Teachers' Pension Scheme - take it now at 57 or as a deferred member at 60?

Morgan-Green

Hello all

My wife is a teacher with 24 years service who is leaving teaching at the end of this term.  Initially we were planning to hold off on drawing her pension until her NPA of 60 (she will be 57 this August), but we're now wondering if it would actually be better to take it now rather than as a deferred pension in three years time.

Obviously there will be ERFs either way, but are they more punitive if she takes it on leaving teaching now at 57 or waiting until 60 and takes it as a deferred member at 60?  We've been on the TPS site but it isn't clear whether we can model this.

Any help much appreciated.

QrizB

ERFs aren't meant to be punitive; they're to reflect that if you take your pension earlier, you're likely to be paid it for a longer time than if you take it later. The idea is that for someone of average life expectancy, you'll benefit by the same amount.

The TPS ERF is about 4% a year, I think (based on other threads on this forum)?

Morgan-Green

Yes, perhaps punitive was the wrong word 

Rephrasing the question, apart from obviously losing three years of contributions, does being a deferred member at 60 reduce the pension at all? 

hugheskevi

The career average section of the Teachers' Pension Scheme has preferential factors that apply for pension taken early from active service.

Also worth noting that changes to the SCAPE discount rate would affect the early retirement factors - if the SCAPE rate increases then early retirement will become more expensive.

The actuarial factors discuss the preferential terms on page 13, but it is not something I am particularly familiar with. The text infers that the reduction if retiring early from active service will be lower than if retiring from deferred status, so is something to research:

4.3 For members retiring early from active service, the standard reduction of 3% a year applies for a maximum of 3 years between age 65 and a member’s normal pension age. However, members do have the option to pay contributions to buy out the standard reduction (“buy-out election”) for a period of up to 3 years.

4.4 DfE have determined that in cases where the standard reduction is to be applied for a non-integer number of years, it is to be calculated as a reduction of 0.25% for each complete month between age 65 (or the member’s age at retirement, if later) and the member’s normal pension age, up to a maximum of 36 months.

4.5 The benefits payable on early retirement from active service are determined by applying the standard reduction (if any) and the appropriate reduction factor (if required) to the accrued benefit entitlement at the date of retirement using the formula in paragraph 4.8 below and factors in the Appendix C.

4.6 The benefits payable on early retirement from deferred status are determined by applying the appropriate reduction factor to the accrued benefit entitlement at the date of retirement using the formula in paragraph 4.10 below and factors in the Appendix C. An adjustment to the early retirement reduction is required for those members who made a buy-out election. The formula in paragraph 4.12 should be used for any part of a deferred member’s pension that is subject to a buy-out election

Morgan-Green

Thanks for this @hugheskevi, very helpful.  Put a message in to TPS to see if they can advise, as I don't think this can be modelled on the website.

kpk2000

Search up Teachers Pension on Facebook and a great site run by David Fountain is there. This has calculators that model different ERF and other TPS elements. A great help for me and lots of others in similar situations as the TPS are not good at providing details until you actually apple for the pension!!! 

David is an ex maths teacher and knows his stuff with stories of outcomes discussed in national newspapers. 

Morgan-Green

Good call @kpk2000, thank you

Nebulous2

Will she have any other income from 57 to 60?

Where a couple's income all comes through one partner, there is no opportunity to make use of the tax-free allowance, other than the relatively modest amount you can transfer to a spouse. 

She will be able to use it to set against her pension income from 60 to state pension age, but personally I'd be inclined to draw the pension at 57, to get some of it tax-free. 

Morgan-Green

Nebulous2 said:

Will she have any other income from 57 to 60?

She'll have some modest interest from savings, and may get a part-time job at some point, but nothing is arranged for the latter at the moment.  In terms of joint income, I will be drawing my pension from 60 next March.

kpk2000

I am planning to have the option to leave at 55 (or 58 if they make the FS scheme the same as the CA scheme in terms of 10 years before SPA - no one at the DfE or TPS has made a decision yet). Not saying I will but the option is planned to be there if necessary.

I have ISAs to cover me for 2-3 years and  then a small SIPP for 2 more but I hope to take the TPS at some between 55-60 but certainly before 60 due to abatement.

That way I can always carry on teaching if I want to without abatement kicking in but if I left it until 60 then abatement may be a problem. Taking the FS a day before 60 avoids abatement completely but may not be a problem for you.

cantbelieveit23

I took my pension at 58, having studied the figures.  In my case, it allowed me to pay off our mortgage 3+ years early, and in any case, it would not have been possible to live off just my wife's income as neither of us was of state pension age.  Certainly if your wife can use her pension (especially the lump sum) for financial benefit, it would be good to take it asap.  It would provide a decent pot for investment, as well.  As has been mentioned, the annual pension is based on drawing for around 25 years, and few people can predict exactly how long they will live to enjoy it.