Opting Out & Then Back In

BC72

Hi
I'm a teacher who will be taking a significant drop in salary (through choice) in September.
I've been advised by a financial advisor to opt out of Teacher Pensions for a month then opt straight back in again so that I would get the best pension possible.
I still don't understand why this would be the case even though he tried to explain it at the time.
If anyone can help, please use 45000 (current gross salary) and 35000 (September salary) in your explanation.
The Teacher Pensions site is phone call only and I understand things much better visually so to see an explanation on screen would be very helpful.
Thank you.

Flugelhorn

may be one of those things where you get one pension based on your final salary with it ie 45K and the new salary based on the 35K ie you don't lose the benefit of the 45K - the NHS had some similar thing where you could protect a higher salary but now it is all CARE it doesn't make such a difference. 

cobson

The final salary part of your pension is based on the higher of the last 12 months salary or the average of the best three consecutive years in the last ten. Before finding the latter, each previous years salary is increased by inflation to put it into today's terms.

If you have a break from the pension scheme e.g. by taking a month out, then a separate calculation is made for each period when you are in the pension scheme and the higher one is used for determining your pension.  So if your salary is going to decrease significantly taking a break prevents your higher salary from 'sliding' out of the last ten year window.

Note that if you were to die whilst out of the pension scheme then your family would not be eligible for death benefits. It might be possible to get insurance to cover this period.

You might want to have a look at this:

The Pay Plateau - how to boost your final salary pension - YouTube

zagubov

BC72 said:

Hi
I'm a teacher who will be taking a significant drop in salary (through choice) in September.
I've been advised by a financial advisor to opt out of Teacher Pensions for a month then opt straight back in again so that I would get the best pension possible.
I still don't understand why this would be the case even though he tried to explain it at the time.
If anyone can help, please use 45000 (current gross salary) and 35000 (September salary) in your explanation.
The Teacher Pensions site is phone call only and I understand things much better visually so to see an explanation on screen would be very helpful.
Thank you.

Not sure which nation you're in but the English Teachers Pension website will reply to messages left on their website. They have to be precisely phrased as they can't offer advice or suggest courses of action. With sufficient notice they probably could answer questions about which years might be useful for contributing to a certain size of pension.
They may email you when the answer's available.

Lemon_dr1zzle

Let’s hope you don’t pass away in that month and lose your death in service. 

ChocolateWombat

The thing you are talking about is called a HYPOTHETICAL CALCULATION.  As has been mentioned, your average salary used for final salary part of your pension is best 3 years in last 10.  If your salary reduces, your higher salaries will start vansish from last 10 years in 7 years time and your final salary will be based on the lower salaries.  The break gives a hypothetical calculation and adds another figure in which can be used.  The best is always used, so you won’t lose out.  If the current salary somehow ends up being better that is what will be used.

Re the life insurance, you can take it out for a month if it concerns you.

There is an ex teacher called DiddyDave or Dave Fountainwho has a blog and website called ‘The classroom in rear view’ who makes various short videos which explain this kind of thing very simply and with numbers.  You’d find his website useful.

If you plan to retire anyway in the next few years it might not be necessary, but if you’ve got a good while still to work and especially if you don’t expect to return to the higher pay, this can make a significant difference to your pension and you’ll be so glad you did it.  In terms of talking to the TPS unfortunately they aren’t helpful about this and won’t give you calculations based on your figures and the teacher pension statement shows you methods A and B for oension caluclations but not a hypothetical calculation.  The only time they will reveal those figures is when you come to retire and request a statement.  Trust your advisor on this though…they are right.