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

FIRSTTIMER

This is exactly why I decided to pay the maximum now, I have set my mind on retiring at 60 the latest and plan to cash in my LISA and old company DB scheme to fund 60 to 65. The faster accrual of 1/45 has calculated that I will have paid for the full £7k in the next 5/6 years as my buyout is costing a lot too. At 60, I will then pay a fee (apparently) to buy out the last bit of actuarial reduction of not paying in between 60 and 65. I also benefit from the fact the pension accrues (CPI+1.6%) for up to five years out of service, if I return for at least 1 day! I will then take my full TPS with 25% at 65 earlier depending on tax implications in 2040! Well thats my plan for now!

justme111

chucknorris wrote: »

It is subjective, we are stating opinions, not facts, how come you are entitled to an opinion, and I am not? IMO out of all my investments the additional pension that I invested in the TPS was by far the best value. If you don't like that, well that's just tough.

One can try and make it the least subjective by calculating what benefit one gets in paying additional contributions per £ paid. I do not have a set opinion as I have not calculated it. You have a very defined opinion even though youappear not calculated it either - but you have an opinion.
Conditions of buying extra benefits in TPS scheme 30 years ago and conditions of buying them today jn the NHS are likely to be very different and unless one have done the maths being sure they are better than anything else does not seem reasonable to me.

Oliver1191

Just to clarify, i was under the impression that apb in the tps goes up with cpi (to a maximum of 3%) and does not benefit from the 1.6% (unlike faster accrural)?

Oliver1191

Wow - there are a lot of points on here that i would love to comment on! I will limit it to a couple of points...

1. Op - check out Mr Money Mustache's blog. This is great for working out how best to become FIRE.

2. As to whether or not apb is a good investment is hard to say. If you invest very conservatively, then yes it is. I've got 33 years until i reach 68, so usually choose to invest in funds as there's plenty of time for growth. I dabble with the flexibilities every now and then.

Personally, i would suggest that comparing apb to annuities only is not helpful as there are so many other investments out there that you would be ignoring.

I find the tps is good for security, and is worth being in it for the main benefits.

chucknorris

justme111 wrote: »

One can try and make it the least subjective by calculating what benefit one gets in paying additional contributions per £ paid. I do not have a set opinion as I have not calculated it. You have a very defined opinion even though youappear not calculated it either - but you have an opinion.
Conditions of buying extra benefits in TPS scheme 30 years ago and conditions of buying them today jn the NHS are likely to be very different and unless one have done the maths being sure they are better than anything else does not seem reasonable to me.

You don't need to calculate it, because he told us in his opening post:

FIRSTTIMER wrote: »

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%.

Because it increases by CPI + 1.6% it s reasonable to assume that it will be worth slightly more in the future than at today's prices. So if we just settle for the future value being the same (ignoring any growth) then that's a guaranteed yield of 13.75%.

If by 'calculate' you mean compare it to investing in say equities and assuming a draw down rate for an assumed lifespan, and assumed growth over 30 years. I would say that there are too many assumptions for it to be a meaningful calculation.

The fact that you start with a yield of 13.75% and it is indexed, is enough for me to see that it is excellent value. You do realise that his pension is subsidised don't you? Other investments are obviously not subsidised.

justme111

Chucknorris, I read it as his TOTAL payment for pension is 8k and accrual 1.1. We do not know what part of the total payment and accrual are additional benefits - faster accrual and ERBO. It is the value of those parts that is unknown and questionable , not of the main scheme. Unless of course I have understood it wrong and he pays 8 k just for additional benefits which is unlikely on his salary .

JoeCrystal

justme111 wrote: »

Chucknorris, I read it as his TOTAL payment for pension is 8k and accrual 1.1. We do not know what part of the total payment and accrual are additional benefits - faster accrual and ERBO. It is the value of those parts that is unknown and questionable , not of the main scheme. Unless of course I have understood it wrong and he pays 8 k just for additional benefits which is unlikely on his salary .

We do know that the TPS contribution rate for standard benefit is

£44,209 to £58,590.99 10.2% With this in mind, it seems likely that it cost around 9% for the faster accrual rate and early buy out. Of course, this is before taxes, so it is cheaper than that as well.

justme111

The last time I looked at conditions of purchase of additional benefits they were far worse than for the main bulk of the pension and understandably so.

Terron

zagubov wrote: »

It's the fact it's an inflation-proof DB scheme that makes me want to make it my main investment for my future. Bear in mind teachers retiring about 60 can still be drawing pensions in their late 80s and beyond.

Both the teachers and NHS pensions schems increase faster than inflation. Teachers at CPI+1.6%, NHS at CPI+1.5%. That is probably the main reason why they are considered gold-plated.


I have 2 DB pensions from the private sector, both FS as the public sectors ones were at the time. For the first rises once the pension is in payment are "entirely at the discretion of the trustees". Since 2002 they have given two 1% rises. For the second the company has said they will treat it as in the 1997 law applied to the whole. That law requires increases in line with inflation up to a cap of 5%. In 2005 the cap was reduced to 2.5% but the schemeended before then.



For an income that is guaranteed and further more guaranteed to increase faster than inflation you should have a very good reson not to take it.

Silvertabby

Terron wrote: »

Both the teachers and NHS pensions schems increase faster than inflation. Teachers at CPI+1.6%, NHS at CPI+1.5%. That is probably the main reason why they are considered gold-plated.

I have 2 DB pensions from the private sector, both FS as the public sectors ones were at the time. For the first rises once the pension is in payment are "entirely at the discretion of the trustees". Since 2002 they have given two 1% rises. For the second the company has said they will treat it as in the 1997 law applied to the whole. That law requires increases in line with inflation up to a cap of 5%. In 2005 the cap was reduced to 2.5% but the schemeended before then.

For an income that is guaranteed and further more guaranteed to increase faster than inflation you should have a very good reson not to take it.

CPI + is only paid during the accrual stage (as part of the career average revaluation). The increase in deferment/retirement is just CPI. On the plus side, this is uncapped.