Is the Teachers' Pension a good investment option?

lotteryman

Moneybox wrote: »

Interested to read your post as I too am in the teachers pension and one consideration for me is if to pay extra into it?
What would be the pros/cons of paying extra savings into the teachers pension? More recently I have heard people saying don't put extra money into the Teachers Pension but unsure why? (I would be wanting to take the pension before the NPA of 67. Like you I have a 80th Final Salary NPA of 60.

Not sure if things have changed since I retired (5 years ago) but I paid extra into AVCs which are linked to the pension scheme and therefore you get the tax relief on payments. If you are a higher rate tax payer that is worth 40%. Also, if you pay additional into the scheme in the last year of the scheme then it improves your tax free sum at the end.
I know there have been changes over the years but the TPS is still a very good scheme in comparison to the private sector (unless you are a fat cat of course)

take some professional advice (your employer/union often offer free advice or can point you in the right direction) and don't rely on information in forums

Oliver1191

Thank you ValiantSon. I didn't know it's grew by 1.6%.

I will check on the state pension - much appreciated.

Oliver1191

Thank you all - very much appreciated :-)

To clarify - I am still in the teaching profession - was promoted to an assistant head nearly a year ago.

How do we know the TPS grows by CPI + 1.6% (I'd heard about the CPI bit, but not the 1.6)?

I suppose I should clarify part of my thinking. Over the last year I have been investing a lot (and learning a lot) through Hargreaves Lansdown. My funds have grown quite well and according to their history have done so for a long time (wealth 150+ funds). So, with the effects of compounding, would I not be better off by investing more in funds - both gaining financial security earlier and by potentially being wealthier? 65 or 68 to wait for a Teachers' Pension seems like a long time when I could potentially get a lot more putting my money elsewhere?

Any thoughts would be greatly appreciated :-)

JoeCrystal

Oliver1191 wrote: »

Thank you all - very much appreciated :-)

To clarify - I am still in the teaching profession - was promoted to an assistant head nearly a year ago.

How do we know the TPS grows by CPI + 1.6% (I'd heard about the CPI bit, but not the 1.6)?

I suppose I should clarify part of my thinking. Over the last year I have been investing a lot (and learning a lot) through Hargreaves Lansdown. My funds have grown quite well and according to their history have done so for a long time (wealth 150+ funds). So, with the effects of compounding, would I not be better off by investing more in funds - both gaining financial security earlier and by potentially being wealthier? 65 or 68 to wait for a Teachers' Pension seems like a long time when I could potentially get a lot more putting my money elsewhere?

Any thoughts would be greatly appreciated :-)

Regarding the CPI+1.6%, because it said so on the TPS website???

Then invest your spare money, not by cutting back contribution into generous TPS. View TPS as your retirement foundation and also, you are meant to wait for a long time, it is for retirement after all! You can also consider buying Additional Pension as well? I mean for someone your age, it only cost £43k lump sum (sole or 47k with Dependant Benefits) to buy £6,500 per year I believe.

jem16

ValiantSon wrote: »

You can't take your final salary benefits at 65 and then your career average benefits at 68. The scheme rules require that you take both pensions at the same time. This is outrageous, but those are the rules. Your options, therefore, are to take both at 65 and have actuarial reduction on the 3 years missing from the career average, or wait until 68 to claim both and receive the full pension.

That's not quite accurate.

The OP can choose to retire at age 65 and claim his final salary benefits at age 65 in full.

He can then choose to either take his CARE scheme benefits at 65 but actuarially reduced or leave those benefits until spa and then take them in full.

What he can't do is continue to work, take his final salary benefits at age 65 and leave the CARE benefits till spa.

So the OP was perfectly correct in what he said assuming he was stopping teaching at age 65.

jem16

Oliver1191 wrote: »

I suppose I should clarify part of my thinking. Over the last year I have been investing a lot (and learning a lot) through Hargreaves Lansdown. My funds have grown quite well and according to their history have done so for a long time (wealth 150+ funds). So, with the effects of compounding, would I not be better off by investing more in funds - both gaining financial security earlier and by potentially being wealthier? 65 or 68 to wait for a Teachers' Pension seems like a long time when I could potentially get a lot more putting my money elsewhere?

Any thoughts would be greatly appreciated :-)

My thoughts as a retired teacher;

Keep the TPS as you cannot do better both from a secured income and benefits whilst in service, especially as you're about to get married.

You have various options such as Buying out the actuarial reduction, Faster Accrual and Additional Pension - all of these are worth considering. Check them out here.

https://www.teacherspensions.co.uk/members/working-life/paying-in/increasing-your-pension.aspx

If you wish to retire before 65 then you could consider using a SIPP/PP to access for the years between when you choose to retire and your TPS benefits becoming available with no reduction. So you could choose to retire at age 60 and finance yourself with drawdown from the SIPP/PP from age 60 to age 65/spa when your benefits are available at no reduction.

Oliver1191

Thank you Jem16.

It seems to be that most people on this thread would support the idea of maxing additional pension benefit in the TP scheme ASAP, then look at other investments?

My 'dilema' is that these funds have been performing so well (in the region of 20%) that i'm thinking this is too good to miss. I know it's no guarantee of future returns. But if I assume a growth rate of 10% a year, then it would seem to be financially better than the TP over the long term. It would also give me access to the money so that I can live off it earlier in the future.

jem16

Oliver1191 wrote: »

Thank you Jem16.

It seems to be that most people on this thread would support the idea of maxing additional pension benefit in the TP scheme ASAP, then look at other investments?

Not necessarily as I said. It all depends on when you plan to retire.

My 'dilema' is that these funds have been performing so well (in the region of 20%) that i'm thinking this is too good to miss. I know it's no guarantee of future returns.

Exactly. How long have you been investing? It's been hard not to make money over the last 6 years or so but what happens when there is a fall as there definitely will be? Are you prepared for this?

But if I assume a growth rate of 10% a year, then it would seem to be financially better than the TP over the long term. It would also give me access to the money so that I can live off it earlier in the future.

As I said if you want to retire before 65 or even before spa then having a SIPP/PP is definitely going to be useful as I explained.

What I am saying is don't leave the TPS as that would be daft. You can consider the various options for increasing your TPS if you're happy to retire from 65 onwards but remember that Additional Pension would also be actuarially reduced but it does also grow from the moment you choose to pay into it.

ValiantSon

hyubh wrote: »

Calling this 'outrageous' is completely OTT, especially given the final salary part will attract an actuarial increase if taken at the CARE part's NPA. Keeping a final salary link for pre-2015 service was much more 'outrageous' (for the taxpayer).

I'm sorry, but I don't see how it is OTT. The final salary scheme has an NPA of 60 or 65 (depending on when you joined the scheme). There is no valid reason why someone should not take their benefits in that scheme at their NPA, but choose not to take benefits in the career avergae until the NPA for that scheme.

How was it outrageous to honour the terms of the final salary scheme? Teachers signed up to a pension scheme with specific guaranteed returns based on specific contributions. The scheme was ended in March 2015 and accrued benefits remained. This is entirely reasonable. You seem to forget that TPS is a DB scheme. Your comment about taxpayers here betrays your bias, and of course fails to take account of the following facts:

1) Teachers are taxpayers too, so they are also funding this.
2) Teachers' pension contributions are actually subsidising the taxpayer as the exchequer treats them as current revenue (general taxation) and spends them on government expenditure.
3) Teachers are actually making contributions to their schemes.

Oh, and lets not forget that the government refused to carry out a scheme valuation during the consultation period. One can only conclude that they wouldn't do this as it would show that the scheme was in surplus (i.e. total contributions were higher than total pensions in receipt). Certainly this was the case at the previous scheme valuation point, which was less than ten years earlier, and at which point members contributions were increased in line with the GAD recommendation that this would ensure the long term sustainability of the scheme at neutral cost to the exchequer.

But then, why let the facts get in the way of a typical anti-public sector moan?

hyubh wrote: »

The original poster will gain from the 2016 state pension changes because they will now easily earn the single tier amount above the old Basic State Pension. (Another source of 'outrage', one might say...)

I said nothing about being outraged at the ending of contracting out. How is your straw man by the way?

I also said that this was something that the OP ought to double-check. I didn't say that they wouldn't get a full state pension, just that they should check. How wrong of me to sugest that someone checks their financial position rather than just assuming that everything will be alright! What a ludicrous and fallacious point you've made.

hyubh wrote: »

This is not fully correct due to the TPS' unfunded structure, which means the taxpayer carries the risk if pension promises prove to be more expensive than expected (which is the whole point of DB over DC). In contrast, those same organisations might also, for historic reasons, participate in the LGPS, where the risk will (does) sit with them. Similar for pre-90s universities that offer the USS rather than the TPS for teaching staff (the USS' proposals to completely close its DB section are all about the risk attached to securing current benefits).

I said, "The taxpayer is not funding their employer contributions." Your response ignores what I was actually talking about, i.e. who is paying for the employer's contributions, and instead focuses on a different issue, i.e. who is underwriting the pension. You have conflated what I said with the political axe that you wish to grind.

Also see my point about scheme valuation.

hyubh wrote: »

Typo...?

Clearly you are showing your bias again. If you think the job is so incredibly easy and every teacher is on a "gravy train" with a "gold plated pension" then may I suggest you train to be a teacher and join in the good life? Of course, you might find yourself as one of the 25% who leave the profession within five years of qualifying (citing unreasonable working conditions, poor work-life balance, excessive working hours, and uncompetitive remuneration as the principal reasons). Many of these have actually switched to teaching from other jobs and choose to return to industry where life is, for them, much better.

That straw man of yours appears to be leaning dangerously to his right side.

ValiantSon

Oliver1191 wrote: »

Thank you all - very much appreciated :-)

To clarify - I am still in the teaching profession - was promoted to an assistant head nearly a year ago.

How do we know the TPS grows by CPI + 1.6% (I'd heard about the CPI bit, but not the 1.6)?

It is in the scheme rules. You can confirm this on the TPS website https://www.teacherspensions.co.uk/employers/managing-members/contributions/calculating-contributions.aspx

Oliver1191 wrote: »

I suppose I should clarify part of my thinking. Over the last year I have been investing a lot (and learning a lot) through Hargreaves Lansdown. My funds have grown quite well and according to their history have done so for a long time (wealth 150+ funds). So, with the effects of compounding, would I not be better off by investing more in funds - both gaining financial security earlier and by potentially being wealthier? 65 or 68 to wait for a Teachers' Pension seems like a long time when I could potentially get a lot more putting my money elsewhere?

Any thoughts would be greatly appreciated :-)

If you withdraw from the scheme then you will no longer benefit from the 16.48% employer contribution. Your employer will not pay that into any other pension scheme. Looking at what you said your monthly pension contribution was then it looks to me like your salary is around £44,000 and you are therefore paying 10.2% contributions. In reality, therefore, if you decided to match that contribution in something like a SIPP, you would only be putting in £380 per month, rather than the c. £985 per month that is going in with TPS. You'd have to get a lot of growth to make up that shortfall!

Investing £380 p/m over the next 33 years (until you reach 68) at an annualised return of 7% p.a. would see your pot of money grow to around £590,000, but of course inflation will have eroded the real terms value. Assuming you will live for another 30 years that £590,000 would work out at £19,666 per year at today's prices. (Obviously you could switch your investment strategy and look at drawing an income that maintains your capital wealth). The TPS will give you a pension that is index linked (so no worries about inflation) and guaranteed as being 9/60ths of your final salary plus 33/57ths of your career average. Do the sums and you will find that is a hell of a lot more.

The whole point of pensions is that you don't take the money until you retire, so it may seem like a long way off, but it would be invested in the markets too, so staying in the TPS is no different, except the returns will almost certainly be significantly better (unless you manage to get incredibly high annualised returns on investment).