People in their 30's - future financial plans?

justme111

I think everybody is guessing as in 23 years before your retirement a lot may happen. The usual advice is to contribute enough to get you out of higher rate tax bracket as the benefit you rexeive from it is so high it would be shame to lose it. Specially if you an do it by salary sacrifise with sacings on NI as well. If you get lets say 53 k gross after your 10% contribution you in reality get only about 7 k from the 13 k above the higher rate threshold. So you could have 13 k additional contributions in your pot by forgoing income only about half of it. (all the numbers are approximate)

somethingcorporate

justme111 wrote: »

I think everybody is guessing as in 23 years before your retirement a lot may happen. The usual advice is to contribute enough to get you out of higher rate tax bracket as the benefit you rexeive from it is so high it would be shame to lose it. Specially if you an do it by salary sacrifise with sacings on NI as well. If you get lets say 53 k gross after your 10% contribution you in reality get only about 7 k from the 13 k above the higher rate threshold. So you could have 13 k additional contributions in your pot by forgoing income only about half of it. (all the numbers are approximate)

Good advice. Plus moving below £50k takes you out of the child benefit reclaim range - it's not a huge amount but still an additional incentive.

adonis10

chucknorris wrote: »

Has your partner looked at buying additional pension in the TPS, it is exceptional value. I have bought the max allowed in the pre 2015 scheme, and when I join the newer scheme in 2020 I will start to buy more again.

She hasn't. She is financially illiterate and doesn't know a) how much her pension is currently worth and b) how to find out. I find it staggering given that I know my net asset position on a daily basis. I've been getting my financial house in order firstly but will look to help her now. How does she find out what her pension is currently worth? I don't know what scheme she is in but she started teaching in 2008 or 2009 if that narrows it down.

How does it work with additional TPS conts? Same as a normal DC pension? More info you can give the better as I need to have a look and help her with it!

chucknorris

adonis10 wrote: »

She hasn't. She is financially illiterate and doesn't know a) how much her pension is currently worth and b) how to find out. I find it staggering given that I know my net asset position on a daily basis. I've been getting my financial house in order firstly but will look to help her now. How does she find out what her pension is currently worth? I don't know what scheme she is in but she started teaching in 2008 or 2009 if that narrows it down.

How does it work with additional TPS conts? Same as a normal DC pension? More info you can give the better as I need to have a look and help her with it!

Here is a link to the members website, she should register here, and she can learn everything that she needs to from the website:

https://www.teacherspensions.co.uk/members/member-hub.aspx

Buying additional pension within the TPS is done by either lump sum or regular payments deducted from salary (in the new scheme you can also opt for 'faster accrual', but I am not a member of the newer scheme yet).

Buying additional pension is very good value, when I bought mine I paid about £74k to buy £5,900 additional pension (that means every year in retirement I get £5,900, which is indexed both before and during retirement). That approximates to 2.5 times what an annuity would pay, I'm not saying annuities are exceptional, but something paying more than twice an annuity is.

Once she tells you the figures, you will be very surprised at how good the scheme is, it is far better than above average DC schemes. To give you an idea, it worth about 35% of my basic salary (I'm not a teacher by the way, I am a university lecturer).

adonis10

chucknorris wrote: »

Here is a link to the members website, she should register here, and she can learn everything that she needs to from the website:

https://www.teacherspensions.co.uk/members/member-hub.aspx

Buying additional pension within the TPS is done by either lump sum or regular payments deducted from salary (in the new scheme you can also opt for 'faster accrual', but I am not a member of the newer scheme yet).

Buying additional pension is very good value, when I bought mine I paid about £74k to buy £5,900 additional pension (that means every year in retirement I get £5,900, which is indexed both before and during retirement). That approximates to 2.5 times what an annuity would pay, I'm not saying annuities are exceptional, but something paying more than twice an annuity is.

Once she tells you the figures, you will be very surprised at how good the scheme is, it is far better than above average DC schemes. To give you an idea, it worth about 35% of my basic salary (I'm not a teacher by the way, I am a university lecturer).

Thanks for the info, we (for 'we' read 'I' and will tell her the outcome!) will start looking into that tonight.


Oh I wouldn't be surprised, I have an idea how good the scheme is. On the positive side, not having a clue how much it is worth means she will be in for a nice surprise when she finds out!


Presumably the online portal tells you what type of member you are? I have just done a quick google and it seems complicated to work out due to the changes that have been made.

chucknorris

adonis10 wrote: »

Thanks for the info, we (for 'we' read 'I' and will tell her the outcome!) will start looking into that tonight.


Oh I wouldn't be surprised, I have an idea how good the scheme is. On the positive side, not having a clue how much it is worth means she will be in for a nice surprise when she finds out!


Presumably the online portal tells you what type of member you are? I have just done a quick google and it seems complicated to work out due to the changes that have been made.

She will be a 'transition member' of the career average scheme.

It only looks complicated for older members who retain rights in the final salary scheme, like me for example. Because I was within 10 to 13.5 years of my 'normal pension age (NPA)', when the new scheme was introduced in 2015, I am a 'tapered member' and as such I retain rights in the final salary scheme until Aug 2020. People who were within 10 years of NPA in 2015 remain in the final salary scheme, they are 'protected members'.

adonis10

chucknorris wrote: »

She will be a 'transition member' of the career average scheme.

It only looks complicated for older members who retain rights in the final salary scheme, like me for example. Because I was within 10 to 13.5 years of my 'normal pension age (NPA)', when the new scheme was introduced in 2015, I am a 'tapered member' and as such I retain rights in the final salary scheme until Aug 2020. People who were within 10 years of NPA in 2015 remain in the final salary scheme, they are 'protected members'.

Ah yes, I just found the factsheet and decided that she is a transition member.


What I don't get is the amount of pension accrued for the year, so 1/57 of her annual salary for a 12 month period? That's hardly anything. Is it no longer on a % contributed basis?

bugslet

adonis10 wrote: »

Having read a couple of interesting threads this morning ('over 50's how did you accumulate wealth' and 'a couple of questions for those retired') it made me want to get opinions of people in a similar situation to myself. Obviously, we face different financial challenges (worse pensions, less chance of profiting so much from property, automation killing jobs and industries etc.) and so I am keen to understand what people in their 30's* are planning on doing to secure their financial future.


.

I haven't got past the opening post here. I have never had a pension beyond the one I put money into myself. Around half of the people I know in my age, haven't had a company pension ( some don't have any pension).

Profiting from house inflation - I live in my house, I'm not interested in it going up in price beyond I'd like to be an average price area rathere than a poor area ( 3 bed semi in the northwest worth 160k). Automation, you may have something on that one - it's going to be interesting and I really am not sure what is going to happen.

My point is, that life is what you make it. You are in a country that gave you free education till 18, you can now benefit from all sorts of free resources and you can pay for classes to improve yourself. There are jobs out there, some of them aren't great, but you can improve your chances and you can earn extra by taking a second job.

You still have the choices I did at your age. I started life as a forklift driver, 8 years later I got a van and worked crazy hours, then a few more, then some trucks, then a second depot and now I employ 23 people. Not a huge firm, but I'm happy with it. There really is nothing special about me, I'm not super clever, I never had a silver spoon, all I did was work and make the most of a lucky break when it came along. You can do the same.

Edit: I missed the bit wher you said your inheritance. I had to buy my parents house because my parents went bankrupt. My Dad left me nothing and my mum left me 10k, I thought I was loaded ! :-) My OH had no pension whatsoever beyond state.

Ultimately we can never know what will happen, we get mown down by a bus tomorrow, we may or may not have a state pension in 10/20/30 years time, we may live to a 100 and die skydiving. I think that people overthink sometimes. I've tried to have a balance, be sensible but not sitting in an unheated house in January, go out and enjoy myself but not spend 10k on a Carribean annual holiday. Balance in life makes things easier IMO.

You are seriously well off in my eyes and all those years to accumulate more. Yippee!

chucknorris

adonis10 wrote: »

Ah yes, I just found the factsheet and decided that she is a transition member.


What I don't get is the amount of pension accrued for the year, so 1/57 of her annual salary for a 12 month period? That's hardly anything. Is it no longer on a % contributed basis?

A 57th accrual is very generous:

Say her salary was £40k:

£40,000/57 = £701.75, that isn't a contribution of £701.75, it is what she will be paid every year in retirement, for every year that she works. If she worked for 40 years, her pension would be £28,070 per annum (it is obviously indexed, I am valuing it using current values and ignoring inflation). On my spreadsheet I use a multiplier of 28.5 (that is subjective based upon what my other investments pay and the risk, TPS is virtually risk free, like a Gov gilt). so using my multiplier of 28.5 her pension would be capitalised at just under £800k.

adonis10

chucknorris wrote: »

A 57th accrual is very generous:

Say her salary was £40k:

£40,000/57 = £701.75, that isn't a contribution of £701.75, it is what she will be paid every year in retirement, for every year that she works. If she worked for 40 years, her pension would be £28,070 per annum (it is obviously indexed, I am valuing it using current values and ignoring inflation). On my spreadsheet I use a multiplier of 28.5 (that is subjective based upon what my other investments pay and the risk, TPS is virtually risk free, like a Gov gilt). so using my multiplier of 28.5 her pension would be capitalised at just under £800k.

That makes much more sense. Wow, that is generous. I can now see why they work teachers to the point of mental breakdown.


So the 57th accrual rate, do her monthly contributions also accumulate and get added to the pot or is the 1/57th system the be all and end all and the monthly contribution is part payment for that as such? For example, what I and my e'er contribute gets added to a pot, receives a + or - % return based on where it is invested and that makes up the total pot for retirement. With the teacher's pension, let's say she earns 40k every year for 35 years, under the 1/57 accrual rules this equates to £24,561 per year - presumably this is all she gets and the monthly contributions will not necessarily marry up to this figure but are simply offsetting against the benefit she receives? Also, I saw somewhere that the e'er contributes ~16% per month - is this from a different scheme? Surely she does not get the £24,561 AND 35 years of contributions by e'ee and e'er?


Sorry for all the questions which probably seem daft, but I am new to the pensions game so thought it was more simple than it seems to be.