Pension, Final Salary - My Brain Hurts!

Marcon

xylophone said:

To be fair to the OP,  I have to say that when I was young (ah, the dear dead days...) and started employment offering a DB pension, I didn't give it any thought - it was just there....and when I changed employer, it was the Administrator of my new DB Scheme who made contact with me to ask if I wanted to transfer in the benefits from my former scheme - I'm sure I wouldn't have even thought of it!

I have huge sympathy for OP - and any number of other people who are totally at sea in the absurdly complex world of pensions. It was of course made far more complicated by Pensions Simplification - remember that...?

But using an adviser who doesn't seem to have any familiarity with the TPS, and from what OP has reported appears to have made no attempt to seek out and read the regulations - the definitive statement of the position - baffles me. I'm surprised that a teacher, of all people, does not see the merit of using a 'subject specialist'.

It's human nature to warm to someone who endorses your own views and perceptions, but surely the priority here isn't to demonstrate how many others are in the same boat, but to get out of that boat in the most financially advantageous way possible. That's easier said than done when the person you are most cross with is yourself!

Vitor

I feel the OP's view has been skewed by the 'advice' that £27k has been lost by not retiring at 60. His NPA-60 final salary pension is going to be based on final average salary at retirement. I'm assuming the OP is subject to the McLeod Remedy and would elect to have the remedy period counted as final salary service. So if he retired now, the final salary Pension would be (Total years of service (incl. remedy)/80) * Final average salary at retirement. NB I'm making the assumption the OP's salary is higher now than it was three years ago, with something like a 12%-15% uplift.

Over a typical retirement span (20–30 years), that higher annual pension outweighs the missed £27k from ages 60–63.

That said, with the option of the McLeod Remedy period only covering to 2022 I'd be looking at retiring PDQ. The longer you defer,  then the further out the break-even point comes from a higher-pension from larger final salary vs. the lost years of pension income.  Carrying on just adds modest CARE accrual while sacrificing pension income each year.

hugheskevi

Vitor said:

His NPA-60 final salary pension is going to be based on final average salary at retirement. I'm assuming the OP is subject to the McLeod Remedy and would elect to have the remedy period counted as final salary service. So if he retired now, the final salary Pension would be (Total years of service (incl. remedy)/80) * Final average salary at retirement. 

If we assume the OP chooses final salary for the Remedy period, his pension would be:

(Total years of service to 31st March 2022 / 80) * Final pensionable earnings at retirement.  

Vitor said:

Over a typical retirement span (20–30 years), that higher annual pension outweighs the missed £27k from ages 60–63.

Plug in some numbers. The OP has approximately 18 years of service to March 2022. Assume their salary was £40,000 at that point. Their legacy pension would be 18/80 * £40,000 = £9,000 (plus a £27,000 lump sum).

At 60 the OP reduced to a 3 day week but did not take the legacy pension. Assume that instead of taking their pension at 60, they take it at age 65, and during those 5 years their salary increases by 7% p/a increase. Their pension at 65 would be 18/80 * £56,102 = £12,623 (plus a lump sum of £37,869).

If they had taken the £9,000 pension, assume inflation is 2% p/a, they missed receiving £46,836 before tax and their annual pension at age 65 would be £12,623. Assume the £46,836 would have been taxed at 20% and so the net loss is £37,469.

Increase the lump sum of £27,000 due at age 60 by 2% p/a for inflation, and it is £29,810 at age 65. So at age 65, the OP would have £8,059 more lump sum, and an annual pension that is £2,686 p/a higher. Assume that £2,686 is taxed at 20%, and the net difference is £2,149. It would take 13.7 years, or just after age 80, for the OP to have received the same from the higher pension than taking the pension at age 60.

The assumption of 7% p/a annual growth really flatters the comparison. That is unlikely, given the OP went to 3 day week at age 60. If instead it is assumed earnings growth each year is 4% the time to recover the loss is 42.5 years from age 65. At 5% p/a it is 26.5 years, and at 6% p/a it is 18.5 years.

So you need a high annual salary increase to cover the loss through higher pension and lump sum, somewhere in excess of 5% p/a, over 3 percentage points higher than inflation, which is probably unrealistic over a sustained period. 

Given inflation since the OP reached 60 3 years ago, it is quite possible that had the pension been put into payment at age 60 and received CPI uplifts thereafter, it would be higher today than the pension based on current salary is, due to inflation potentially being higher than earnings growth over that period, making the loss higher than just the £27,000 unclaimed to date as the future pension would also be lower leading to a further loss every year.

It would have been different had the OP simply carried on full-time after age 60. In that case, they continue to have their salary, but also post 2015 scheme accrual on a full-time salary, as well as salary escalation hopefully improving the final salary lump sum and pension. All those things together would help offset the foregone undrawn pension and so they would be better off, but would have effectively been working for quite low remuneration for part of the week, factoring everything in. In the OPs case though they went part time anyway, so could have simply taken their pension and hence don't benefit from remaining a full time employee.

zagubov

I’m a retired teacher in Additional Service After Retirement. Took my pension before 60 and have retired twice now. Once to collect my FS pension and again to collect my CA pension.

It’s unfortunately not anyone’s job to advise teachers to take their pensions.

The system is astonishing in complexity but astonishingly flexible in how it can allow teachers to adjust their work-life balance and ease themselves into retirement.

As a union rep I’m always trying to inform my members of the need to investigate their pensions when they approach retirement age. However I can’t advise them nor can the employers. Also the union doesn’t tell me the ages of the membership.

The key points I try to make to them are; check the employment records are accurate (they rarely are)

If you can collect the FS pension at 60 think seriously about claiming it but also if you don't reduce your work fraction your pension will be at least partially clawed back (abated).

What may have been causing some confusion here is that there are three pension schemes., including two FS ones. The FS80 is taken at NPA 60, comes with an automatic lump sum and can’t be claimed back if you miss claiming it at retirement age, and is subject to abatement.

The FS60 is taken at NPA65, and like the CA pension, has no automatic lump sum, but will have missing payments made up if they’re not claimed at retirement age and isn’t subject to abatement.

Anyone teaching now will be in the CA scheme and may also have benefits in either or both of the FS schemes. Everyone needs to check this on the tPS website.

The FB page is very informative.

bombproof

hyubh said:

bombproof said:

I met a really good Financial advisor this a.m. (V. helpful gent) and he  was all over the TP website looking at all the Docs and He too couldn`t figure out what the hell was going on either! (He said my finances are OK overall, which was good to hear)
Show me the paragraph  on TP site where it says clearly `do this at 60 or lose money`... Or at least `you can choose to do this`?? no one can find it.

Perplexed, he phoned TP and spoke to them directly and they too said it was up to us individually at 60 to enquire about something we did not know existed too via crystal ball. And was told yes, this money was lost  forever through not claiming it
( Utterly contradicted by my later phone call to TP woman who said I WOULD be given arrears back for the last 3 years ... )   its like ping pong!   It is NOT just me! (cue: manic laughter...)

My guy understood `why` TPS and the Govt (who pay)  wish to maintain a cloud of `mystery` about this  potential pay-out ...........as do not want us all cashing in...... so  hence do not broadcast/advertise this widely (at all?)  And that it is obviously spread  only by word of mouth. 

He also suggested that TP should have this with flashing lights on their site for all who are turning 60 and it is remiss of them not to.
He was also in agreement  with me that my Union NEU should have had it in flashing lights or sent us a `heads up` at 60 !!!!!!! they are meant to look after members as a duty of care surely? (I am fuming with them and their `oooh its not our role to advise` their attitude has been snotty and defensive too...  NEU have lost a life-time member now I am changing Union)
AND furthermore  he also agreed that my School itself should have given me a heads up at 60 (in spite of having a revolving door of HR and finance managers)   
He said all of this BEFORE I said I came to exactly  the same conclusions... Which is precisely what I have been complaining about .. Good to know I am not alone. 
Finally Spoke to woman on TP phone this afternoon and got her to walk me through filling in the form step by step (to be fair she was great)

Your 'really good Financial advisor' sounds remarkably like ChatGPT. Doesn't actually know the answer to the question you asked, but obscures the fact with several layers of obsequiousness

Funny he seemed very nice when I  drove to his office, shook his hand and discussed his Rugby team, however holographic A.I may have improved recently. Thanks for your helpful comment and congratulations for squeezing in the word obsequious makes you appear very smart , I am cowed

bombproof

Marcon said:

bombproof said:

Thanks DRS1 ( I got TP woman to guide me today!)
 a quick post update. I am now Bombproof btw 
I met a really good Financial advisor this a.m. (V. helpful gent) and he  was all over the TP website looking at all the Docs and He too couldn`t figure out what the hell was going on either! (He said my finances are OK overall, which was good to hear)
Show me the paragraph  on TP site where it says clearly `do this at 60 or lose money`... Or at least `you can choose to do this`?? no one can find it.

Somebody oozing sympathy and telling you what you want to hear doesn't automatically make them a 'really good financial adviser', especially if they are going to rely on a website for their information about a scheme with which they are apparently totally unfamiliar. 

Why not use someone who knows the scheme inside out and can advise on the basis of hard knowledge rather then a bit of googling and a phone call to the scheme? I wouldn't be taking advice from someone who says he can't work out how the scheme operates.

bombproof said:

My guy understood `why` TPS and the Govt (who pay)  wish to maintain a cloud of `mystery` about this  potential pay-out ...........as do not want us all cashing in...... so  hence do not broadcast/advertise this widely (at all?)  And that it is obviously spread  only by word of mouth. 

He's talking utter nonsense. 

bombproof said:

He also suggested that TP should have this with flashing lights on their site for all who are turning 60 and it is remiss of them not to.
He was also in agreement  with me that my Union NEU should have had it in flashing lights or sent us a `heads up` at 60 !!!!!!! they are meant to look after members as a duty of care surely? (I am fuming with them and their `oooh its not our role to advise` their attitude has been snotty and defensive too...  NEU have lost a life-time member now I am changing Union)
AND furthermore  he also agreed that my School itself should have given me a heads up at 60 (in spite of having a revolving door of HR and finance managers)   

It is NOT the union's role, or your employer's, to advise. They are not regulated individuals.

Why not go back to Wesleyan Finance, who are thoroughly familiar with the scheme and are likely to be very well placed to advise because they are familiar with the relevant regulations governing the scheme.

I have been back to TP and now got 3 different answers not two!   ha ha. The main thing he gave me was confidence that I am financially OK, going forward  that was worth the meeting on its own... No one else gave me that so I am deeply grateful for that

bombproof

xylophone said:

https://forums.moneysavingexpert.com/discussion/comment/81653433/#Comment_81653433

This leaves the question of whether you receive arrears if you are in pensionable employment when you reach the NPA

From

https://www.teacherspensions.co.uk/members/planning-retirement/types-of-retirement/normal-age-retirement.aspx#:~:text=If you delay making your,will be subject to tax.

If you reach your NPA but don't take a break in pensionable service at that time but at a later point, you should note that your pension will be payable from the date of your break, rather than your NPA. This means no arrears of pension will be payable.

Abatement occurs where you enter, or continue in, pensionable employment (both are classed as re-employment) following your entitlement to your final salary pension. Your final salary pension is reduced if your new or continuing employment earnings exceed your salary of reference. 

This means that if you remain in the same employment after the entitlement to a final salary pension was triggered, you’re less likely to receive any arrears of pension – which ordinarily would be payable from the entitlement as the abatement provision is likely to apply. We'll make this assessment when we process your pension award as and when you apply for it. 

Please note that abatement only applies to the annual pension, not to any lump-sum entitlement or conversion of pension to lump sum option you take, and the lump sum will still be paid to you even if abatement does apply to your annual pension.

In addition to the above, once you become entitled to receive your pension at your NPA, providing you are opted out of the Teachers' Pension Scheme, any period of opted in service following this will be treated as Additional Service After Retirement (ASAR).

Well spotted Xylophone, thanks. however the TP woman who worked me through the taking my FS pension said I would get all arrears back dated to 60. I asked her 3 times. ping pong as I mentioned before. Once says yes one says no (4 times now in 4 phone calls)

bombproof

Marcon said:

DRS1 said:

In addition to the above, once you become entitled to receive your pension at your NPA, providing you are opted out of the Teachers' Pension Scheme, any period of opted in service following this will be treated as Additional Service After Retirement (ASAR).

That sounds like a health warning.  Better explore what it means.

There's considerable irony in the fact that the country's best gold-plated defined benefit schemes for public sector workers are so ridiculously complicated that far from seeing them as the massive benefit they are, people like OP are furious and frustrated and blaming everyone and anyone they can think of for their (entirely understandable) confusion.

A good first step for OP would be to use an adviser who fully understands the scheme. What makes someone who has apparently admitted that they can't work out what's going on 'really good' and a suitable choice to advise on TPS? Hopefully OP will see the light and seek advice from someone who can provide accurate and well informed advice based on extensive knowledge of the TPS, which will be far better for their financial health (and peace of mind).

Kind of true, however is has now become glaringly apparent that TPS phone advisors don`t know .. (or cannot explain) their own scheme with any kind of consistency.

Dazed_and_C0nfused

bombproof said:

xylophone said:

https://forums.moneysavingexpert.com/discussion/comment/81653433/#Comment_81653433

This leaves the question of whether you receive arrears if you are in pensionable employment when you reach the NPA

From

https://www.teacherspensions.co.uk/members/planning-retirement/types-of-retirement/normal-age-retirement.aspx#:~:text=If you delay making your,will be subject to tax.

If you reach your NPA but don't take a break in pensionable service at that time but at a later point, you should note that your pension will be payable from the date of your break, rather than your NPA. This means no arrears of pension will be payable.

Abatement occurs where you enter, or continue in, pensionable employment (both are classed as re-employment) following your entitlement to your final salary pension. Your final salary pension is reduced if your new or continuing employment earnings exceed your salary of reference. 

This means that if you remain in the same employment after the entitlement to a final salary pension was triggered, you’re less likely to receive any arrears of pension – which ordinarily would be payable from the entitlement as the abatement provision is likely to apply. We'll make this assessment when we process your pension award as and when you apply for it. 

Please note that abatement only applies to the annual pension, not to any lump-sum entitlement or conversion of pension to lump sum option you take, and the lump sum will still be paid to you even if abatement does apply to your annual pension.

In addition to the above, once you become entitled to receive your pension at your NPA, providing you are opted out of the Teachers' Pension Scheme, any period of opted in service following this will be treated as Additional Service After Retirement (ASAR).

Well spotted Xylophone, thanks. however the TP woman who worked me through the taking my FS pension said I would get all arrears back dated to 60. I asked her 3 times. ping pong as I mentioned before. Once says yes one says no (4 times now in 4 phone calls)

Did you clearly explain your own circumstances as that seems to totally contradict the details posted by @xylophone

If you reach your NPA but don't take a break in pensionable service at that time but at a later point, you should note that your pension will be payable from the date of your break, rather than your NPA. This means no arrears of pension will be payable.

bombproof

xylophone said:

To be fair to the OP,  I have to say that when I was young (ah, the dear dead days...) and started employment offering a DB pension, I didn't give it any thought - it was just there....and when I changed employer, it was the Administrator of my new DB Scheme who made contact with me to ask if I wanted to transfer in the benefits from my former scheme - I'm sure I wouldn't have even thought of it!

Yeh thats  precisely what I thought, stupidly (as I am not actually retiring but still working hard) AND that is exactly what I thought  maybe my Union might just give me  the tiniest little hint about,, just a little nudge to have a peek at age 60...(Ive been paying into them for 20+ years never used any of their services except to ask about this at 60)  And  furthermore it transpires that my school apparently use to do exactly this `approaching 60` meting before they became an Academy... ce la vie