Leaving Teachers' Pension Scheme

jsbach

I am 61 and can potentially draw my Teachers' Pension as my NPA is 60. I teach in a Public school which will be leaving the TPS and joining another scheme (e.g. Aviva) in September. Advice I have had is to draw my Teachers' Pension in September on the basis that my Teachers' Pension  will not grow once the school leaves so I may as well take it. I plan to retire in August 2021 at 62 rather than August 2020.

All this raises the following questions:
I am divorced and have a mortgage of approx £57K which I can reduce to £46K by September 2020 by overpaying. I can obtain a TPS lump sum of from £70K to £123K depending on the percentage (0% to 25%) I opt to take in that way. I am looking to take 15% which is £101K. Unfortunately I sacrificed £21K as part of the divorce settlement so my actual lump sum at 15% is £80K.

I have always assumed that paying off immediate debt is the thing to do which by Sept 2020 would leave me £36K. This is what I plan to do so I hope this is wise.

Now, drawing my Pension of £X per month and receiving a salary of £Y increases my monthly income to £(X+Y) so it has been suggested that I ask the school to pay an extra £X (on top of what they will do anyway) into the new salary scheme which will still leave me with £Y coming in each month. May I ask [a] if that is the correct course of action and [b] will NI contributions balance out etc. etc? Is there anything else to consider?

Presumably then, in Aug/Sept 2021 I don't want to draw all the money from the new pension scheme or I shall be hit with a tax bill, so I take it out in stages.

Writing at 3a.m. I hope all this is clear. Going back to bed!

Dazed_and_C0nfused

jsbach said:

I am 61 and can potentially draw my Teachers' Pension as my NPA is 60. I teach in a Public school which will be leaving the TPS and joining another scheme (e.g. Aviva) in September. Advice I have had is to draw my Teachers' Pension in September on the basis that my Teachers' Pension  will not grow once the school leaves so I may as well take it. I plan to retire in August 2021 at 62 rather than August 2020.

All this raises the following questions:
I am divorced and have a mortgage of approx £57K which I can reduce to £46K by September 2020 by overpaying. I can obtain a TPS lump sum of from £70K to £123K depending on the percentage (0% to 25%) I opt to take in that way. I am looking to take 15% which is £101K. Unfortunately I sacrificed £21K as part of the divorce settlement so my actual lump sum at 15% is £80K.

I have always assumed that paying off immediate debt is the thing to do which by Sept 2020 would leave me £36K. This is what I plan to do so I hope this is wise.

Now, drawing my Pension of £X per month and receiving a salary of £Y increases my monthly income to £(X+Y) so it has been suggested that I ask the school to pay an extra £X (on top of what they will do anyway) into the new salary scheme which will still leave me with £Y coming in each month. May I ask [a] if that is the correct course of action and [b] will NI contributions balance out etc. etc? Is there anything else to consider?

Presumably then, in Aug/Sept 2021 I don't want to draw all the money from the new pension scheme or I shall be hit with a tax bill, so I take it out in stages.

Writing at 3a.m. I hope all this is clear. Going back to bed!

You can't pay £X into the new pension scheme as the school is required to pay you under the national minimum wage rules.

You can probably increase your contributions way above the standard but the exact amount depend on the scheme rules.

From an NI perspective you only pay that on your employment not the pension and you should check your State Pension forecast on gov.uk to see what you have accrued to date (usually shown to 05:04:2019 at the moment) and how many more years you need to reach the new State Pension maximum of £168.60.
NB.  You are under transitional rules so you might need more or less than 35 years.

There are a myriad of options with DC schemes so it's not possible to cover the tax position from so little info about what you intend to do but two common options are to take 25% tax free at the start or take 25% of each payment tax free.  The remaining 75% is taxable income so tax would be payable depending on your other income in the tax year you take taxable income from the DC scheme.  If you take all the taxable element in one go then you may well move yourself from one tax band to another and pay a higher rate of tax on some of it.  But that is your choice.

zagubov

Be aware you might have to reduce your working week. You can't earn a full teaching salary on top of a teachers pension. If your pension £X plus salary £Y is above your reference salary your pension will be clawed back.
On the other hand, if you don't claim your pension when you're entitled to it, AFAIK you don't ever get the missing money back.
So 2020-2021 may have to be fractional post, presumably earning less of a pension pot.
Do you have to take your whole pension at the same time?

jsbach

Thanks Dazed and Zagu. When we leave the TPS my pension will be sitting there doing nowt, presumably. It has been hinted (at school) that one can retire for a day and then 'go back' to work. Thus the issue facing me is to pay the tax which is due but not more than I need to, and ensure that NI and other factors are as they should be.

What did you think about paying off my mortgage with a large chunk of my lump sum? Seems a no-brainer to me...

zagubov

You need to check about this. If you retire before your NPA you can be out of work for one day then start a new contract without abatement of your pension. 
Not sure that's possible once you're at or past your NPA, so if you did work full-time you'd have most of your pension clawed back. The fact that you're not in the TPS at that point won't matter, as you're in employment eligible for being in the TPS; working in a shop wouldn't have that problem. You might be better off finding out if you're entitled to a phased retirement, so you'd at least be working less while getting maybe half your pension.
Or a switch to the state sector for a year?
The TPS would be the place to check on this. I'd start with this page, and also maybe make a phone call before which I'd make a list of questions they can answer yes or no to. They can't offer financial advice or do lightning financial calculations on the spot.