Should i join TPS

Meno

Hi, I have a part time job that entitles me to Teachers Pension. I can afford to put 100% of this part-time income of approx. 10k p.a.  into a pension, and wonder if its worth worthwhile putting it into TPS in my position ( would be 7.4% of salary into career average TPS and the rest in a DC AVC with prudential) or just use a SIPP. I am likely to work for at least 10 years in this role. However, I already have quite a good DB pension already in place at 65. Any thoughts on this most welcome!

xylophone

However, I already have quite a good DB pension already in place at 65. 

Then you know the benefits of a good DB scheme.....

Meno

xylophone said:

However, I already have quite a good DB pension already in place at 65. 

Then you know the benefits of a good DB scheme.....

Yes, I guess so, even though TPS at a salary of 10k will only get me say 2k a year, maybe I should....

kinger101

You've be mad not to. The accrual rate is 1/57th I believe.  So for every year's £740 put in, you'd get back £175 a year.  So £7400 returns £1,750 a year, index-linked.  You'd need at least £50K a year to get anything like that from an annuity.

Beyond the CARE scheme, it's difficult to know without understanding your tax position.  If you pay no income tax, you'd be better putting £2880 a year into a SIPP.
 

Meno

I am a 40% tax payer, already paying into a DB and also 1500 pcm into a SIPP

Meno

i still have room in the 40k allowance

kinger101

Will you pay HR tax in retirement? How for from LTA are you?

Meno

My expectation is between 30-40k in retirement so BR tax. That will be funded by my other DB scheme, which i am still paying into + SP. I am investing to retire as early as possible and bridge the gap to DB pension at 65. I am around 600k in the LTA at the moment. I am 51

kinger101

Well, that's good then.
On the face of it, you should prioritize TPS over SIPP.  The £740 pa costs £444 of net salary (for £140 pa net income).  Which means you'll hit break-even in your forth year of income from the scheme. 

Nothing you could do in your SIPP will beat that, but I'd still at the very least drop myself into basic rate for the tax advantages.  

Meno

Thanks - what do you mean by drop into BR?

bowlhead99

Meno said:

Thanks - what do you mean by drop into BR?

Meaning that you are a higher rate taxpayer so can save higher rate tax on your pension contributions... but if you put so much money into your pension that your income less the income being funnelled into the pension was leaving you with an income level below the higher rate threshold, you have effectively dropped into the basic rate tax bracket, and every incremental pound put into the pension is only saving basic rate tax, not higher rate tax.

For most people who will be basic rate tax in retirement, it will be very lucrative to create pension income in retirement by stuffing their income into a pension scheme now and avoiding higher rate tax now. However, once you have dropped your 'after pension contribution' income now down into the basic rate bracket, it is not nearly as lucrative so you can stop doing it rather than fully maxing out your allowance.  Thus the recommendation to 'drop myself into basic rate', rather than only do small contributions and still be higher rate taxpayer - if you could avoid more high rate tax, it can be a very good idea to do so.