Invest extra in to Teachers pension or SIPP

I have a friend who is a teacher.
They wish to invest some of their savings in to their pension.
They have a SIPP that has about £20k in (this is from a previous employer's pension transferred to a SIPP after that employment ended).
They also have a teachers pension which they can add to as well.
Which would be a better option for them. They've asked me as they think I'm financially savvy but I don't know much about teachers pensions.
Thanks in advance.


  • robadgerrobadger Forumite
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    There are four main different ways the teacher pension can be added to which are laid out here: (edit: can't post links, but just copy and paste the above into google.)

    The short answer is that's what's best will depend upon what your friend's aims in retirement are: age they are now, age they intend to retire, how definite they want their income to be etc. My personal opinion is that the SIPP(or other personal pension) is the best option to run alongside the main teacher pension. This is because- and I stress again this is only my view - it offers greater flexibility in being able to retire early and can be run cheaper and with more opportunities  the AVCs. The other 3 options are expensive IMHO and are particularly of limited use if the member intends to retire significantly before the NRA.

  • Retired_MinkyRetired_Minky Forumite
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    Thanks Robadger.
    She is currently 45 years old. She wants to retire early. She's mentioned 50 but I think she'd retire earlier than that if it was an option.
    Her outgoings are approx £20k pa. She has separate income via buy to let that brings her approx £13k pa profit. So she has a shortfall of £7k pa until retirement income kicks in.
    She'll be able to access her SIPP at 55 but with only £20k in it at the moment that's unlikely to provide significant income. 
    She has some savings but not told me how much.
    I'm not to aware of teachers pensions and whether she can access that earlier.
    She has two elements:
    • 60th Final Salary in which she has said she doesn't think she can add any more funds into and is accessible at 65. 
    • Career Average. She thinks she can add to this and is accessible at 67.
    Can you take your teachers pension early or is that not an option?
    Her plan is to retire early and use savings to cover her until she can access her SIPP, teachers pension and state pension.
    She want's to increase pension contributions but not sure if SIPP or teachers pension is the best option. 

  • SeldonistaSeldonista Forumite
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    You can take the teacher's pension early, the age is currently 55 but by the time she gets there, maybe 57/58. Early retirement actuarial reduction factors are available on the website. Roughly the final salary part would by reduced by 19%, the career average part by 41% if taken at 55.
    You have 2 flexibilities available to you (the actuarial buy out is available only if you request it when you join the scheme), buy additional pension or increase accrual rate, and there are calculators on the TPS website.  
    There is no clear yes or no answer about whether this option is better than AVCs into a DC pot or SIPP alongside the DB pension.
    The advantage of the teachers pension is that it's a guaranteed inflation-linked income for life however what your friend may need is something to tide her over til the state pension kicks in, so then a lump of money as you would get by doing AVCs or starting a SIPP is more helpful than that income. This is assuming the state pension +teacher's pensions combined is enough.
    I would think that the buy to let will pay or allow her to pay NICs and so accrue state pension, if not then she should certainly look at making voluntary NICs to get the maximum state pension.
  • robadgerrobadger Forumite
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    I think 55 is the earliest you can access the teacher pension, and then with a c.4% actuarial reduction for each year it's taken earlier. As a side note, the earlier scheme is 1/80ths and available at 60.
    Not knowing what your friend has in savings makes it hypothetical, but she needs £35k in cash ISA etc. to bridge from 50 to 55. At the same time she'd need £35k in her Sipp to see her from 55 to 60. Then DB pensions come into effect. Assuming she has no cash savings at the moment, back of a fag packet calculations suggest she'd need to save £47k in the next 5 years to be able to retire at 50. (£35k and £12k in the Sipp plus tax back of £3k)
  • xylophonexylophone Forumite
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    She should also obtain a state pension forecast.
  • kangoorakangoora Forumite
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    I would think that the buy to let will pay or allow her to pay NICs and so accrue state pension, if not then she should certainly look at making voluntary NICs to get the maximum state pension.
    Buy to let income is not classed as 'earned' income by HMRC so does not qualify for NIC payments.

  • zagubovzagubov Forumite
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    I'm worried that if she is able to retire at 55, her pension will be so drastically reduced she'll regret it.

    She might want to contact her pension agency via their website ( E&W, S, NI ) and ask the  some specific questions, like how much would her pension be actuarially reduced/abated by leaving 10 (or more) years early.

    Also, is she sure she wants to stop working completely? There' good reasons for doing it gradually,

    There is no honour to be had in not knowing a thing that can be known - Danny Baker
  • OldBeanzOldBeanz Forumite
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    Life does not tend to be working 5 days a week down to 0. Your friend has options and  if they need to earn £7k pa they could do this by working 2 days per week. A minimum wage job would take about 2.5 days so they could do something else totally new, perhaps more inline with other interest. They also have to be aware that their pension is best taken 5 years after stopping work as the rate of inflation increase goes down.
  • AlbermarleAlbermarle Forumite
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    She could be better changing her thinking a little . Retiring at 50 is not possible ( or normal ) for the vast majority of people . Only those who have a LOT of money and/or live a very frugal lifestyle . With increased life expectancy ( average around 87 for a 50 year old woman, so 50% will live longer than that , then retiring at 50 is just far too early for most people .
  • ThrugelmirThrugelmir Forumite
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    She has some savings but not told me how much.
    Is a key piece of information. High dependence on the BTL as an income source will require a contigency plan.
    It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." — George Soros
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