Is topping up teachers pension still worth it?

IAMIAM

Age 41, wanting to go at 60.

Every year I currently pay approx £3000 (BEFORE TAX) for an extra £250 per year to claim at age 68, cant change this age. I purchase a 1 year contract every year for 250.

With this, on top of my normal accrual, I bank around £1250 per year in Career Average.
I have also done 3 year buy out. My current balance is £12k in CA.

With me contemplating going 8 years earlier, probably claiming everything at 60.

I am considering dropping it, as it is becoming expensive and putting the £3000 per year into mortgage overpayments instead? My mortgage is due to finish around age 70. 

Any thoughts on whether it is too expensive or the goal posts will change?

I am ideally wanting around 30k per annum at age 60 in DB Schemes.
I have approx £6k per annum value in another DB Scheme to pay me at age 65. Thats about it.

JayRitchie

Hi

Nice going! Hopefully someone with specific knowledge of the teachers pension scheme will come along and give some specific ideas. From reading the UKPF sub I notice there are a lot of actuaries married to teachers!

What is your current salary/ current accrual into the CARE scheme assuming that you draw this at 68? How large is your mortgage and at what LTV?

IAMIAM

60k, current accrual is 12k.

Mortgage 180k 75 LTV

kpk2000

It used to be a bit better before they adjusted the factors last year. I was doing similar and paying about £192 per month for £250 in additional pension per year. 

I have adjusted my strategy now the amounts have gone up to put the money into my ISA and SIPP instead.  I want to retire at 55 (or have the option to) so my ISA will see me through 3-4 years from 55, the SIPP for a couple of years after that and then I plan to take the whole TPS at some point between 58-60. I have 17 years in the final salary 60ths scheme so have a good chunk to take unreduced at 60 and the CA is increasing nicely and will still be worthwhile taking early with the early retirement factors reducing it.

The increase in monthly costs has put me off doing any more flexibilities but my focus is on early retirement now I have accrued (or will in the remaining years) enough to retire on. I’m sure something will pop up to put a spanner in the pan though!!!

There are some good TPS groups on Facebook and David Fountain is an ex teacher who has videos on YouTube comparing different flexibilities which are worth a watch as well. 

IAMIAM

I am tempted to continue with the £250 actually....

kpk2000

I think it is still just about ok in terms of value for AP. Guaranteed inflation proofed income in retirement is certainly a good thing but the overall value has diminished a little.

I would certainly have done more AP if I had started earlier but my focus is now on early retirement planning but if the final TPS amount is more important then keep the AP going.

i have though considered doing the minimum £250 again next year to avoid paying 40% tax as it simplifies the tax rather than having to reclaim it from HMRC. Might be a factor to you if close to the 40% tax band. 

IAMIAM

Am I right to use a compound interest calculator to calculate what the potential will be in 19 years?
Ie.

12k + 1.25k per annum (increasing by 2% each year - pay rise) and then with a compound interest rate of say 3% per year (CPI+1.6%) over the next 19 years. Which is giving me a value of 60k per annum at age 60 just from TPS. So not grumbling at that! 

I am presuming I will only be hit by 5 years worth of actuarial reduction if i take it at 60 as I have paid for 3 year buy out so my SPA is 65 hypothetically.

QrizB

IAMIAM said:

Am I right to use a compound interest calculator to calculate what the potential will be in 15 years?

Sort of, yes.

IAMIAM said:

...  and then with a compound interest rate of say 3% per (CPI+1.6%) over the next 19 years.

If you want the result to be in cirrent-day money, leave CPI out of the calculation. So compound at 1.6% not 3%.

IAMIAM

Any ideas on how I can then try and work out what a 5 year acturail reduction would take it to, with either a max lump sum or not.