Paying full amount into teacher pension

havingaball74

Hi all,
I pay into the Teacher Pension (around 9% I believe). I've read that a good thing to do is pay as much as you can up to £40k and max out pension contributions. If I wanted to increase contributions is that through AVC's? Is that better do do than open a SIPP? Thank you. 

AlanP_2

Your best option is to to carefully look at the options the TPS offers for enhancing your pension in the scheme documentation. 

I was in the LGPS and that offered AVCs or APCs (which purchased more service).

The options can then be considered against a SIPP and / or a S&S ISA in the light of your circumstances and your objective.

For example is it to retire earlier or retire at normal scheme age with more annul pension or with a larger "cash" pot?


The £40k is the Annual Allowance, this is one of the limits on pension contributions. The other is your salary - your gross contribute cannot be more than the lower of your earnings or £3,600 in any one tax year.

If you have a partner then consider their situation in your thinking - boosting their pension may be more beneficial than bossting yours. 

Dazed_and_C0nfused

Before you start considering the choice between AVC's and SIPPs, which are both defined contributions options, you really need to consider if defined benefit or defined contribution is the path to go down.

With the teachers pension scheme you can add to your existing pension, buying extra pension or faster accrual.  Or there's buy out where you can take your accrued pension earlier with actuarial reduction.

DB gives more certainty about your pension, the gold plated option, but DC gives more flexibility.  Albeit subject to how good your investment choices are (and how markets perform).

There is some useful information in the factsheet in the link below and one DB option which you don't seem to see much is faster accrual.  If you like the certainty of DB pension then that is worth considering.

You can of course potentially do a bit of both, build up more in your DB scheme and add to a DC scheme, subject to the relevant limits.

Say you are 48 and earn £50k then in a year you will pay £5,100 in pension contributions (likely £4,080 after tax relief) and in return you will get accrue a pension of £877.

If you opt for the largest option with faster accrual (there are three rates which in itself is a good range of options) then you would be paying £8,950 (likely £7,160 after tax relief) but would build up a pension of £1111 in return .

You might find a combination of additional pension or faster accrual plus buy out (allowing unreduced pension earlier than the schemes normal pension age) might be the way to go.  There are a lot of options available, particularly if you want the added flexibility of a DC pot.

https://www.teacherspensions.co.uk/members/working-life.aspx

havingaball74

Thank you. How does boosting my partner's pension help me? It seems quite complex! I'll need to get some financial advice I think! 

havingaball74

I am 48 years old. I'd like to retire by 60. So I need a two-pronged approach:
Access to money in case I do want to retire before 60. 
To boost my retirement income at normal retirement age. Both really. Is that doable?

Dazed_and_C0nfused

havingaball74 said:

Thank you. How does boosting my partner's pension help me? It seems quite complex! I'll need to get some financial advice I think! 

If you have a partner wouldn't you be thinking about things in the round?  Or do you live completely separate lives financially?

Ignoring survivor benefits two common ways of pension thinking with a partner are maximising tax relief, is one a 40% payer and the other 20% and is one going to have a lot of unused Personal Allowance which would allow taxable pension to be taken without actually paying tax.

Two (of many) aims with a pension are to try and do it as tax efficiently as possible when paying in and similarly when taking money out.  Not ideal in one person having say £40k/year and the other £0 when £27.5k and £12.5k would save you (as a couple) £2.5k/year in unnecessary tax.

Dazed_and_C0nfused

havingaball74 said:

I am 48 years old. I'd like to retire by 60. So I need a two-pronged approach:
Access to money in case I do want to retire before 60. 
To boost my retirement income at normal retirement age. Both really. Is that doable?

Definitely.  Buy out in the TPS doesn't allow you take the pension unreduced quite that early.

A mix of extra TPS and the AVC or SIPP option are probably the way to go.

Next you decide what is the first priority, assuming you will reach the standard new State Pension from age 68 you need to remember you will get, at likely April 2023 rates, a £10.5k pension boost just from that.

So building up a DC pot might be slightly more important than boosting your pension at normal retirement age simply because the State Pension will do that.

Dazed_and_C0nfused

And there is a really good suggestion in your previous thread on this very same subject.

havingaball74

Dazed_and_C0nfused said:

And there is a really good suggestion in your previous thread on this very same subject.

Thank you. I'll check out my previous threads and do some more digging. Thank you all.