Teachers Pension Calculator Realistic?

FIRSTTIMER

I have inputted a salary of £45k and a start date of 1st August 2015 and date of birth year as 1984 and it is giving me an estimated pension value of £40k per annum and a max lump sum of £265k at age 68. This seems very high....thoughts?

JoeCrystal

You got all the scheme numbers so you should be able to model it in your preferred spreadsheet! Anyway, I think you mentioned that you opted for faster rates but you did not say which one. Looking at the rates, you can give for 1/45th, 1/50th or 1/55th. So what are the assumption on the calculation then? Give it a go modelling it in your spreadsheet.

I wouldn't be all surprised at that kind of pension considering how extremely generous these schemes are.

justme111

It's just that he will have to work for many many years to get there and it will be at the end of his life

hugheskevi

Assuming membership of the standard scheme (ie no Faster Accrual), and salary and price growth in line with HM Treasury Valuation assumptions then if you worked to age 68 (37 years) your pension would be worth about 62% of final salary, with no lump sum.

That looks about right - quite similar to the old final salary schemes which would pay out 67% of final pay after 40 years of service, but from age 60 rather than 68, having paid much higher contributions and only receiving CPI rather than RPI increases in retirement.

The big saving to the Exchequer from pension reform was the change from RPI to CPI revaluation and indexation in 2011 and member pension contribution increases between 2012-14. The change to 2015 scheme structure didn't change the expenditure forecasts very much.

Mick70

at 2048 the £40k per annum maybe equivalent of say £25k per annum now ?

FIRSTTIMER

Sure - good point

cobson

You can check the online calculator's results using Excel's FV function. Using your figures gives 37 years service, the accrual rate is 1/57, and they assume 2.2% inflation plus a 1.6% uplift, so the formula is:

=FV(3.8%,37,-45000/57)

giving £61800.

The maximum lump sum is pension x 30/7 and the commutation rate is 12, so this gives a maximum lump sum of £264860 and a pension of £39729, so the calculator looks right.

To see it in todays terms, assuming the salary just keeps up with inflation, replace the 3.8% with 1.6%. This gives a pension of £25349 and a lump sum of £168933.

FIRSTTIMER

Great - I am going for 1/49 accrual too

zagubov

Salary increases are less than half the rate of inflation (1% against over 2%) so you may need to be putting more away than you think.

£265k could be worth less than half that in 37 years (more like around £118).

Remember teachers frequently draw their pensions until their late 80s. I'd be hesitant to take a lump sum that stripped away your monthly pension by £1k per £12k taken.