Teachers Pension Additional Payments, AVCs, SIPP...argh

likesallweather

Universidad said:

likesallweather said:

So it's worthwhile having another pension alongside the teachers pension?

I hadn't considered using DC to bridge early retirement. I was thinking how much the 25% lump sum and early retirement would reduce my Teachers Pension,

Whether it's worthwhile is up to you, but it does offer some flexibility. 

When it comes to early retirement plans, a DC pot isn't the only game in town: paying more into a DB pension with the intention of having an earlier retirement is a totally valid plan.

The amount of DB pension you get each year will be lower if you take it early - but that's because it will be paid out for longer. The question with a DB pension being taken early is generally not "am i losing out?", it's "is this enough to live on?" If you have a full state pension, though, retiring with a DB pension early probably leads to being richer in your 70s than your 60s, which for many people is the wrong way around!

On the other hand, you could have a DC pot, a state pension, and a DB pension all in play together, and you can choose to retire in a variety of ways depending on how the DC pot performs as you get closer to retirement age.

One option for example would be to retire early with your DB pension, accepting that it will be actuarially reduced, use the DC pension to provide an income equivalent to the state pension, and then stop drawing it when you reach state pension age, leaving you with a relatively smooth income over your lifetime.

This does assume nobody messes with the state pension before you claim it, of course, but you should know closer to the time what's going down there.

All valuable food for thought, thanks v much

simongregson

If you have access to it, you may be able to book a free financial advisor consultation through your union - we did this recently and were a bit sceptical initially that it would just be a sales pitch. They do sell products but there was no sales pitch, just info about their other services after the meeting by email, and the lady who did our consultation worked through several different pension scenarios for us, which was useful as the teacher's scheme is very complicated!

Pat38493

To complicate the choices even further you can also pile money into your DC pot but still take the DB early and use the DC as top up - depending on the amounts involved this can help to cushion your SOR risk compared to trying to bridge with only DC

likesallweather

Pat38493 said:

To complicate the choices even further you can also pile money into your DC pot but still take the DB early and use the DC as top up - depending on the amounts involved this can help to cushion your SOR risk compared to trying to bridge with only DC

thanks...what's SOR?

Pat38493

likesallweather said:

Pat38493 said:

To complicate the choices even further you can also pile money into your DC pot but still take the DB early and use the DC as top up - depending on the amounts involved this can help to cushion your SOR risk compared to trying to bridge with only DC

thanks...what's SOR?

Sorry - SOR stands for sequence of return risk (should be SORR).

It means that if you are taking money out of your DC fund every year, or every month or suchlike, a run of bad market returns early in your retirement (first 5 years for example) will damage your pot much more, than a run of bad returns after 20 or 30 years.

SORR is the nightmare of people who only have to rely on a big pot of money to live on.

When you do historical simulations of retirement periods, it's usually periods around 1929 and 1973 that fail first due to the terrible sequence of returns that happened around those times.

Albermarle

likesallweather said:

^^ yes you're right, it's 3x annual pension...So £12 for every £1 I give up...excuse my naivety...does that mean that every year of my pension I'd surrender £1 in exchange for £12 upfront? So after 12 years I would be losing?


So, am I correct in thinking a decent plan (not looking for advice, just a nod or a shake) for the next few years would be to pile in, as quickly as I can, the max extra cash I can pay into the TPS (90k total I think for £7.5 extra pension). Then pay into a SIPP. Retire early using the SIPP & it's 25% tax free lump sum before TPS kicks in at 67ish and state pension shortly after?!

Dazed_and_C0nfused said:

likesallweather said:

Thanks everyone, very useful information.

So it's worthwhile having another pension alongside the teachers pension?

I hadn't considered using DC to bridge early retirement. I was thinking how much the 25% lump sum and early retirement would reduce my Teachers Pension, so this makes total sense...assuming what's paid into a DC pot doesn't plummet!

There is an AVC attached to TPS, through Prudential, but maybe I'd be better finding a SIPP using my other role as company director? No idea where to start looking for those/that though, so any pointers also gratefully received!

There is no 25% TFLS with the Teachers Pension scheme.

The old scheme had a PCLS based on the scheme rules.  Possibly 3x annual pension.

The new scheme has no standard PCLS.  But you can take one if you are happy giving up some of your pension.

Chances are it will be a terrible option from a financial perspective, probably just £12 for each £1 of pension you give up. 

And that £1 that would have been increased by the annual revaluation for the rest of your life if it was still part of your the pension.

https://www.teacherspensions.co.uk/members/faqs.aspx?page=5&searchTerm=Care

Yes it is called a 'commutation rate' of 12:1 which is regarded as poor.
This is a separate point from taking a reduced pension early, which usually works out equal as you get the reduced pension for longer.
Regarding choosing a new pension/SIPP, you can have a look at these links as starters for 10.
Pensions: Everything you need to know for retirement - MSE (moneysavingexpert.com)
Find the best & cheapest SIPP - Money To The Masses