Teachers Pension, Private Pension or LISA?

Evonwo

Hello,

I have held a teachers pension for 8 years (didn't start until 25) but I am looking ahead to the future to be as financially robust as possible. I am aware that the future can't be predicted as such, but given best available information now, I am looking to read more about it

Should I make increased contributions to my TPS; open a private pension or make use of a LISA? Or perhaps some combination of all three?

I understand that "financial advice" as such cannot be given but I am very willing to read/learn more about this, so if people could point me in the correct direction to read about this more I'd greatly appreciate that.


Thank you

Evonwo

mark55man

Generally the guidance would be that a final salary (defined benefit( pension is worth way more than people think and that although not as generous as previous is still at the top end.

However - having an independent  pot of money (defined contribution) will give you flexibility in your potential early retirement.  Now AVC or SIPP is something for people with more knowledge of TPS 

Albermarle

LISA is a good way top save for a first time house purchase. It can also be used as a way of saving for retirement, but often a pension is a better way. There are a number of pros and cons , as explained in this article, although they relate to LISA vs a DC/personal pension, rather than vs a DB/Final salary pension like the TPS
Lifetime ISA (LISA): how they work & best buys - Money Saving Expert

As above, one big advantage of working in the public sector is the pension. To fund a personal pension that would bring you the same result would cost you a lot of money. However having some separate provision for maybe retiring early, could give you some more flexibility. 
As said better wait for a TPS expert to comment.

Evonwo

Thanks both for your reply. I'm not on the final salary TPS I'm on the career average - probably useful information that I forgot to mention, sorry.

p00hsticks

Evonwo said:

Thanks both for your reply. I'm not on the final salary TPS I'm on the career average - probably useful information that I forgot to mention, sorry.

It's still a defined benefit pension that promises you money for life, so very valuable to have. 

diddyflanker

I'm not a financial adviser but did look at the maths behind the career average pension scheme the fully index-linked pension it provides. 

As an example, over a 35 year career a teacher would pay in around £130,000 (in today's value).
For that they'd get an annual pension, at 5, of around £20k.
To buy that kind of pension on the open market as an annuity they would need a fund of around £1million.

Albermarle

For that they'd get an annual pension, at 5, of around £20k.

Now that is what I would call early retirement 

To buy that kind of pension on the open market as an annuity they would need a fund of around £1million.

Annuity rates have improved recently and it would cost more like half a Million, but that can go up or down.

Anyway the point remains the same, that the TPS is a very good pension 

Pat38493

Albermarle said:

To buy that kind of pension on the open market as an annuity they would need a fund of around £1million.

Annuity rates have improved recently and it would cost more like half a Million, but that can go up or down.

Anyway the point remains the same, that the TPS is a very good pension 

Is that inflation linked?  That's actually not to bad I guess as it matches the 4% rule if it's for life and fully inflation linked.

Albermarle

Pat38493 said:

Albermarle said:

To buy that kind of pension on the open market as an annuity they would need a fund of around £1million.

Annuity rates have improved recently and it would cost more like half a Million, but that can go up or down.

Anyway the point remains the same, that the TPS is a very good pension 

Is that inflation linked?  That's actually not to bad I guess as it matches the 4% rule if it's for life and fully inflation linked.

Annuity rates change regularly and there are many variables you can change ( like no spousal benefit on death, or 50% benefit, or 66% etc ) so it will always be a ball park figure . Probably at 4% it will not be fully inflation linked, it will have a cap of say 5% . Normally this would be fine, but not recently obviously.
The issue is probably more that with an annuity once you/your spouse dies, there is nothing left to pass on( unless you have a lower paying annuity with some payout at the end)
Also remember that the mythical 4 % drawdown figure is a a safety first figure . If markets are kind after a few years you could take more out ,and/or end up with a bigger pot than you started with.

m178591

The other thing to watch with the teachers pension is the annual contribution limit of £40,000. Assuming you aren’t on a TLR you will pay in 9.6% and the school will pay just under 25%. However, bear in mind that your annual contribution is not the money you and the school actually contribute, rather, its more like a backward calculation done at the end of the year and relates to the value of the fictitious fund which is attached to your teachers pension. I say fictitious fund because there isn’t actually a fund and you cannot transfer your teachers pension to another provider, only a like for like defined benefit scheme. The result of this is that as you move up the payscale and pickup / or even drop TLR’s, and as the annual inflation rate moves, if you make a decent contribution to an AVC you might get caught out going over your £40,000 annual contribution limit. You can of course draw on unused allowance from the previous 3 (I think) years. The only way you know what your actual contribution was is to ask Teachers Pensions for your annual “Pensions Saving Statement”. This is available shortly after the end of each financial year and shows the last three years annual contributions. For most it’s not a big problem but is something to be aware of in the current inflationary environment, or especially if you make a big leap in pay, move onto the leadership scale for example. As I can’t see this information until after the end of the financial year, and because my wife and I have been trying to make some significant AVC contributions, we have almost been caught out by this on a couple of occasions. As a result, even though there are some significant tax benefits to paying into AVC’s, investment ISA’s are now where significant chunks of our money are now going to make sure we don’t get caught out by the annual contribution limit.

m178591

Another consideration of course is the age you might want to get out. I think we can expect the pension age to increase next month in the budget. The question I have is will the age that I can access my private pensions increase from 55. I expect they will as so much has been trailed about getting the 50 something year olds back to work. With this in mind, the flexibility of been able to get at your ISA money early night also steer you towards that so in practice, as someone else already said, you might want to think about a mixture of both.