Teacher Pension Queries

MoneySaver241

Hi Money Saving Forum,

I’m new to these forums so please be nice and excuse my naivety. 

Im confused regarding my teachers’ pension. Please can I have some advice from what I can expect?

I’m 31, will have 9 years service in September 2020 and I am planning to retire at around 60 years old (August 2049). 

I currently pay £660.99 pcm / £7,931 pa towards my teachers pension. My employer pays £1,385.16 pcm / £16,621 pa contributions. 

Currently my Teachers Pension benefit statement states that my total annual pension amount is: £8,374 made up of the ‘60th final salary’ arrangement amount: £3,576 and the ‘Career Average Salary’ arrangement amount of £4,798. Total death grant £210,582 in service and Total annual family benefit: £3,140. 

I live in London and I am still not on the property ladder. Unfortunately the majority of my wages up until now have been paying for my rent as house sharing in London is very expensive compared to the rest of the country. 

Do you think I should withdraw from the Teachers Pension Scheme to save the additional £7,931 p/a towards a deposit for a flat / home?

Furthermore I have around £8k of student loan debt left to pay off (originally it was £28k in 2011!) - which I currently pay off £4,572 p/a. So hopefully depending on interest rates, I will be able to pay this off within the next 24 months. 

If I were to combine the student loan saving and the teachers pension withdrawal savings it would total around £12,500 which I could put towards saving for a deposit. Do you think that this is a smart move?

Finally in terms of pension, what can I expect to have as an annual teacher pension amount in the when I retire?

My current salary is £70,194. 

I appreciate I have asked a lot of specific questions above and that there are lots of details to be considered. I would really appreciate all advice so that I can ensure that I do my best to provide for my young family. 

Thanks 

MoneySaverNovice!

BishopBrennon

Welcome to the forums!

MoneySaver241 said:

 

Do you think I should withdraw from the Teachers Pension Scheme to save the additional £7,931 p/a towards a deposit for a flat / home?

In a word - No. 

The death grant is given if you die in service (it's 3x your salary [fte if part time])... But you lose this most of benefit if you withdraw from the scheme. The family benefit is the annual value of a the pension your spouse would get if you died before them. 

Your pension will give you £8374/year if you stopped paying in now and retired at state pension age. But if you stay opted in this figure will increase (as the final salary is potentially higher and the careers average earnings increases more in service [the careers average portion grows by cpi +1.6% while you are part oof the tps, but only increased by cpi after you opt out/leave), but you'll also build up more in the careers average (1/57 per year so over £1200 extra annual pension per year). If you kept working for 29 more years in the same salary your pension would be £35k higher than if you left the scheme now.

Of course retiring early would reduce the annual pension (although I must confess I'm not entirely familiiar with the exact details for members in both the final salary and career average schemes..) 

Opting out means you lose out on higher revaluation and the comfort of the generous death grant should the worst happen (effectively it's life insurance to make sure your young family are provided for).

Although it's tempting to forego retirement planning to get on the property ladder, if you can keep in the tps your future self will thank you. Plus, once you opt out you might keep finding something else urgent to spend the money on and never get around to opting back into what is a generous guaranteed pension scheme. 

Grabs39

There are calculators on the teachers pension scheme website which are quite useful.

You say your contribution is £7,931, but is that from gross income?  So you’ll pay 40% of that in tax if you don’t put make the contributions, as well as losing several times that in the value of the benefits you are in effect buying.

Ive always worked in the private sector, but my wife’s a teacher.  I’d give my back teeth for a pension as generous as teachers get.  We will be dependent on her pension for our plan to retire at 60, rather than 68 (though by the time we get there state pension age could rise even higher).

dunstonh

Do you think I should withdraw from the Teachers Pension Scheme to save the additional £7,931 p/a towards a deposit for a flat / home?

Your monthly contribution to the TPS is relatively small. It will not make a big difference to your deposit saving.   Plus, what you see as the contribution on your payslip will not be what you receive extra in your pay if you opt out.    It will have tax and NI deducted against it.  So, you would only get about half what you see the contribution is on your payslip.

The TPS is a fantastic scheme that gives you far more back than you pay into it.  Opting out for just a year would result in you losing tens of thousands of pounds.

Robbing your later life-self of money for the benefit of your younger self is not a good idea.   You will regret bad decisions like that when you are older.

Sun-Is-Fun

NO, then NO again - you'll really regret it if you did when you are older. Yes, it seems a big chunk out of your wages now, but when you are older you will be so glad of this pension and will be ecstatic you continued to pay into it, so NO, don't opt out.

cloud_dog

BishopBrennon said:

Your pension will give you £8374/year if you stopped paying in now and retired at state pension age. But if you stay opted in this figure will increase (as the final salary is potentially higher and the careers average earnings increases more in service [the careers average portion grows by cpi +1.6% while you are part oof the tps, but only increased by cpi after you opt out/leave), but you'll also build up more in the careers average (1/57 per year so over £1200 extra annual pension per year). If you kept working for 29 more years in the same salary your pension would be £35k higher than if you left the scheme now.  

To put that is some sort of context for the OP, to obtain a pension of £8374pa using money/cash, you would need to have saved / investments worth over £200k!!!!

zagubov

It would cost you about a third of your salary to replicate the benefits in a a DC scheme. It's not your pension's the problem, your location's the problem.

Dazed_and_C0nfused

I currently pay £660.99 pcm / £7,931 pa towards my teachers pension. My employer pays £1,385.16 pcm / £16,621 pa contributions. 

Your payslip may show you "pay" £660.99 but on a salary of £70k the real cost is only going to be about £397/month as that £660.99 is reducing your taxable salary from £70k down to about £62k so saving you c£3.2k/year in tax.

MoneySaver241

Grabs39 said:

There are calculators on the teachers pension scheme website which are quite useful.

You say your contribution is £7,931, but is that from gross income?  So you’ll pay 40% of that in tax if you don’t put make the contributions, as well as losing several times that in the value of the benefits you are in effect buying.

Ive always worked in the private sector, but my wife’s a teacher.  I’d give my back teeth for a pension as generous as teachers get.  We will be dependent on her pension for our plan to retire at 60, rather than 68 (though by the time we get there state pension age could rise even higher).

The £7,931 contribution is £660 each month not included in my take home pay. 

Oh right so I would be taxed on that too?
Appreciate your advice. Thank you

MoneySaver241

zagubov said:

It would cost you about a third of your salary to replicate the benefits in a a DC scheme. It's not your pension's the problem, your location's the problem.

😂 I agree regarding the location ! I’m not originally from London. Excuse my ignorance but what is a DC Scheme?

Dazed_and_C0nfused

Defined contribution.  Where you build up a pot of money rather than have a guaranteed pension like you currently have.