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Is the Teachers' Pension a good investment option?

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  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
    jem16 wrote: »
    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.

    No, don't think you are correct. My understanding is that you have to take both schemes benefits at the same time, or can you can post a link to where it states otherwise?
  • hyubh
    hyubh Posts: 3,726 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 20 January 2018 at 6:18PM
    ValiantSon wrote: »
    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.

    At the risk of leaving you so incensed you don't read the rest of this reply, the following might plausibly be considered 'outrageous' about the TPS (not saying I find them so, but I understand people who would):
    • The generosity of TPS benefits in the context of the collapse of DB provision in the private sector.
    • The lack of savings from the change to CARE.
    • The failure to make a quid-pro-pro reduction in TPS benefits on the end of contracting out.
    • The government's decision to have the TPS (along with other public sector schemes) provide full increases on GMP for members who reach SPA under the new state pension system.
    • The participation of employers that aren't public sector.
    • The government's way of accounting for TPS liabilities.

    In contrast, TPS members with mixed final salary/CARE benefits having to take all of their TPS pension at the same time... not so much.
    How was it outrageous to honour the terms of the final salary scheme?

    That FS and CARE benefits have to be taken at the same time does not fail to honour the terms of the former.
    Teachers signed up to a pension scheme with specific guaranteed returns based on specific contributions.

    Hmm, retrospectively tying future benefits to the 'specific contributions' made in the past - not sure you really want to be going down that route...!
    Your comment about taxpayers here betrays your bias

    I wasn't saying it was good or bad, I was just saying that's how things are intended work, given the TPS is an unfunded public sector pension scheme. Current contributions don't pay for future benefits, they pay for current benefits - same as NICs and the state pension.
    Teachers' pension contributions are actually subsidising the taxpayer as the exchequer treats them as current revenue (general taxation) and spends them on government expenditure.

    TPS contributions do not 'subsidise' other government spending.
    Teachers are actually making contributions to their schemes.

    Sure, and there's an argument for reducing benefits in order to reduce contributions and/or increase salaries - same goes for the other public sector schemes. (The fact public sector jobs, as a class, have a radically different pension/take-home pay benefit split compared to private sector jobs, as a class, is a relatively recent phenomenon.)
    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).

    That's not a 'surplus' in any meaningful sense! It's a statement saying there isn't a cashflow issue (currently).
    I said nothing about being outraged at the ending of contracting out.

    My point was, there were other pensions changes affecting this cohort (including yourself...?) around a similar time that were at least neutral, and sometimes clearly to their benefit. Feelings of outrage would only be reasonable insofar as all changes are taken together.
    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

    I'd be 99% confident they will, if they stay healthy to SPA, since that's how the transitional protections are intended to work (remember the original poster is only in their 30s).
    How wrong of me to sugest that someone checks their financial position rather than just assuming that everything will be alright!

    Not unreasonable no, however as (I think) you also intimated, there's a reasonable chance things will change again over the next 30 years.
    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.

    Come on, it's not a 'different issue' at all... underwriting the pension is one part of paying for the pension, and paying for the pension is what contributions are for.
    Originally Posted by hyubh
    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" [...]

    Steady on, I was only suggesting you had missed a word or something like that... :) Since in the sentence immediately after you referred to the revaluation rate for active members, I assumed you didn't really mean to imply you believed the original poster had already left the profession.
  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
    hyubh wrote: »
    At the risk of leaving you so incensed you don't read the rest of this reply, the following might plausibly be considered 'outrageous' about the TPS (not saying I find them so, but I understand people who would):

    The generosity of TPS benefits in the context of the collapse of DB provision in the private sector.

    Irrelevant. That would advocate a rush to the bottom and purely be an argument based on vitriol and invective. "I can't get this, so nobody else should."
    hyubh wrote: »
    The lack of savings from the change to CARE.

    Hardly the fault of members of the scheme.

    Do you know for a fact that there are no savings? Given that there was no valuation of the final salary scheme in 2015 and, to the best of my knowledge, there has been no valuation of the career average scheme since it launched, I'm not sure how we can say that there have been no savings.
    hyubh wrote: »
    The failure to make a quid-pro-pro reduction in TPS benefits on the end of contracting out.

    Uh? So you think that TPS members should pay more NI and have their TPS benefits reduced? Sorry, not following the logic.

    The scheme rules don't allow for a reduction in benefits as you describe, so doing so would mean that another new scheme would need to be introduced (the cost of doing so, along with the administration of yet another teachers' pension scheme would hardly make good financial sense).

    Additionally, not all teachers who pay the extra NI will benefit from the higher state pension.
    hyubh wrote: »
    The government's decision to have the TPS (along with other public sector schemes) provide full increases on GMP for members who reach SPA under the new state pension system.

    Why would this be unfair?
    hyubh wrote: »
    The participation of employers that aren't public sector.

    Those employers pay the employers' contributions and the members employed pay the members' contributions. So both are funding the scheme.

    At the last valuation the scheme was self-funding, i.e. pensions in receipt were lower than contributions, so the exchequer was not paying anything out of general taxation.
    hyubh wrote: »
    The government's way of accounting for TPS liabilities.

    Please explain. I'm unaware of anything untoward here.
    hyubh wrote: »
    In contrast, TPS members with mixed final salary/CARE benefits having to take all of their TPS pension at the same time... not so much.

    The requirement either requires that a member has to wait eight/three years longer for part of their pension from their NPA, or has to take actuarial reduction. This is unreasonable. There is no valid argument as to why members can't retire at NPA of 60/65 and take their final salary benefits and then at 68 take their career average benefits. They would no longer be paying into the career average scheme, so they would not be accruing extra benefits. The whole decision is deliberately designed to either force teachers into working longer, or into taking actuarial reductions.
    hyubh wrote: »
    That FS and CARE benefits have to be taken at the same time does not fail to honour the terms of the former.

    No, it doesn't, because the final salary scheme is an entirely separate scheme, but that is also the point. As it is an entirely separate scheme it should not be artificially attached to the career average scheme.
    hyubh wrote: »
    Hmm, retrospectively tying future benefits to the 'specific contributions' made in the past - not sure you really want to be going down that route...!

    What you've said makes no sense. Perhaps you haven't expressed it clearly.

    The benefits of the scheme were set out in the scheme rules, as were the contributions that members had to make to attain those benefits. There was scope within the scheme rules for contributions to be increased in future, and for the exact method of calculating final salary, but not for benefits to be eroded on a whim. The government, therefore chose to end the scheme, rather than tinker with it.
    hyubh wrote: »
    Well yes, and it still is.

    Yes, which is why I used the present tense of the verb "to be". Not quite sure what point you are trying to make.

    You've also quoted one sentence from an entire paragraph so it is divorced from its meaning.
    hyubh wrote: »
    I wasn't saying it was good or bad, I was just saying that's how things are intended work, given the TPS is an unfunded public sector pension scheme. Current contributions don't pay for future benefits, they pay for current benefits - same as NICs and the state pension.

    Thanks for explaining what I already know! Indeed, I actually commented on how the exchequer treats the contributions, so your point is irrelevant and would seem to be an attempt to try and undermine my argument through more selective quoting.

    The point you continue to miss (whether deliberately or not) is that at the last scheme valuation the TPS was cost neutral to the exchequer, with current contributions exceeding the liabilities of pensions in receipt.
    hyubh wrote: »
    TPS contributions do not 'subsidise' other government spending.

    Yes they do. The money is treated as general taxation. The value of contributions currently received exceeds the cost of pensions currently in receipt. As there is no investment of the residual sum, it is used by the exchequer to pay for current government spending. You're just wrong about this.
    hyubh wrote: »
    Sure, and there's an argument for reducing benefits in order to reduce contributions and/or increase take-home pay - same goes for the other public sector schemes. (The fact public sector jobs, as a class, have a radically different pension/take-home pay benefit split compared to private sector jobs, as a class, is a relatively recent phenomenon.)

    Again, not clear on what point you are trying to make.

    Why would members (who have any financial nouse) want to reduce pension benefits for greater net pay? That just doesn't make sense. Non-members may wish to see that because they are envious of the provision, but there is no good fiscal reason for doing so.
    hyubh wrote: »
    That's not a 'surplus' in any meaningful sense! It's a statement saying there isn't a cashflow issue (currently).

    How is it not a surplus? "Surplus (noun) An amount of something left over when requirements have been met" (OED).

    You are now attempting a semantic argument, albeit not very effectively. The scheme was (and as far as anybody knows, still is) in surplus. That surplus being used to subsidise current government expenditure.

    Perhaps you'd care to share your own unique definition of 'surplus'. (Don't worry too much about the English language not agreeing with you).
    hyubh wrote: »
    My point was, there were other pensions changes affecting this cohort (including yourself...?) around a similar time that were at least neutral, and sometimes clearly to their benefit. Feelings of outrage would only be reasonable insofar as all changes are taken together.

    I disagree.
    hyubh wrote: »
    I'd be 99% confident they will, if they stay healthy to SPA, since that's how the transitional protections are intended to work (remember the original poster is only in their 30s).

    And yet it is not stupid to advise that somebody should double-check, is it?
    hyubh wrote: »
    Not unreasonable no, however as (I think) you also intimated, there's a reasonable chance things will change again over the next 30 years.

    Indeed they might, but that doesn't, therefore, mean that it isn't worth being appraised of the most up to date position. That is the very basis of making sound financial decisions.
    hyubh wrote: »
    Come on, it's not a 'different issue' at all... underwriting the pension is one part of paying for the pension, and paying for the pension is what contributions are for.

    Yes, it really is. What you have done is conflated two diffrent issues.
    hyubh wrote: »
    Steady on, I was only suggesting you had missed a word or something like that... :) Since in the sentence immediately after you referred to the revaluation rate for active members, I assumed you didn't really mean to imply you believed the original poster had already left the profession.

    In that case, I apologise. I misunderstood your comment.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
    Sixth Anniversary 1,000 Posts Name Dropper
    It's worrying just how far the DC bandwagon has gone to devalue DB pensions in the minds if many people. Given the mortality credit DB pensions should be able to pay more on average in annual benefits than a DC plan and you also get longevity insurance. An index linked DB plan along with state pension is the best foundation for retirement income. If you supplement it with a SIPP and ISA investments you will be in fantastic shape.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • JoeCrystal
    JoeCrystal Posts: 3,335 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 20 January 2018 at 7:30PM
    ValiantSon wrote: »
    At the last valuation the scheme was self-funding, i.e. pensions in receipt were lower than contributions, so the exchequer was not paying anything out of general taxation.

    Not the case anymore, I am afraid. According to the TPS (England and Wales) annual report, the net cash requirement from Exchequer is £3.3 billion for 2016-2017. When you got 730,000 active members but 660,000 pensioners along with 463,000 deferred members, the contributions from active members and employers are no longer enough to cover the pensions anymore. The combined employer/employee's contribution for 2016-2017 is £6.2 billion but the pension cost for the year is £7.5 billion I believe. Of course, I am not an expert in reading the annual report so I may got the figures wrong.
  • jem16
    jem16 Posts: 19,624 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 20 January 2018 at 8:47PM
    ValiantSon wrote: »
    No, don't think you are correct. My understanding is that you have to take both schemes benefits at the same time, or can you can post a link to where it states otherwise?

    http://www.surreynut.org.uk/teachers-pension-scheme-career-average-scheme-april-2015-switchover/

    Also from the TPS website - Diane in the case study has NPA of 60 but you can substitute age 65 for the OP.

    https://www.teacherspensions.co.uk/members/~/link.aspx?_id=01526650DFC14C898373108BC2F86150&_z=z

    Between ages 60 and 67?

    "If Dianne continues to work until she reaches age 60 (her final salary NPA) and provided she leaves service, she’ll be able to take her final salary benefits which will be unreduced.

    Dianne can also take her career average benefits but they’ll be reduced to reflect the fact that they are being paid for longer. She can instead choose to leave them until she reaches age 67. If she does that her career average benefits will not be reduced."

    Also this guide;

    https://www.teacherspensions.co.uk/~/media/Documents/Member/Guides/Planning%20retirement/Retirement%20Planning.ashx

    "Career Average Arrangement

    Your NPA in Career Average is either your State
    Pension age or age 65 whichever is the later date.
    If you’ve more than one NPA you can take all of
    your benefits once you reach the first NPA providing
    you are no longer in pensionable employment,
    but any benefits with a later NPA will be reduced.
    Alternatively, you can choose to claim them once your
    reach the appropriate NPA."
  • frugal90
    frugal90 Posts: 360 Forumite
    Part of the Furniture 100 Posts
    Jem16, really knows what she is talking about regarding teachers pensions. She has helped me a lot and I am really grateful for that.

    Jem16, I finish this summer by the way at age 56. My wife also a teacher will be 50.

    We both bought years back to age 20, which isn't possible now. We have also been putting money into SIPPS and ISA's since year 2000. Our mortgage was paid off ten years ago. Our plan is to use the SIPPS to bridge the gap to taking teachers pensions at age 60. If I were you I would pay off all debt first, max out on all available teachers pension options- buying additional pension, buying out years to 65, then look to build a SIPP/ISA portfolio to bridge the gap from your intended stopping point. Minimise expenditure and maximise expenditure on your future self.

    This doesn't mean not enjoying life. Quite the opposite. Good luck.
    Early retired in summer 2018 and loving it
  • jem16
    jem16 Posts: 19,624 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    frugal90 wrote: »
    Jem16, I finish this summer by the way at age 56. My wife also a teacher will be 50.

    That's great news for both of you. Glad I could help out.

    Enjoy your retirement.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
    Sixth Anniversary 1,000 Posts Name Dropper
    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 :-)

    I hope you are not teaching personal finance or probability theory. You are not considering the full range of potential outcomes.....you can also lose money investing directly in funds.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
    jem16 wrote: »
    http://www.surreynut.org.uk/teachers-pension-scheme-career-average-scheme-april-2015-switchover/

    Also from the TPS website - Diane in the case study has NPA of 60 but you can substitute age 65 for the OP.

    https://www.teacherspensions.co.uk/members/~/link.aspx?_id=01526650DFC14C898373108BC2F86150&_z=z

    Between ages 60 and 67?

    "If Dianne continues to work until she reaches age 60 (her final salary NPA) and provided she leaves service, she’ll be able to take her final salary benefits which will be unreduced.

    Dianne can also take her career average benefits but they’ll be reduced to reflect the fact that they are being paid for longer. She can instead choose to leave them until she reaches age 67. If she does that her career average benefits will not be reduced."

    Also this guide;

    https://www.teacherspensions.co.uk/~/media/Documents/Member/Guides/Planning%20retirement/Retirement%20Planning.ashx

    "Career Average Arrangement

    Your NPA in Career Average is either your State
    Pension age or age 65 whichever is the later date.
    If you’ve more than one NPA you can take all of
    your benefits once you reach the first NPA providing
    you are no longer in pensionable employment,
    but any benefits with a later NPA will be reduced.
    Alternatively, you can choose to claim them once your
    reach the appropriate NPA."

    Thank you. Not what I had believed, but happy to be proved wrong.
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