim it as soon as I leave my employer at 58.

I would really appreciate some insights into this aspect of my putative plan, if anyone has them.

Sambella

What you want to do is sign up for contributions based JSA which you can get for 6 months based on your NI contributions. Savings don't count for this. You would however be subject to conditionally agreements.
After 6 months if you haven't found a job you then go on income based JSA which you are unlikely to be entitled to because of savings/pension but can get NI credits.

lakelady

Again, thanks for your advice about JSA.

Really, if I get the VS, I will be able to live without claiming JSA until I am 60 and get my pension.

I am much more concerned about the TPS than about claiming benefits.

I need to know if there is a point to deferring it until 60, and whether or not I can add to it after leaving employment.

Sorry - I don't want to be rude; but I am very unlikely to claim JSA, as I don't want to be made to jump through hoops or risk sanctions - at this stage in my life, I just want to bridge the gap between leaving work and retiring 'properly'.

PeacefulWaters

You can't add to your scheme once you cease employment (although you could add redundancy money to an AVC). If you have no earned income you can add £2,880 a year to a stakeholder pension which immediately generates a value of £3,600.

Taking the pension straight away will mean an actuarial reduction of, I believe, 5% for each year taken early. In other words, salary x years served / 80 should be your pension at 60. Take it at 58 and you'll get 60-58=2 X 5% = 10% deducted. Some employers and pensions may apply a more favourable reduction when combined with redundancy.

Living off savings until scheme retirement age is a way of avoiding the reduction. If you have average life expectancy or better it's probably best to defer to age 60.

My answer is based on limited generic knowledge rather than specific knowledge of TPS. You should ensure you verify things carefully for your specific circumstances.

lakelady

Thank you!

If I am offered VS, I will consult an IFA; but at this stage I am looking at what I think are the options, and finding it all rather complicated.

Thanks again for your clarification.