Is this worth it? Paying 19% of salary to get 1.1k in 30 years time?

FIRSTTIMER

Hi,

I currently pay 19% of my pretax salary into TPS to get an accrual rate of 1/45 and be able to claim my pension at 65 without any reduction. I plan to retire at 60 and bridge 60-65 with a private pension/sipp and LISA.

I am just wondering peoples thoughts on paying 19% into a civil service pension to gain this. It is costing me approx 8k per annum for this 1.1k annual accrual to be taken in 30 years. It increases in value by CPI + 1.6%.

Thanks

lisyloo

Can you say how you’ve calculated the £1.1k?
Is that by any chance 1/45th of your salary?

MallyGirl

yes - each one off £8k buys you £1.1k pa for life. You might live 30+ years after 65.

FIRSTTIMER

Yes that's right, 1/45 is around 1.1k/1.2k

FIRSTTIMER

So worth it then in your opinion? It has hiked up by around 3% this year and I was contemplating stopping paying in any extra as it is quite expensive, hence just a general ask on here on whether it is worth it.

Pension_Geek

You are probably paying extra for the early retirement age, but if you did a quick check of what an annuity with the same income and indexation costs on the Money Advice Service, you'll see what a good deal you are getting compared to purchasing on the open market.

lisyloo

Sorry if this is a dumb question, but you do realise that’s 30/45ths e.g. £33k per annum if you complete the 30 years?

I think it’s a great deal and what those of us without DB pensions would consider gold plated (or at least silver).

Using the 4% drawdown figure you’d need a pot of £825k to get £33k per year and very few DC contributors are likely to reach that level.

JoeCrystal

FIRSTTIMER wrote: »

So worth it then in your opinion? It has hiked up by around 3% this year, and I was contemplating stopping paying in any extra as it is quite expensive. Hence just a general ask on here on whether it is worth it.

Yes, absolutely. It costs you peanuts to get that. That is how good the deal is.

To get an equivalent benefit from a private pension (assuming the person is 35 years and understanding that you had 30 years service with payrise keeping up with the inflation rate) I am not entirely sure what is your salary is but based on your accrual rate and the percentage of the salary, it must be between £42k to £49k so let assume that this person is on £45k. To aim for an index-linked annuity of £30,000 by 65 from fresh, one would need to contribute £2,400 per month for the next 35 years or £28,800 per year. So basically the private pension cost is higher than an average salary!

FIRSTTIMER

Thanks for this insight. I was just looking at the figures and it equates to around, pretax 700 a month I pay and it feels like a mammoth amount. I can certainly afford it to be fair and at 35, if I stop working at 60 and keep up this level, I want to ensure it is worth it.
I understand that I can go part time at 60 to maybe half a day in order to still pay in and get in the annual growth of currently CPI+1.6%. My only concern was hitting the Annual Allowance earlier than 60 if I have an old company pension (10 Years defined benefit from age 18, which currently has a CETV of 80k or annual pension of 5k from age 65) and a SIPP. to bridge 60-65.

lisyloo

If you think that your working life is say 38 years (22-60)
And your retirement is 25 years (60-85)

Then 19% is a Great figure.

You also have the guarantee that if you live longer it will keep paying.
Gold plated I say (jealous much)

FIRSTTIMER

Agreed. I have definitely set my sights on stopping work at 60 full stop where I can. A current CETV value of 80k will hopefully bridge income between 60-65 along with a LISA I am starting. A few have suggested not to put money in a SIPP as much as I thought I was going to, to help between 60-65 as I will have a lot in pensions which will have tax implications and to maybe divert to a LISA instead for cash between 60-65 too.