TPS - Teachers

boltonian

Hi,

My place of work is likely to withdraw from TPS. They are looking at an alternative which pays 16% employer and 8% employee contribution.

Clearly this won't be as generous, but is there any way to work out approx what the difference would be in the future?

Looked at getting a pensions adviser, but they seem to charge an absolute fortune.

Does anyone know a cheaper way to get some expert advice?

Dazed_and_confused

Do you mean you are moving from a defined benefit scheme to a defined contribution scheme?

If so you are moving from a promise to pay £x/year to having a pot of money which will be dependent on how it is invested, performance of the funds etc.

You also need to understand on what basis the pension contributions will be made.

Two common methods are net pay, where for example your, £200 monthly contribution will give you £200 in the pension fund and will usually save you £40 in personal income tax.

Whereas with a relief at source scheme you will pay £40 more income tax but if you contribute £200 to pension it will be topped up to £250 by the pension company with basic rate tax relief.

So one way you have £200 in the fund, another £250.

Not easy to compare DB and DC outcomes.

Malthusian

16% employer and 8% employee is terrific. The legal minimum is 3% employer / 5% employee on earnings over £6,136, and most people would be happy with 1:1 employer matching.

Working out whether it will pay the same as the TPS requires making assumptions on how the fund will grow, how much you will pay into the scheme for how long, how much you will draw in retirement, which in turn depends on your attitude to risk, intended retirement date, needs in retirement, other pension plans (including your deferred TPS) etc etc etc. So the short answer is "no" and the slightly longer and better answer is "only by making a series of assumptions and using that to make stochastic projections".

But does it matter? However the projections come out you should still bite their arm off and pay the maximum 8%.

There is no need to employ professional advice for this absolute no-brainer. Not based on the information in your post.

LHW99

Hopefully you will still retain your existing TPS DB as a "deferred member" - worth checking.

fred246

Can you not get a job in a school which pays into TPS? That's what I'd be looking at.

hyubh

Malthusian wrote: »

16% employer and 8% employee is terrific.

Yes, because typical DC is lightyears away from public sector DB.

The legal minimum is 3% employer / 5% employee on earnings over £6,136, and most people would be happy with 1:1 employer matching.

Irrelevant for the OP, unless the employer is offering a chunky salary increase in lieu of TPS membership, which was given until recently. (PS - I have my views on private schools being able to participate in the TPS, and in particular, on the terms that they do, but they ain't relevant to this thread...)

But does it matter? However the projections come out you should still bite their arm off and pay the maximum 8%.

Of course it matters, the OP is going to lose a substantive part of their total renumeration package...

xylophone

Do you mean you are moving from a defined benefit scheme to a defined contribution scheme?

below may be relevant.

https://schoolsweek.co.uk/revealed-62-private-schools-withdrawing-from-teachers-pension-scheme/

Sobraon

Mark IF I were you I would be looking for another job urgently. Sorry if that is a difficult process for you I really am.

But, I can tell you looking backward that being a member of the TPS was the best financial decision I ever made bar none. The value of the TPS is not only simply financial it is the certainty a DB scheme gives. I didn't understand this when I started my career but I do now.

If I had been a member of a DC pension scheme I know without any doubt that I would not drawdown sufficiently from the pension value. In practice I would only draw down the 'natural yield'. You can do the figures but this probably means about 2.5% ( CPI linked ) from the pot annually - 'just in case'.

JoeCrystal

24% combined contribution is still very generous compares to the auto-enrollment minimum of 8%. But yes, TPS, on the whole, will be more generous. As for the difference, it is going to be difficult to say since you didn't say any income and year left to say.

What I can do though is to assume two 28 years old teachers are starting teaching at school at £24,000. Both teachers are planning to retire at 68, which is the default pension age for TPS and SPA. The first one went into the TPS and the second went into a replacement DC scheme for TPS with 24% of the combined contribution and more critically, did not change or cut by the employer in the coming decades.

I am also ignoring the bells and whistles on top for the TPS like ill-health retirement, death in service, pensions for spouse and children and other elements which you may not get in a DC scheme like getting extra pensions or better accrual rates).

After forty years in the same pension terms and conditions (Very unlikely) and assuming that the salary matches the inflation, the first teacher in the TPS on 24k pays 7.4% in employee contribution so £148 per month and accruing at least £421 per year in today's term Plus 1.6% on top of inflation (That 1.6% on top of the inflation revaluation is quite valuable over forty years). So in today's money, it might be worth £23,336 pension in 40 years at the cost of £71.040 to the employee for forty years. That is very cheap for the employee. It is costly for the schools and especially for the Treasury who have to cover the shortfall as they are paying 75% of the current TPS pensioners' pensions.

The second teacher who joined the DC scheme, because of the school decided to ditch the TPS thinking that the cost is prohibitive. The employee pay in £160 per month with the employer pay in £320 per month and assuming that the employers did not cut the employer's contribution, in forty years, I have no idea what kind of income you can expect. If you are lucky and assuming 5% growth per year, you may build up a pension fund of £449,000, and if you want an index-linked joint-life annuity then you might get an annuity of £12,400 per year or if you're going to draw down on it then maybe up to £20,000 per year.

If you are committed into getting an index-linked joint-life annuity of £23,336 in forty years in a DC scheme, then you may have to contribute the combined 45% of £24,000 (And we still have not got into the cost of life insurance and ill-health insurance and so on). Ummm, if I were a teacher, I would stick with the TPS and will move to another school that stills pay into it, to be honest. Losing the DB pension scheme like very generous TPS is like taking a significant pay cut for the employees.

I hope this highlight the sheer gulf between the DB pension scheme and the DC pension scheme and explains the difference!

Malthusian wrote: »

16% employer and 8% employee is terrific. The legal minimum is 3% employer / 5% employee on earnings over £6,136, and most people would be happy with 1:1 employer matching.

If my employer matches my contribution and on my full salary, I would die of happiness, so I get where you are coming from. Still, it doesn't matter what the employer contributes in place of a DB pension scheme; it won't even come close to replacing a DB pension scheme. And besides, the OP did not say if any ill-health or life insurance is coming with it either.

Nebulous2

I worked for a large voluntary organisation which was a member of the LGPS. Due to cost they closed it to new members but kept paying for the rest of us. Then they decided it was unaffordable for the members left and we all became deferred members.

I left about 9 months later, taking a substantial drop in pay to get back into another employer who was a member of the LGPS.

7 years on, I'm now looking to retire early and reckon it was a very good decision. Those additional years in a final salary / CARE scheme have been very useful in making retirement in my late 50s possible.

chucknorris

boltonian wrote: »

Hi,

My place of work is likely to withdraw from TPS. They are looking at an alternative which pays 16% employer and 8% employee contribution.

Clearly this won't be as generous, but is there any way to work out approx what the difference would be in the future?

Looked at getting a pensions adviser, but they seem to charge an absolute fortune.

Does anyone know a cheaper way to get some expert advice?

Yes there is a way to compare them but it is subjective, and it would be an estimate rather than a 100% accurate comparison. Because you have to assess what the value of the TPS pension is to YOU. I value my TPS pension with a multiplier of 28.5, which is less than buying an annuity, but I don't think annuities offer full value (to me). I did originally value it at 25, (based on my intended drawdown rate of 4% in retirement), but then I realised that the TPS pension has far less risk than drawing down at 4% per annum, and adjusted it to 28.5.

Once you have settled on the value to you, you can compare both schemes on a spreadsheet, using figures for both that are appropriate to your financial situation.