SIPP + Teacher's Pension? Quit Teaching?

likesallweather

Lots of ifs and buts here, so please bear with me! Looking for general ideas.

I'm 48, have taught part time (0.5fte) for 25 years and paid into Teachers Pension during that time. When people say 'total value of pension', I can't find that figure, nor will they give me one. All they will say is, if I retire at 55 I would have a pension of about £7.5k with lump sum of £48k, if that's how I choose to do it.

I have purchased 16 units of extra pension (each £250p/a), and two units in the 'remedy period, which I still can't make head nor tail of. I think it amounts to me having paid in about an extra 50k through additional one off 'flexibilities' payments.

I don't know whether these extra payments are included in the statement I can see on the website, I assume they are.

I have 180k in savings, including 40k ISA and 50K premium Bonds. Rest is in 4-5% instant access accounts.

I run a limited company with roughly 150k available as div/salary pre-personal-tax, obviously.

I'm wondering what to do — I've paid a bit more into the pension to try to fill the gap left by only teaching 0.5fte, but looking at the figures, I need to do more. I want to stop teaching now/by 50 but will continue with my business and take a tax efficient div and salary.

With the savings I have, ISA, Premium bonds...seems fine. The rest — small flat / SIPP / ...I have no idea what's best, don't want any stress, don't want to invest in stock. Any ideas? I might sound pretty ignorant to all of this, and I am, I;ve never really understood Teacher's Pension, and especially as mine is split over the 80th and career average and remedy period. I've just done it and paid as much in as I can, hoping I'm doing right. Now I'm looking for the best exit strategy I suppose, and in a fortunate position of being able to work for myself and continuing to bring money in that way. So stopping teaching now, and winding down slowly, my own business around 60...what's best?

Thanks in advance...please respond as if to a child, to help me understand!

edit: I should add, if I take out a new pension or other, any money paid in, I'd want accessible by wife and kids if anything happened to me. Teachers Pension only pays them a little and the majority is gone...This is why I'm just sitting on the money at present and topping up isa annually.

hugheskevi

if I retire at 55 I would have a pension of about £7.5k with lump sum of £48k, if that's how I choose to do it.

With the 12:1 commutation ratio, a lot of cash savings, and concerns your annual pension is not enough, if you were to take the pension at age 55, you would almost certainly take the standard lump sum and no more. 

Although it is far from clear you would take the pension at age 55. The earlier you take, it more it is reduced for early payment. If you have large cash savings, other income, and are using your Personal Allowance then there doesn't appear to be a compelling reason to take the DB pension before 60.

You need to get a much better understanding of your accrued pension.

I have purchased 16 units of extra pension (each £250p/a), and two units in the 'remedy period, which I still can't make head nor tail of. I think it amounts to me having paid in about an extra 50k through additional one off 'flexibilities' payments.

The units purchased in the Remedy period will be treated in line with your Remedy period election when you commence your pension, ie, if you choose for your 2015-22 service to be in the legacy scheme, the Added Pension purchased in the Remedy period will be legacy scheme Added Pension. Although the value should be pretty much the same either way, given it is all calculated using the same financial assumptions.

I want to stop teaching now/by 50 but will continue with my business and take a tax efficient div and salary.

Your Added Pension goes up in line with CPI whether you are a Teacher or whether you leave.

Your main scheme pension is either linked to your final salary (legacy pension) whilst in service or increases by CPI once you leave, or for the post 2015 scheme to CPI+1.6% whilst in service and to CPI if not in service. That is very important - if you leave service at age 50 and draw your post 2015 pension at age 65, your post 2015 pension will be about 27% lower than if you had remained in service (ignoring new accrual, just looking at the difference in revaluation of accrued pension). This is the 'Golden Handcuffs' nature of the scheme - leaving it before retirement is expensive. 

The rest — small flat / SIPP / ...I have no idea what's best, don't want any stress, don't want to invest in stock. Any ideas?

Presumably, your SIPP is invested at least partially in stock, or have you chosen some very defensive investments?

edit: I should add, if I take out a new pension or other, any money paid in, I'd want accessible by wife and kids if anything happened to me. Teachers Pension only pays them a little and the majority is gone...This is why I'm just sitting on the money at present and topping up isa annually.

The death and survivor benefits if you die in service are considerably better than if you die after you have left service. If you die as a active member there is a death benefit lump sum paid and the survivor benefits are enhanced. 

I think that before you make any decisions you need a comprehensive understanding of your family's assets and pension wealth, and how they change if you leave service and/or die. As well as pension and investments, that may include insurance. A key thing to consider is when you are going to retire, and when you are going to take the pension, and whether that will be before 60 or not. That then informs other plans.

likesallweather

@hugheskevi. I don't have a SIPP yet...it was just a question of 'what should I do with the cash I have?'. We've paid the mortgage off and don't owe anything else. We live fairly modestly, have two kids, late teens. My plan, in my head, is leave teaching now-ish. Continue with my own business, earn IRO 30k salary for ten years. Savings so far — S&S ISA 40k, 50K premium bonds, 100k cash and  150k in business potentially to start and drip into a SIPP or other option if there's better. If not taking Teachers pension before 60, then need a bridge between say 55–60, ish.

Marcon

likesallweather said:

Lots of ifs and buts here, so please bear with me! Looking for general ideas.

I'm 48, have taught part time (0.5fte) for 25 years and paid into Teachers Pension during that time. When people say 'total value of pension', I can't find that figure, nor will they give me one. All they will say is, if I retire at 55 I would have a pension of about £7.5k with lump sum of £48k, if that's how I choose to do it.

There isn't a figure to 'find'. You can't transfer from TPS except to another defined benefit scheme. Given your age now, you won't be able to take your pension at 55 - the minimum age for access (unless you are too ill to work again) will be 57 for you.

I have purchased 16 units of extra pension (each £250p/a), and two units in the 'remedy period, which I still can't make head nor tail of. I think it amounts to me having paid in about an extra 50k through additional one off 'flexibilities' payments.

I don't know whether these extra payments are included in the statement I can see on the website, I assume they are.

Find out for certain.

I have 180k in savings, including 40k ISA and 50K premium Bonds. Rest is in 4-5% instant access accounts.

I run a limited company with roughly 150k available as div/salary pre-personal-tax, obviously.

I'm wondering what to do — I've paid a bit more into the pension to try to fill the gap left by only teaching 0.5fte, but looking at the figures, I need to do more. I want to stop teaching now/by 50 but will continue with my business and take a tax efficient div and salary.

With the savings I have, ISA, Premium bonds...seems fine. The rest — small flat / SIPP / ...I have no idea what's best, don't want any stress, don't want to invest in stock. Any ideas? I might sound pretty ignorant to all of this, and I am, I;ve never really understood Teacher's Pension, and especially as mine is split over the 80th and career average and remedy period. I've just done it and paid as much in as I can, hoping I'm doing right. Now I'm looking for the best exit strategy I suppose, and in a fortunate position of being able to work for myself and continuing to bring money in that way. So stopping teaching now, and winding down slowly, my own business around 60...what's best?

Thanks in advance...please respond as if to a child, to help me understand! People are very fond of asking for replies to be written 'as if I'm 5 years old' or similar. Forget it; pensions require a degree of understanding, which means you need to put in the time and effort to get that understanding. Lots of basic info here: https://www.moneyhelper.org.uk/en/pensions-and-retirement so 'do your homework!'

edit: I should add, if I take out a new pension or other, any money paid in, I'd want accessible by wife and kids if anything happened to me. Teachers Pension only pays them a little and the majority is gone...This is why I'm just sitting on the money at present and topping up isa annually.  Not sure what you mean by this - 'the majority is gone'? The scheme has very good benefits for 'survivors' - have you looked at the website to see what it offers?

You're in a club inhabited by the vast majority of the population: 'don't understand my pension' being the main criterion for membership! Doesn't mean you have to stay a member. The TPA website has masses of information which, with some effort on your part, could greatly increase your understanding and make you much more confident about taking decisions.

But...given the amount of cash you have piled in your limited company, how about getting some proper (paid for) advice from an independent financial adviser? Taking important life decisions based on responses from random strangers on the internet to a few paragraphs of information, and minus all sorts of crucial background, is never going to get you the best outcome. You seem to have plenty of cash built up and could have a very comfortable retirement indeed with some well-informed pointers in the right direction...

likesallweather

@Marcon thanks, absolutely right. I suppose I'm here, prior to that advice, so I have some. ideas of what to be asking/discussing. But you're right, of course.

LHW99

Is your limited company paying pension contributions for you?

Marcon

LHW99 said:

Is your limited company paying pension contributions for you?

Clearly not - no mention of any sort of personal pension arrangement.

OP, have a look at https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward  From what you've said you have plenty of scope to use 'carry forward' (using employer contributions from your limited company to a SIPP or other arrangement) if you want to speed up the 'drip feeding' process. 

Not clear to me what that £150K in your company is actually doing - how is it invested? Hopefully not just in a bank deposit account or similar!